Case Law Details

Case Name : Lalchand P. Dhariwal Vs ITO (ITAT Surat)
Appeal Number : I.T.A. No. 2623/AHD/2016
Date of Judgement/Order : 11/02/2020
Related Assessment Year : 2012-13
Courts : All ITAT (7457) ITAT Surat (4)

Lalchand P. Dhariwal Vs ITO (ITAT Surat)

The issue under consideration is whether the addition made u/s 68 against unexplained creditors will be sustainable in law?

ITAT states that shri Kamlesh Dhariwal, son of the assessee, has filed confirmation in response to notice under section 133(6), which is discernible from Page No. 5 of assessment order. Shri Kamlesh L Dhariwal was having capital of Rs.20, 27, 632 as on 31. 03. 2012 out of which loan of Rs. 18,56,000 was given to the assessee. It is noticed that Shri Kamlesh Dhariwal was having sufficient cash in hand out of cash was deposited in Bank and cheque amount was given out of said bank account. Therefore, ITAT are of the considered opinion that no addition could be sustained on this account in the light of decision in the case of DCIT v. Rohini Builders [2002] 256 ITR 360 (Guj.)/[2003] 127 Taxman 523 (Guj) wherein the Hon`ble High Court has laid down that when the assessee has primarily discharged the initial onus laid on him in terms of section 68 by providing details to establish genuineness of transaction, identity and creditworthiness of depositors then the assessee is not expected to prove genuineness of cash deposited in bank account of those creditors because under the law the assessee can be asked to prove the source of credits in his books of accounts but not the source of source. In view of these facts, the addition of Rs. 18,56,000 is therefore, deleted. ITAT further note that the loan of Rs. 2,75,000 taken from Paresh Kumar R Patel was repaid in subsequent assessment year and same stand accepted by the Department. Further, the confirmation was filed but other details could not be filed as he was residing abroad. The learned counsel for the assessee relied on the decision in the case of CIT v. Ayachi Chandrasekhar Narsangji [2014] 42 taxmann.com 251 (Gujarat) wherein it was held that where Department had accepted repayment of loan in subsequent year, no addition was to be made in current year on account of cash credit. In view of this matter, this addition made by the AO is therefore, deleted.

Assessee can be asked to prove Source of Credits but Not Source of Source

FULL TEXT OF THE ITAT JUDGEMENT

1. This appeal by the Assessee is directed against the order of learned Commissioner of Income tax (Appeals)-2, Surat(in short “the CIT (A)”) dated 08.08.2016 pertaining to Assessment Year 2012-13, which in turn has arisen from the assessment order passed under section 143 (3) dated 27.03.2015 of Income Tax Act, 1961 (in short ‘the Act’) by the Income Tax Officer, Ward- 1(2)(3),Surat(in short “the AO”).

2. Ground No.1 &2 related to confirming addition of Rs. 23,31,000 as unexplained unsecured loan and interest of Rs. 2,13,708 thereon.

3. The AO found that the assessee has taken unsecured loans from Shri Kamlesh L Dhariwal of Rs. 18,56,000 , Rs. 2,75,000 from Shri Paresh Kumar R Patel and Rs. 2,00,000 from Shri Ratilal V. Tank. The AO held the assessee could not prove the Identity, the genuineness of the transaction and therefore, made the addition of Rs.23, 31, 000 under section 68 of the Act.

4. Being, aggrieved, the assessee filed an appeal before the Ld. CIT (A). Wherein it was submitted that during the assessment proceedings, the identity, creditworthiness, and the genuineness of the transaction was proved before the AO by furnishing the confirmation letter along with the bank statement etc. It was contended that the amount was received of Rs.18,56,000 from Kamlesh Dhariwal, the son of the appellant, and who was regularly assessed to tax and had sufficient surplus capital to give this amount. It was contended that the AO has taken adverse view of not producing Shri Paresh Kumar R Patel and Shri Ratilal V. Tank before the AO though the appellant had made his best efforts and the details furnished before the AO along with the confirmations. However, the Ld. CIT (A) observed that the AO issued notices to these lenders, but the notice, could not be served, and were returned as unserved. The AO found that Shri Kamlesh Dhariwal did not have sufficient funds to make said advance of Rs.18,56,000 and failed furnished the source of cash deposits made in bank account just before the issuance of cheque to the appellant. In view of these facts, CIT (A) held that the assessee has failed to the established identity of the lenders interest two cases, the creditworthiness and genuineness of transaction, in spite of repeated opportunities and therefore, the addition made by the AO under section 68 of the Act was confirmed with disallowance of interest payment on these loans.

5. Being, aggrieved the assessee filed this appeal before the Tribunal. The learned Counsel submitted that Shri Kamlesh Dhariwal son of the assessee has filed confirmation in response to notice under section 133(6), which is discernible from Page No. 5 of assessment order. It was explained that Shri Kamlesh L Dhariwal was his having capital of Rs.20, 27, 632 as on 31. 03. 2012 out of which loan of Rs. 18,56,000 was given to the assessee. It was further submitted that profit has no relevance with loan amount as the same is given out of capital and not from profit. Shri Kamlesh Dhariwal was having sufficient cash out of cash, which was deposited in Bank, and cheque amount was given out of said bank account. Therefore, relying on the decision of Hon’ble Gujarat High Court in the case of DCIT v. Rohini Builders [2002] 256 ITR 360 (Guj.)/[2003] 127 Taxman 523 (Guj) it was submitted that the High Court has laid down that when the assessee has primarily discharged the initial onus laid on him in terms of section 68 by providing details to establish genuineness of transaction, identity and creditworthiness of depositors, then the assessee is not expected to prove genuineness of cash deposited in bank account of those creditors because under the law the assessee can be asked to prove the source of credits in his books of accounts but not the source of source. The loan of Rs. 2, 75,000 taken from Paresh Kumar R Patel was repaid and he was residing abroad hence, his PAN could not be filed his PAN but his confirmation was filed. The learned counsel for the assessee relying on the decision in the case of CIT v. Ayachi Chandrasekhar Narsangji [2014] 42 taxmann.com 251 (Gujarat) connected that where Department had accepted repayment of loan in subsequent year, no addition was to be made in current year because of cash credit.

6. With regard to loan of Rs. 2 Lakh from Shri Ratilal V. Tank, the learned counsel for the assessee submitted that copy of confirmation was filed of which copy is placed at Paper Book Page No. 21. The loan was taken by cheque drawn on Bank of Rajasthan. Therefore, identity, credit-worthiness and genuineness of transaction has been duly proved. Hence, CIT (A) was not justified in confirming the addition. The learned Counsel also relied in the case of CIT v. Ranchhod Jivabhai Nakhava [2012] 81 CCH 193 Guj-HC held that Where lenders of assessee are income-tax assessees whose PAN have been disclosed, Assessing Officer cannot ask assessee to further prove genuineness of transactions without first verifying such fact from income-tax returns of lenders.

7. In view of the foregoing, it was requested that CIT (A) is not justified in confirming the addition of Rs. 23,31,00 loan and interest of Rs. 2,13,708 paid to lenders.

8. Per contra, the ld. Sr. D.R. relied on the AO /CIT (A).

9. We have heard the rival submissions and perused the relevant material on record. We find that Shri Kamlesh Dhariwal, son of the assessee, has filed confirmation in response to notice under section 133(6), which is discernible from Page No. 5 of assessment order. Shri Kamlesh L Dhariwal was having capital of Rs.20, 27, 632 as on 31. 03. 2012 out of which loan of Rs. 18,56,000 was given to the assessee. It is noticed that Shri Kamlesh Dhariwal was having sufficient cash in hand out of cash was deposited in Bank and cheque amount was given out of said bank account. Therefore, we are of the considered opinion that no addition could be sustained on this account in the light of decision in the case of DCIT v. Rohini Builders [2002] 256 ITR 360 (Guj.)/[2003] 127 Taxman 523 (Guj) wherein the Hon`ble High Court has laid down that when the assessee has primarily discharged the initial onus laid on him in terms of section 68 by providing details to establish genuineness of transaction, identity and creditworthiness of depositors then the assessee is not expected to prove genuineness of cash deposited in bank account of those creditors because under the law the assessee can be asked to prove the source of credits in his books of accounts but not the source of source. In view of these facts, the addition of Rs. 18,56,000 is therefore, deleted. We further note that the loan of Rs. 2,75,000 taken from Paresh Kumar R Patel was repaid in subsequent assessment year and same stand accepted by the Department. Further, the confirmation was filed but other details could not be filed as he was residing abroad. The learned counsel for the assessee relied on the decision in the case of CIT v. Ayachi Chandrasekhar Narsangji [2014] 42 taxmann.com 251 (Gujarat) wherein it was held that where Department had accepted repayment of loan in subsequent year, no addition was to be made in current year on account of cash credit. In view of this matter, this addition made by the AO is therefore, deleted.

10. With regard to loan of Rs. 2 Lakh from Shri Ratilal V. Tank, the learned counsel for the assessee submitted that copy of confirmation was filed of which copy is placed at Paper Book Page No. 21. The loan was taken by cheque drawn on Bank of Rajasthan. Therefore, identity, credit-worthiness and genuineness of transaction has been duly proved. Hence, CIT (A) was not justified in confirming the addition. The learned Counsel also relied in the case of CIT v. Ranchhod Jivabhai Nakhava [2012] 81 CCH 193 Guj-HC whereas it was held that Where lenders of assessee are income-tax assessees whose PAN have been disclosed, Assessing Officer cannot ask assessee to further prove genuineness of transactions without first verifying such fact from income-tax returns of lenders.

11. In view of the foregoing, we are of the considered opinion, that addition sustained by the CIT (A) were not justified. Hence, considering the facts and relying on the decision of Hon’ble Gujarat High Court as referred above, these grounds of appeal of the assessee are allowed. Accordingly, addition of Rs. 23,31,00 loan and interest of Rs. 2,13,708 paid to lenders sustained by the CIT (A) is deleted. Accordingly, Ground No. 1 and 2 of appeal is allowed.

12. Ground No. 3: relating to interest of Rs. 47,103 being undisclosed income interest is not pressed before us by the learned counsel for the assessee, ex-consequenti, it is treated as dismissed as not pressed.

13. Ground No. 4 relates to confirming addition of Rs. 1,98,750 as unexplained investment / expenditure.

14. Succinct facts are that the AO found that the assessee has claimed expenses of Rs.1, 98, 750 towards Archana Plot No.85 of which no document evidence was submitted nor any contract confirmation was filed and nor TDS was deducted. Therefore, the AO added this amount to the income of the assessee.

15. Being dissatisfied, the assessee carried the matter before Ld. CIT(A). However, the Ld. CIT(A) observed that the appellant had not claimed any expenses in the PLA account pertaining to Archana Plot No. 85. The AO has not given any finding that how he was liable to deduct TDS on the payment made to Kalpesh Kantilal Gosalia. However, the fact remains that the appellant had made expenditure of Rs. 1, 98,750 towards Archana Plot No.85 for which no contra confirmation was filed regarding the payment. Therefore, the AO has rightly held that filing of the copy of the confirmation and acknowledgement and balance sheet of does not prove the genuineness of the source of the payment. Accordingly, the addition was confirmed.

16. Being, aggrieved the assessee filed this appeal before this tribunal. The learned Counsel for the assessee submitted that the expenditure of Rs. 1,98,750 is incurred in cash, which is not been claimed in the PLA account as being capital expenditure. Therefore, no question of making any disallowance of the expenses is arisen. The assessee has filed corroborative evidences, which are placed at paper Book Page No.25 to 29. The payment so made is reflected in the cashbook and which has been incurred out of cash balances and appearing in the cashbook. The AO has not doubted the source of the expenditure. However, he made the disallowance which cannot be made as the expenses being capital in nature nor the assessee has claimed that such expenditure in the PLA account

17. Per contra, learned senior dear relied on the Ld. CIT(A) a

18. We have heard the rival submissions and perused the relevant material on record. We find that the assessee has filed copy of acknowledgement of return of income, contra confirmation for Kalpesh K Gosalina incurred for compound wall, copy of bills and proof of payment made though cash book. The payment has been shown in balance sheet as capital expenditure. This expenditure is not claimed in Profit & Loss Account. Therefore, disallowance of it is not justified. The assessee has filed copy of Adinath Textile, which is placed at paper book Page No. 29. The cashbook of Adinath Textile is appearing at paper book page number 25 to 26. Hence, source of expenditure is explained and expenditure being capital in nature cannot be disallowed. Accordingly, this addition is deleted. Accordingly, this ground of appeal is allowed in favour of the assessee.

19. In the result, appeal of the assessee is partly allowed.

20. The order pronounced in the open Court on 11. 02. 2020.

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