Case Law Details
Ekta Garg Vs ITO (ITAT Delhi)
Introduction: The Income Tax Appellate Tribunal (ITAT) Delhi recently heard the case of Ekta Garg Vs ITO for the Assessment Year 2015-16. The primary issue in this case revolved around the addition made by the Assessing Officer under Section 68 & 69 of the Income Tax Act. The assessee challenged these additions, claiming that they had successfully established the identity and creditworthiness of lenders for loans taken for the purchase of property.
Detailed Analysis Subheading-wise:
1. Background of the Case: This case pertains to the Assessment Year 2015-16, where the Assessing Officer made additions under Sections 68 & 69 of the Income Tax Act. The primary contention of the assessee was that they had received loans from various parties for property purchase, and they sought to prove the legitimacy of these transactions.
2. Assessee’s Arguments: The counsel for the assessee argued that the Assessing Officer had erred in making the additions under Sections 68 & 69. They emphasized that they had provided necessary documentation, including bank statements, confirmations, PAN details, and IT returns of the lenders, to establish the identity and creditworthiness of the lenders.
3. Identity and Creditworthiness of Lenders: The assessee presented detailed evidence regarding the lenders, such as M/s. Ganesh Rolling Mills, M/s. Govindam Casting Pvt. Ltd., M/s. R.D. Traders, and Mr. Anand Garg. They demonstrated that these lenders were genuine entities with the capacity to provide loans.
4. Documentation Provided: The assessee submitted various documents, including bank statements, account confirmations, PAN details, and IT returns of the lenders, to support their claims of identity and creditworthiness.
5. Repayment of Loans: It was established that certain loans received by the assessee were repayments of loans given to the same parties in earlier years. This fact further strengthened the genuineness of the transactions.
5. Assessing Officer’s Oversight: The counsel pointed out that the Assessing Officer had not made sufficient efforts to verify the details provided by the assessee and had wrongly rejected their evidence without proper inquiry.
6. CIT(A)’s Decision: The CIT(A) had dismissed the assessee’s request to admit additional evidence but had also evaluated and examined the same. The ITAT found this decision to be contradictory and unjustified.
7. ITAT’s Verdict: The ITAT upheld the arguments of the assessee, emphasizing that the Assessing Officer had incorrectly invoked both Sections 68 and 69 without specifying the nature of the addition. The ITAT ruled in favor of the assessee, directing the deletion of the addition made by the Assessing Officer.
Conclusion: In the case of Ekta Garg Vs ITO (ITAT Delhi), the ITAT concluded that the addition made under Sections 68 & 69 of the Income Tax Act was unjustified. The assessee had successfully demonstrated the identity and creditworthiness of lenders and the genuineness of the transactions. Therefore, the ITAT directed the deletion of the addition. This case highlights the importance of providing comprehensive documentation to support claims and the need for proper verification by tax authorities.
This detailed analysis of the case of Ekta Garg Vs ITO (ITAT Delhi) under Sections 68 & 69 of the Income Tax Act illustrates the significance of establishing the identity and creditworthiness of lenders for loans taken for property purchase. The ITAT’s decision emphasizes the need for a thorough examination of evidence before making additions to taxable income.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal has been filed against the order of ld. CIT(A) Ghaziabad dated 31.01.2019 for AY 2015-16.
2. Although the assessee taken as many as 12 grounds in this appeal but except ground no. 5 & 6, other grounds are argumentative and supportive to the said two main grounds which read as follows:-
5. That on the facts and circumstances of the case as well as in law, the Ld. CIT(A) has erred in sustaining the action of learned assessing officer in making addition of Rs. 14850000/- as unexplained investment/unexplained cash credit under section 68 & 69 of the Income tax Act 1961 under the head “Income from other sources “
6. That on the facts and circumstances of the case as well as in law, the Ld. CIT(A) has erred in confirming the action of learned assessing officer in making addition of Rs. 14850000/- by rejecting the additional evidence filed before her without providing proper opportunity and ignoring all canons of justice.
3. The ld. counsel of assessee submitted that the Ld. CIT(A) has erred in sustaining the action of learned assessing officer in making addition of Rs. 14850000/-as unexplained investment/unexplained cash credit under section 68 & 69 of the Income tax Act 1961 under the head “Income from other sources”. He further submitted that the Ld. CIT(A) has erred in confirming the action of learned assessing officer in making addition of Rs. 14850000/- by rejecting the additional evidence filed before her without providing proper opportunity and ignoring all canons of justice. The ld. counsel precisely reiterating written arguments/synopsis of assessee submitted that the Assessing Officer after taking written submission dated 06.11.2017 on record did not ask any further detail or information in respect of all four parties/lenders and even he did not make any enquiry from the Assessing Officer of said lenders about the said transactions with the assessee. Therefore in view of judgment of Hon’ble Supreme Court in the case of Orissa Corporation Pvt. Ltd. 159 ITR 78 (SC) the addition cannot be sustained. The learned counsel submitted that amounts received from M/s. Shri Ganesh Rolling Mills and from Shri Govindam Casting Pvt. Ltd. were, in fact, the amounts received back by the assessee against loans given to these parties during earlier years. Hence, when loan given by assessee in earlier years stood accepted that in the event of repayment of loan the same cannot be doubted.
4. The ld. counsel also submitted that by notice dated 24.10.2017 the Assessing Officer show cause the assessee about the opening balance of the loan given to M/s. Ganesh Rolling Mills and Shri Govindam Casting Pvt. Ltd. but no enquiry was made and the assessee submitted required details such as copies of bank account, confirmations, PAN of the proprietor/firm through letter dated 28.09.2017 but the Assessing Officer rejected the same by wrongly observing that the amount given by the assessee to these parties during earlier financial year is required to be proved without making any enquiries either from the assessee or from said two lenders. The ld. counsel with regard to Shri Anand Garg submitted that the Assessing Officer has not made any enquiry with respect to said lender. The ld. counsel in respect of R. D Traders submitted that despite the Assessing Officer accepted the creditworthiness of the lender he made addition on account of loan from said lender which is not sustainable. The ld. counsel finally submitted that the assessee successfully demonstrated identity and creditworthiness of lenders and genuineness of transaction regarding all four lenders out of which Shri Anand Garg and Shri Ganesh Rolling Mill, which is proprietor ship firm of husband of assessee Shri Deepak Garg. Finally ld. counsel submitted that in view of various orders of co-ordinate benches of Tribunal as referred in para 3 of written submissions addition made by the Assessing Officer and upheld by the ld. CIT(A) may kindly be deleted.
5. Replying to the above, the ld. Senior DR supporting the orders of the authorities below submitted that the Assessing Officer has taken a very balanced approach and thereafter granted substantial relief of Rs. 1,25,75,000/- to the assessee. He further submitted that the ld. CIT(A) rightly confirmed the addition as the assessee failed to prove source of investment in the property purchased during the relevant financial period therefore appeal may kindly be dismissed.
6. On careful consideration of above submissions and on perusal of paper book filed by the assessee spread over 116 pages we find that to sole controversy revolves around the fact that the Assessing Officer question the assessee about source of investment in the purchase of property and the assessee submitted that it was out of credits and repayment of loan given by the assessee to the respective parties during previous financial period. At this juncture we also find it appropriate to reproduced relevant part of written submissions of the assessee as follows:-
1. In the assessment order, the Ld. AO made addition w/s 68 / 69 of the Income tax Act. Both the sections 68 and 69 are different and the Ld. AO was not sure under which section, the addition was required to be made. On the last page of the order, the Ld. AO while making addition stated as addition for “Unexplained cash credits / investment as discussed above”.
2. The Assessing Officer did not bother under which provision the addition has to be made. From the facts it is apparent that no addition can be made w/s 69 as it is not the finding of the AO that the assessee has made unexplained investment but the assessing officer made the addition of four parties as referred above on the basis of the amount received by the assessee which can be made only w/s 68 of the Income tax Ac t provided these amounts have been found credited in the books of account of the assessee regularly maintained by the assessee.
3. The provisions of section 68 read as under: –
“Where any sum is found credited in the books of an assessee maintained for any previous vear, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer; satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous Year. “
From the said provision it is apparent addition can be made if the amount is found to be credited in the books of account of the assessee. The assessee does not have any income from business or profession and therefore, she was not required to maintain the books of account. (Refer Para 2.1 Page 2 of Asst. Order). In this regard, reliance is placed on the following judgments:
(i) Yadwinder Singh Vs. Income tax Officer 88 com 433 (Amritsar)
(ii) Manasi Mahendra Pitkar Vs. Income tax Officer, Thane 73 taxmann.com 68 (Mumbai)
(iii) Mehul V. Vyas Vs. Income tax Officer, Mumbai 80 com 311 (Mumbai)
(iv) Income tax Officer Vs. Kamal Kumar Mishra 33 taxmann.com 610 (Luck.)
Thus, it should be appreciated that since, the assessee was not required to maintain the books of account as she was not earning any business income, section 68 of the Income tax is not applicable. As regards the applicability of section 69, the assessee furnished the details of source of funds by furnishing the copies of the bank statements of the persons from whom the amount was received and used for purpose of investment and their account confirmation, which clearly proves the source of investment. It is an undisputed fact that the amount has been received by the assessee through banking channel and no cash was received. Thus, there was no unaccounted or unexplained investment. Hence, section 69 is also not applicable.
In view of the above details furnished it is requested to the Hon’ ble Bench to kindly delete the addition made u/s 68 and u/s 69 of the Income tax Act.
4. Before the CIT (A), the assessee furnished the details in respect of each party as under: –
(i) M/s Ganesh Rolling Mills:(Refer Pages 17 to 24 of the Paper Book)
(a) Bank Statements of lender and borrower for financial year 2013-14 and 2014-15 showing the transactions of amount given by the assessee in the preceding year which is received back from the said proprietorship concern.
(b) Copy of account confirmation from M/s Ganesh Rolling Mills (a proprietorship concern of Mr. Deepak Garg who is the husband of the assessee)
(c) PAN details
(d) Bank statement showing the name of the proprietor Mr. Deepak Garg
(e) IT of Mr. Deepak Garg as a proprietor of M/s Ganesh Rolling Mills as no separate return is filed in case of a proprietorship concern.
(ii) M/s Govindam Casting Private Limited: (Refer Pages 25 to 39 of the Paper Book)
(i) Govindam Casting Private Limited is a company registered with ROC.
(ii) Bank statement of both the lender and the borrower. (showing each transaction through banking channel)
(iii) Confirmation of account from M/s Govindam Casting Private Limited.
(iv) IT copy of M/s Govindam Casting Private Limited in which the assessee and his husband are the directors. IT is signed by her husband Mr. Deepak Garg. The data is publicly available on MCA Portal of ROC.
(v) Thus, the identity, genuineness is proved. Creditworthiness is proved from 4 the copies of the bank statements showing the transactions in the said company.
(vi) The bank statements clearly shows the transactions of amount given and received from M/s Govindam Casting Private Limited.
(vii) Merely because less income was shown by M/s Govindam Casting Private Limited, the creditworthiness cannot be questioned.
(iii) M/s R.D. Traders – Rs. 25,00,000/- (Refer Pages 40 to 59 of Paper Book)
1. The assessee received the advance of Ms R.D. Traders Rs. 23,00,000/- and Rs. 2,00,000/- from its proprietor Mr. Reasuddin Salmani. In respect of R.D. Traders, the Ld. AO accepted the creditworthiness and genuineness of the transaction (Refer Page 4 Para 2.3 (3.) of the Asst. Order).
2. However, the Ld. A made addition based on a cash credit entry in the bank account of the said party from which the loan was given to the assessee. No opportunity was given by the Ld. AO to explain the same. However, before CIT (A), assessee submitted that when the said party confirmed the transaction, the source of the same being cash deposit cannot be questioned from the assessee but may be from the said party. Reliance is placed on the judgment of Hon’ ble Rajasthan High Court in the case of Aravali Trading & Co. Vs. ITO 187 Taxmann 338 (Raj.)(Refer Page 10 of the Paper Book).
3. To prove the identity, creditworthiness and genuineness, the following documents were furnished: –
(i) Copy of bank statement of assessee and the lender Ms R.D. Traders
(ii) Account Confirmation
(iii) PAN details of the proprietor of the lender
(iv) Copy of audited balance sheet of the said concern.
(v) ITR copy and computation of income
The Ld. AO could not point out any error in such documents except stating that the cash was deposited by the said party of Rs. 9,00,000/- (out of total of Rs. 23,00,000/-) before giving loan to the assessee without establishing any link that the cash deposited was the unaccounted money of the assessee. Reliance placed on the judgment of CIT Vs. Deen Dayal Choudhary 88 taxmann.com 475 and CIT Vs. RanchhodJivabhaiNakhav 21 taxmann.com 159 (Refer Page 11 and 12 o f Paper Book).
4. The balance amount of Rs. 2,00,000/- was from the account of the proprietor of M/s RD Traders for which the documents enclosed are: –
(i) Copy of bank statement
(ii) Account confirmation
(iii) IT copy and computation of income (before CIT (A) vide letter dated 22.01.2019.
(iv) Mr. Anand Garg: Rs. 25,00,000/- (Refer Pages 60 to 66 of Paper Book)
(i) No question was raised by the AO in the notice issued u/s 142(1) in respect of the said amount received by the assessee. (Refer para 2.3 and 2.4 o f the Asst.Order)
(ii) Mr. Anand Garg is brother of the assessee.
(iii) During the appellate proceedings, assessee furnished details such as:
(a) Copy of bank statement of Mr. Anand Garg
(b) Confirmation of loan specifically stating that he is brother of the assessee.
(c) Copy of PAN card of Mr. Anand Garg
(d) Copy of IT Copy of Mr. Anand Garg with the computation of income showing income from Business of Rs. 31.89 lacs (for creditworthiness) in AY 2015-16
(iv) How the amount received by the assessee from her brother who was earning handsome income can be treated as non-genuine.
5. The Ld. AO after the submission of the document alongwith the letter dated 06.11.2017 did not ask for any detail or the information in respect of these parties. He did not enquire from the assessing officer of the respective parties where these parties are being assessed about the said transactions. Reliance is placed in this regard on the decision of Hon’ble Supreme Court in the case of Orrisa Corporation (P) Ltd 159 ITR 78 (SC).
6. In the notice dated 24.10.2017, the Ld. AO questioned about the opening balance o f the loan given to M/s Ganesh Rolling Mills and M/s Shri Govindam Casting Private Limited. (Page 4 – Para 2.3 of the Asst. Order) No name of Mr. Anand Garg, hence, no proper opportunity was given to furnish the details. In respect of R.D. Tradersin Para 3 at Page 4 of the Asst. Order, the AO accepted the creditworthiness of the lender M/s R. D. Traders alongwith other persons for which the source was accepted.
7. In respect of the parties Shri Ganesh Rolling Mills and M/s Govindam Casting Private Limited, details such as copy of bank account, confirmation, PAN of the proprietor/entity was submitted vide letter dated 28.09.2017 but the Ld. A rejected the claim stating tha t the amount given by the assessee to these parties in earlier year is required to prove. Since, the details of amount received from these parties was duly shown in the bank account of these parties, the assessee was of the view that the source was explained.
This , it is requested to your goodself to kindly delete the addition made by the Ld. A.O. and confirmed by the Ld. CIT(A).
7. At the outset, we find it necessary and appropriate to evaluate the order of Ld. CIT(A) dismissing prayer of assessee seeking admission of additional evidence. In para 5.1 the Ld. CIT(A) noted that assessee by submitting confirmation of Shri Ganesh Rolling Mills, acknowledgment of ITR of Shri Deepak Garg claiming to be proprietor of M/s Ganesh Rolling Mills and copy of ITR of Shri Govindam Casting Pvt. Ltd. In para 5.1 the Ld. CIT(A) although evaluated and examined the veracity of said additional evidence but denied to take the same on record by observing that evidences were available with the assessee during assessment proceedings and AR before the AO stated that he has nothing further to submit. On careful and thoughtful consideration of above observations and findings of the Ld. CIT(A) we are of the view that the assessee in the application under rule 46A of the I.T Rules 1962, stated the reason which prevented her from filing said documents during assessment proceeding but Ld. CIT(A) has ignored the same. Further, also note that copies of ITR and confirmation part of departmental records and supportive to establish identity of lender even if additional evidence noted by the Ld. CIT(A) in para 5.1 is ignored then also other documentary evidence cannot be discarded or dismissed at the threshold without evaluation. Therefore, the Ld. CIT(A) was not justified in dismissing prayer of assessee seeking admission of additional evidence. It is pertinent to mention that although the Ld. CIT(A) in para 5.2 denied to admit additional evidence but at the same time he evaluated and examined the same by recording finding there on which are not only self contradictory but also perverse as even if AR said he has nothing further to submit the AO should specifically ask the AR to submit required documents to his satisfaction without any specific query the AO cannot allege that the assessee failed to submit required documentary evidence.
8. Regarding first creditor M/s. Ganesh Rolling Mills the assessee submitted bank statement of lender for FY 2013-14 and 2014-15 showing transaction of amount given by the assessee in the preceding year which was received back from the said proprietorship concern of husband of assessee Shri Deepak Garg. Assessee paper book pages 17 to 24 shows that the assessee submitted copy of account confirmation, PAN detail bank statement and copy of ITR showing that the husband of assessee Shri Deepak Garg is operating bank account and filing return of income by including the income from the said proprietorship firm and no separate return for the firm has been filed. The copies of bank statement and confirmation of account by the said firm reveals that there was a closing balance of Rs. 34,48,781/- as on 31.03.2014 which was brought forward on 01.04.2014 as opening credit balance as out of said balance the assessee received Rs. 39 lakh through bank from the said entity which is nothing but repayment of loan given by the assessee during earlier period. This evidence was dismissed by the Assessing Officer by stating that the amount given by the assessee to this party during earlier period required to be proved. We are unable to understand this remark in absence of any further action or exercise by the Assessing Officer to verify the amount of loan given by the assessee during earlier financial period. To sum up, we are of the considered view that the said entity is a proprietorship firm of husband of assessee who is filing return of income. The assessee has successfully by way of submitting documentary evidence demonstrated that the amount of Rs. 39 lakh received during present year was the repayment of loan of Rs. 34,48,701/- (leaving credit balance of Rs. 4,59,219/- at the end of the F.Y.)by the said entity to the assessee given immediately preceding year. Therefore no addition is required to be made in this regard.
9. Regarding Govindam Casting Pvt. Ltd. the assessee has submitted documentary evidences at pages 25 to 39 of assessee paper book consisting of bank statements of lender and assessee, confirmation of account, copy of ITR signed by husband of assessee Shri Deepak Garg who is a director in the said company, confirmations of account and bank statements reveals that as on 31.03.2014 there was a credit balance of Rs. 28,50,000/- in favour of the assessee in the books of said company which was brought forward opening credit balance on 01.04.2014. It is also clearly discernable that the assessee received total amount of Rs. 59,50,000/- from this company leaving debit balance/loan of Rs. 31 lakh debit at the end of financial period on 31.03.2015. The Assessing Officer and ld. CIT(A), therefore was not correct and justified in dismissing the documentary evidence of assessee by observing that the amount given by the assessee in earlier year required to be proved without any further verification and examination of related entity to the transaction. Therefore, we hold that the assessee has successfully demonstrated and establish identity and creditworthiness of said lender company and genuineness of transaction routed through bank.
10. Regarding M/s. R.D Traders the assessee received Rs. 25 lakh from its proprietor Mr. Reasyddin Salmani and only on the basis of cash credit entry in the bank account of said party from which the loan was given to the assessee. The ld. counsel has placed reliance on the judgment of Hon’ble Rajasthan High Court in the case of Aravali Trading Company vs. ITO 187 taxman 338 (Raj.) to submit that when the assessee has placed confirmation of transaction and the Assessing Officer has confirmed and accepted creditworthiness of lender and genuineness of transaction then the source of the same being cash deposit cannot be questioned from the assessee but may be from said lender party. The contention of Ld. AR cannot be dismissed at threshold that the said lender is a business concern and may have cash in hand at the time of giving loan to the assessee and without proper enquiry and verifications creditworthiness cannot be doubted merely because there was cash deposit in his bank account. Neither the Assessing Officer nor ld. CIT(A) nor ld. Senior DR before us has raised any doubt about the creditworthiness and capacity of said lender and the addition has been made only based on the fact of cash deposit to the bank account of said firm. From the orders of the authorities below we are unable to see any further exercise or examination by the Assessing Officer from the lender regarding alleged deposit of cash and in view of preposition rendered by Hon’ble Rajasthan High Court in the case of Aravali Trading Company(supra) without such exercise the assessee cannot be questioned or punished in this regard.
11. The fourth lender Shri Aanad Garg, provided amount of Rs.25 lakh to the assessee and undisputedly he is brother of assessee. The assessee during assessment as well as appellate proceedings reiterated copies of bank statement, confirmation of loan, PAN card, ITR for AY 2015-16 showing income of Rs. 31,89,000/- but the Assessing Officer and ld. CIT(A) did not accept the creditworthiness of this lender. Said documentary evidence is available at pages 60 to 66 of assessee paper book and the ld. CIT(A) has not made any allegation against the said lender in the relevant para 6.1.1 except stating that the assessee failed to establish creditworthiness of Shri Anand Garg during assessment proceedings. It is pertinent to mention that the ld. CIT(A) cannot be allowed to blow hot & cold simultaneously by dismissing prayer of consideration of relevant additional evidence by the assessee and on the other hand by dismissing claim of assessee regarding capacity and creditworthiness of creditors/lenders without considering and controverting the self speaking and sustainable documentary evidence filed by the assessee. This approach of ld. first appellate authority is not reasonable, valid and thus sustainable. When the returned income of brother of assessee Shri Anand Garg, is Rs. 31,89,000/- for AY 2015-16 is undisputed, which is higher than the amount of loan of Rs. 25 lakh given to assessee through banking channel, then the capacity and creditworthiness of said lender and genuineness of transaction cannot be and should not be questioned and the same should have been accepted in view of settled principals of tax jurisprudence. Therefore, we are unable to agree with the conclusion drawn by the authorities below in this regard.
12. In view of foregoing discussion we reach to a logical conclusion that the Assessing Officer made addition by invoking provisions of 68 & 69 simultaneously without specifying as to whether he wants to treat the impugned amount as unexplained investment or as unexplained credit. The ld. CIT(A) uphold the addition by treating the same as unexplained investment u/s. 69 of the Act. On the other hand, as we have discussed above in detail, based on uncontroverted documentary evidence filed by the assessee, that the creditworthiness of all four lenders and genuineness of transactions is clearly established by the assessee and there is no iota of doubt in this regard. Therefore, no addition is called for on account of baseless allegation of unexplained investment by the assessee u/s. 69 of the Act. Accordingly, the main effective grounds no 5 & 6 of assessee are allowed and Assessing Officer is directed to delete the addition.
13. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 17.08.2023.
