Case Law Details

Case Name : Smt. Leela Kothari Vs ITO (ITAT Jaipur)
Appeal Number : ITA No. 1251/JP/2018
Date of Judgement/Order : 21/10/2019
Related Assessment Year : 2015-16
Courts : All ITAT (7478) ITAT Jaipur (235)

Smt. Leela Kothari Vs ITO (ITAT Jaipur)

The issue under consideration is whether the CIT(A) is correct in making an addition u/s 68 regarding loan received by assessee considering it as non genuine?

In the currect case, the assessee is an Individual and proprietor of M/s. Leela Kothari. During the course of scrutiny assessment proceedings, the AO noted that the assessee has raised loans from various persons. In order to examine the conditions as provided under section 68, the AO issued notices under section 133(6) to 13 loan creditors. After receiving the response as well as confirmations and other documents including the bank statements of the loan creditors, the AO noted that out of 13 loan creditors, cash has been deposited prior to the issuing cheques to the assessee in case of 9 loan creditors. Thus the AO proceeded to examine the claim of loan and particularly the creditworthiness and genuineness of the transactions in respect of 9 loan creditors. After conducting the enquiry as well as recording the statements under section 131 of the IT Act, the AO held that various persons have given contradictory statements and, therefore, assessee failed to establish the creditworthiness of the loan creditors. Accordingly, the AO made an addition under section 68 of the Act.

ITAT states that, once the source of deposit is explained as prior withdrawal from the bank of more than the amount deposited subsequently then the creditworthiness of the creditor and genuineness of the transaction cannot be doubted. All the creditors were assessed to income tax and they provided their confirmations, PAN, affidavits and all the relevant documentary evidence in support of the claim that the loans were given from the funds available with them through banking channel. The deposits of the cash in the bank accounts is certainly a relevant aspect and strong reason to conduct an enquiry and to verify the transaction but the deposit itself cannot be a ground to hold that the transaction is not genuine and the loan creditors were not having the capacity to grant the loan. Accordingly, when the assessee has produced all the documentary evidence to dispel the doubts of the AO, then the transaction cannot be held as non-genuine without bringing any material or fact to show that the assessee’s own unaccounted money has routed through the bank accounts of the loan creditors.

In view of the above facts and circumstances as well as the documentary evidence produced by the assessee, the addition made by the AO is not justified and the same is deleted.

FULL TEXT OF THE ITAT JUDGEMENT

This appeal by the assessee is directed against the order dated 05.09.2018 of ld. CIT (Appeals) for the assessment year 2015-16. The assessee has raised the following grounds of appeal :-

“ 1. The ld. CIT (A) has erred on facts and in law in confirming the addition of Rs. 59,50,000/- u/s 68 in respect of the loan received from 9 persons by holding that assessee has not proved the creditworthiness of these persons even when all the persons are regularly assessed to tax and most of them have confirmed the amount advanced by them to the assessee in the statement recorded u/s 131 of the Act by the AO.

2. The ld. CIT (A) has erred on facts and in law in confirming the addition of Rs. 14,25,000/- u/s 68 by treating the amount introduced by the asessee in her capital account as unexplained. He has also erred in not allowing the set off of the addition of Rs. 63,380/- made u/s 43CA against the addition confirmed by him.

3. The assessee craves to amend, alter and modify any of the grounds of appeal.

4. The appropriate cost be awarded to the assessee.”

Ground No. 1 is regarding addition made by the AO under section 68 of the IT Act on account of loan received from 9 persons.

2. The assessee is an Individual and proprietor of M/s. Leela Kothari. The assessee filed her return of income on 12th September, 2015 declaring total income of Rs. 7,36,940/-. During the course of scrutiny assessment proceedings, the AO noted that the assessee has raised loans from various persons. In order to examine the conditions as provided under section 68, the AO issued notices under section 133(6) to 13 loan creditors. After receiving the response as well as confirmations and other documents including the bank statements of the loan creditors, the AO noted that out of 13 loan creditors, cash has been deposited prior to the issuing cheques to the assessee in case of 9 loan creditors. Thus the AO proceeded to examine the claim of loan and particularly the creditworthiness and genuineness of the transactions in respect of 9 loan creditors. The AO recorded the statements of all the 9 creditors and also called the relevant documents from the banks of the creditors in respect of the deposit slips, withdrawals made by these loan creditors from their respective bank account. After conducting the enquiry as well as recording the statements under section 131 of the IT Act, the AO held that various persons have given contradictory statements and, therefore, assessee failed to establish the creditworthiness of the loan creditors. Accordingly, the AO made an addition under section 68 of the Act of Rs. 59,50,000/- in respect of the loans received from 9 persons by holding that the assessee has not proved the creditworthiness of these persons. The assessee challenged the action of the AO before the ld. CIT (A) and contended that the assessee produced all the relevant documentary evidence including the income tax records of the loan creditors who have been assessed to tax. Further, all the loan creditors have confirmed the transaction of loan given to the assessee through their bank and also explained the source of the fund from which the loans were given to the assessee. The ld. CIT (A) called for a remand report from the AO and after the remand report received from the AO, confirmed the addition made by the AO on this account.

3. Before us, the ld. A/R of the assessee has submitted that the only ground for rejecting the ground by the AO and making the addition under section 68 is that there was cash deposits in the bank accounts of the loan creditors prior to the loans given to the assessee and further the cash deposit slips show that the deposits were made in case of 6 creditors by one person and in case of 2 other creditors by another person, namely, Shri Manish Chouhan and Shri Arvind Ajmera respectively. The ld. A/R has referred to the documents which were received by the AO from the respective banks showing the deposits in the bank accounts and in the deposit slips the depositor’s name is mentioned as Manish Chouhan. However, the fact is that Shri Manish Chouhan is the family member of these 6 loan creditors and handling the financial matters of all the family members, therefore, it is not unusual when one family member has done these transactions of deposit and withdrawal from the banks of the family members. Thus the ld. A/R has submitted that when there is a close relationship between Shri Manish Chouhan and other 6 loan creditors, then suspecting the transactions of deposit and withdrawal by one person is not justified. He has further contended that all the loan creditors have confirmed this fact including Shri Manish Chouhan that he was doing all the financial transactions on behalf of the family members. The AO also examined Shri Arvind Ajmera who has also explained that all the transactions in his bank account are done by Shri Narendra Surana, accountant of Shri Renu Jain and, therefore, he was not able to explain all the details of the deposits and withdrawals made from their accounts. The ld. A/R has further submitted that the assessee has also produced the record to show that earlier these loan creditors made investments in M/s. Gandhar Rocktech and M/s. Hemant Sales Corporation and after receiving back the amount from those concerns, they withdrawn the amount from their bank account and the said amount was again deposited in the bank account before giving the loan to the assessee. There is a direct co-relation between the funds withdrawn from the bank account which came in the bank account as money received back from these two concerns i.e. M/s. Gandhar Rocktech and M/s. Hemant Sales Corporation. Thus the amounts deposited in the bank accounts of these loan creditors were actually the amounts withdrawn by them from their bank accounts and, therefore, the source of deposit made in the bank was duly explained through documentary evidence. Hence the assessee has discharged her onus to prove the identity of the creditor, creditworthiness of the creditor and genuineness of the transactions as required under section 68 of the IT Act. The ld. A/R has thus submitted that the AO made all additions in respect of 9 creditors of which 6 creditors belonged to Chouhan family, 2 creditors, namely, Arvind Ajmera and Akshya Ajmera are neighbours of Chouhan family and Ms Neha Jain is the daughter of the assessee. He has referred to the ledger account of M/s. Gandhar Rocktech in the books of Smt. Shashi Chauhan, Smt. Priyanka Chauhan, Shri Inder Singh Chauhan, Inder Singh Chauhan HUF, Smt. Rekha Chauhan, Shri Sunil Chauhan, Shri Arvind Ajmera and Shri Akshya Ajmera and submitted that all these 8 loan creditors have received the respective amounts from M/s. Gandhar Rocktech in the month of July, 2014 and thereafter they have withdrawn the cash from their accounts, therefore, the source of the deposits made in their bank accounts subsequently is established from the record itself and bank accounts of these loan creditors. The ld. A/R has also referred to the statements recorded by the AO of loan creditors as well as Shri Manish Chauhan and submitted that they have explained the circumstances as to how and why Shri Manish Chauhan has completed the formalities of depositing the cash in the bank accounts and also withdrawing the amounts from their bank accounts as he was handling the financial transactions who are all family members. All the loan creditors have given the affidavits, confirmations, bank statements, ledger accounts of M/s. Gandhar Rocktech, returns of income for the assessment years 2012-13 and 15-16. Therefore, the assessee has produced all the supporting documentary evidence to establish the identity and creditworthiness of the loan creditors as well as the genuineness of the transactions. He has referred to the details of bank accounts and submitted that there were prior withdrawals by these loan creditors in the month of July, 2014 of amount which are more than subsequent cash deposits in their bank accounts. Therefore, there was no reason to doubt the creditworthiness and genuineness of the transactions when there was withdrawal of more than the amount subsequently deposited in the bank accounts of these loan creditors. Further, all these loan creditors were examined by the AO and they have explained the facts regarding the transactions of withdrawals from the bank account and again deposited the cash in the bank account and thereafter given loan to the assessee. Merely because one of the family members of the loan creditors have done the transactions of deposits and withdrawals will not render the transactions as bogus particularly when this fact was explained that Shri Manish Chauhan, a family member was looking after the financial transactions of all the family members of the loan creditors and, therefore, nothing abnormal in this practice of withdrawing the amount from the bank accounts of his family members and thereafter depositing back the amount on behalf of the family members. Similarly, Shri Arvind Ajmera is neighbor and friend of Shri Manish Chauhan, therefore, in some of the cases he has signed the deposit slips for deposits made in the bank accounts of these loan creditors. The ld. A/R has, thus submitted that the loan which was earlier advanced by these loan creditors to M/s. Gandhar Rocktech was received back and subsequently was given to the assessee. All these transactions are reflected in the bank account as well as ledger account produced by the assessee. All the loan creditors are regularly filing their income tax returns and assessed to tax. He has further explained that M/s. Gandhar Rocktech is a proprietorship concern of one Shri Renu Jain. Therefore, the transactions carried out by his accountant are normal transactions and merely because Shri Renu Jain is nephew of the assessee has no relevance and cannot be a reason for doubting the transaction and making the addition. As regards the loan taken from Ms Neha Jain, the daughter of the assessee, the ld. A/R has submitted that she is living in Dubai and a regular income tax assessee having income from Interest from bank deposits, advances and tuition fees. He has referred to the return of income filed by Ms Neha Jain and submitted that she has declared total income of Rs. 3,67,860/-. She was also having salary income from the assessment years 2007-08 to 2014-15 apart from the opening cash balance of Rs. 7,61,376/-, out of which she deposited Rs. 5 lacs in her bank account. Therefore, the amount advanced to the assessee by her daughter is duly reflected from the record including bank account. The source of cash deposit of Rs. 5 lacs was also explained through documentary evidence. The ld. A/R has further submitted that Ms Neha Jain had already advanced a sum of Rs. 13,81,392/- to the assessee as on 01.04.2014. He has referred to the cash book and bank ledger as well as ledger account of the assessee to show that all these transactions are part of the books of account. She has also filed affidavit and confirmed the advance given to the assessee. Therefore, the assessee has discharged her onus in respect of all the 9 loan creditors. In support of his contention, the ld. A/R has relied upon the following decisions :-

CIT vs. Jai Kumar Bakliwal 224 Taxman 87 (Raj. HC)(Magz.)

CIT vs. H.S. Builders (P) Ltd. 78 DTR 169 (Raj. HC)

CIT vs. Deen Dayal Choudhary 148 DTR 275 (Raj. HC)

4. On the other hand, the ld. D/R has submitted that the AO has conducted a thorough enquiry during the assessment proceedings as well as during the remand proceedings and has established that the assessee has failed to establish the creditworthiness of the loan creditors and since there was a prior cash deposit of equal amount in the bank accounts of all the 9 loan creditors, therefore, the genuineness of the transaction is very much doubted and not proved by the assessee. She has relied upon the orders of the authorities below and submitted that in the statements recorded by the AO under section 131 of the IT Act, the loan creditors have given contradictory statements and were not able to ever explain the transactions of withdrawals and deposits made in their bank accounts. Therefore, the genuineness of the transaction was not proved by the assessee.

5. We have considered the rival submissions as well as the relevant material on record. In order to verify the claim of loans taken by the assessee, the AO issued summons under section 133(6) to 13 persons as recorded in para 3.2 of the assessment order as under :-

“ 1. Sh. Hemant Kothari

2. Ms Sarita Parakh

3. Sh. Arvind Ajmera

4. Sh. Akshay Ajmera

5. Smt. Rekha Chouhan

6. M/s. Sunfield realators

7. M/s. Inder Singh Chouhan HUF

8. Sh. Inder Singh Chouhan

9. Smt. Neha Jain

10. Smt. Priyanka Chouhan

11. Sh. Sunil Chouhan

12. Smt. Shashi Chouhan

13. Sh. Chandra Kumar Vinayak.”

After receiving the information and perusal of the bank statements of these loan creditors, the AO noted that in some of the bank accounts of the creditors an equal amount in cash were deposited before issuing of cheques to the assessee. Thus the AO doubted the genuineness of the transaction and creditworthiness of the cash creditors in whose bank account cash was deposited prior to the loan given to the assessee. The AO has given the details of 9 loan creditors where the cash was deposited prior to the loans given to the assessee as under :-

S.No. Name     of             cash creditor Date of loan Amount   of loan Date of cash deposit Cash deposit Amt.
1 Smt.             Shashi Chouhan 05.12.2014 9,00,000/- 05.12.2014 9,00,000/-
2 Smt.                Priyanka Chouhan 02.12.2014 8,00,000/- 02.12.2014 8,00,000/-
3 Sh.    Inder    Singh Chouhan 02.12.2014 2,00,000/- 02.12.2014 2,00,000/-
4 Inder             Singh Chouhan HUF 22.09.2014 2,00,000/- 22.09.2014 2,00,000/-
5 Sh. Arvind Ajmera 22.09.2014 9,75,000/- 22.09.2014 9,75,000/-
6 Sh. Akashay Ajmera 22.09.2014 9,75,000/- 22.09.2014 9,75,000/-
7 Sh. Sunil Chouhan 22.09.2014

05.12.2014

4,00,000/-

4,00,000/-

22.09.2014

05.12.2014

4,00,000/-

4,00,000/-

8 Smt. Rekha Chouhan 05.12.2014 6,00,000/- 05.12.2014 6,00,000/-
9. Ms Neha Jain 16.09.2014 5,00,000/- 16.09.2014 5,00,000/-
Total : 59,50,000/- 59,50,000/-

The AO further conducted the enquiry from the bank and obtained the copies of cash deposit slips and found that the cash was deposited either by ‘Arvind’ (full name is Arvind Ajmera) mentioned by AO as Arvind Chauhan or by ‘Manish’ (i.e. Manish Chauhan). The AO has made scanned copy of the deposit slips as part of the assessment order which show that in most of the cases Manish Chauhan has signed the deposit slips and in some of the cases Arvind Ajmera has signed. The AO then also obtained the information from the bank regarding the cheque deposit slips as well as self cheque withdrawal details and noted that in case of 7 loan creditors, the self cheques were presented by Shri Manish Chauhan. On the basis of these enquiries and the information obtained from the bank regarding deposit slips and withdrawals through self cheques, the AO doubted the transactions and decided to examine the loan creditors. Accordingly, the AO examined the loan creditors under section 131 of the IT Act. Some of the loan creditors have explained that they cannot explain all details of the bank transactions as the other family members are looking after them. Similarly, the AO has also examined Shri Manish Chauhan who has accepted the fact that he is doing the bank transactions on behalf of the family members who are the loan creditors and in some of the cases the transactions are also done through his neighbor and friend Shri Arvind Ajmera. The AO finally held that since there were cash deposits for equal amounts in the bank accounts of these loan creditors immediately before issuing cheques to the assessee, the assessee has failed to establish the creditworthiness and genuineness of the transactions and consequently an addition of Rs. 59,50,000/- was made under section 68 of the Act. Before the ld. CIT (A) though the assessee has referred to the various documentary evidences to show the source of the cash deposits made by these loan creditors and consequently, the ld. CIT (A) called for a remand report however, the ld. CIT (A) has confirmed the additions by concurring with the reasoning of the AO. It is pertinent to note that out of the 9 loan creditors, 6 loan creditors are family members as under :-

Name of person Date of advance Amount advanced
Smt. Shashi Chauhan 05.12.2014 Rs. 9 lacs
Smt. Priyanka Chauhan 02.12.2014 Rs. 8 lacs
Sh. Inder Singh Chauhan 02.12.2014 Rs. 2 lacs
Inder Singh Chauhan HUF 22.09.2014 Rs. 2 lacs
Smt. Rekha Chauhan 05.12.2014 Rs. 6 lacs
Sh. Sunil Chauhan 22.09.2014

05.12.2014

Rs. 4 lacs

Rs. 4 lacs

The transactions in the bank accounts of the loan creditors who are family members are carried out by Shri Manish Chauhan who is also family member. This fact has been reiterated by each of the loan creditors in their statements and also confirmed by Shri Manish Chauhan in his statement. Even otherwise, as per the deposit slips and withdrawals from the bank through self cheques it is evident that he has signed the deposit slips and withdrawn the amounts through self cheques issued by these loan creditors. The assessee produced the account details of these loan creditors along with the ledger account of M/s. Gandhar Rocktech which show that earlier these loan creditors had given advance to M/s. Gandhar Rocktech. From the ledger account of these 6 loan creditors, it is clear that they had given the loans to M/s. Gandhar Rocktech in the month of March, 2013 of Rs. 8 lacs to Rs. 10 lacs each. Those amounts were received back by these loan creditors from M/s. Gandhar Rocktech in the month of July, 2014 and subsequently these loan creditors withdrawn the cash from their bank accounts through self cheques. The amounts were withdrawn from the accounts and the self cheques issued by these creditors were finally presented by Shri Manish Chauhan. Therefore, the amounts were withdrawn from their bank accounts through self cheques which were presented by Shri Manish Chauhan. Thereafter cash was again deposited in the bank accounts of these loan creditors just prior to the giving loans to the assessee. The details of the withdrawals and deposits made by the 6 loan creditors are as under :

Name       of creditor Date         of withdrawal Amount withdrawn Name       of person withdrawing

the amount

Date         of cash deposit Amount    of cash deposited Name       of person depositing

the cash

Shashi Chauhan 24.07.2014 Rs.9,49,700 Manish Chauhan 05.12.2014 Rs. 9 lacs Arvind
Priyanka Chauhan 24.07.2014 Rs.8,09,100 Manish Chauhan 02.12.2014 Rs. 8 lacs Manish
Inder Singh Chauhan 24.07.2014 Rs.4,57,800 Manish Chauhan 02.12.2014 Rs. 2 lacs Manish
Inder Singh

Chauhan HUF

24.07.2014 Rs.10,68,400 Manish Chauhan 22.09.2014 Rs. 2 lacs Manish
Rekha Chauhan 24.07.2014 Rs.10,00,000 Manish Chauhan 05.12.2014 Rs. 6 lacs Arvind
Sunil

Chauhan

22.09.2014

05.12.2014

Rs. 4 lacs

Rs. 4 lacs

Arvind

Thus it is clear that the withdrawals were made through self cheques presented by Shri Manish Chauhan who is family member of the loan creditors but the deposit slips were signed by Shri Manish Chauhan as well as by Shri Arvind Ajmera. Once the assessee has produced the confirmations as well as affidavits of these loan creditors along with the bank account details, ledger account of M/s. Gandhar Rocktech and returns of income filed by these loan creditors, then in the absence of assessee’s own role in withdrawal and deposits made in the bank accounts of these loan creditors, it cannot be said that the assessee’s own money has routed through the bank accounts of these loan creditors in the shape of unsecured loans. The withdrawals and deposits made by the family member of the loan creditors will not render the transactions as bogus or non-genuine when there were transactions of withdrawals of equal amount from each of the bank accounts of the loan creditors then making the deposit subsequently less than the withdrawal amount clearly show that all the loan creditors were having sufficient funds to make the deposits in their bank accounts prior to issuing the cheques to the assessee. Though the AO has examined all the loan creditors as well as Shri Manish Chauhan and there are certain facts which could not be explained by the loan creditors regarding the minute details of the transaction carried out in their bank accounts but all the loan creditors have explained the fact that their bank accounts transactions are carried out through the other family member. This fact is also corroborated by Shri Manish Chauhan in his statement that he was doing all the financial transactions as well as bank transactions of all the family members of Chauhan family. Therefore, there is no contradiction regarding the facts explained by the loan creditors as well as by Shri Manish Chauhan that bank account transactions are done by him on behalf of the other family members. The AO has though obtained all the necessary record from the bank and also conducted the enquiry by recording the statements of the loan creditors, however, this entire exercise has not brought on record any material or fact that the cash deposited in the bank accounts of the creditors belong to the assessee and, therefore, it is a case of round tripping of unaccounted income of the assessee in the shape of unsecured loans. At the most, the enquiry conducted by the AO establish the fact that the transactions are carried out through the relative on behalf of the loan creditors and further the loan creditors were not fully aware about all the transactions carried out in their bank accounts. However, this fact does not lead to the conclusion that the assessee’s own unaccounted income was used for deposit of cash in the bank accounts of the loan creditors and was received back in the garb of unsecured loans. The assessee has produced the source of the cash deposited in the bank accounts of these loan creditors by showing the earlier transactions of the loans given by these loan creditors to M/s. Gandhar Rocktech in the month of March, 2013 and the said loan was received back by these loan creditors in the month of July, 2014 and subsequently the amounts were withdrawn by the loan creditors. When the loans were given to the assessee, these loan creditors again deposited the amount in their bank accounts before issuing cheques to the assessee. Only because there were cash deposits in the accounts of these loan creditors, the AO and ld. CIT (A) has doubted the genuineness of the transactions but once the assessee has produced the documentary evidence to show the source of these cash deposits in the hands of the loan creditors being the prior withdrawal of much more amount from the bank accounts, then this explanation of the assessee as a source of deposit and creditworthiness of the creditors cannot be rejected in the absence of any contrary material or finding. When the AO has not given a finding that the cash deposited in the bank accounts of the loan creditors is not the fund available with them as withdrawn by them in the month of July, 2014 but it is a cash of the assessee, then the source explained by the assessee cannot be doubted. This is not only one transaction of withdrawal of cash from the bank but it was fund received by the loan creditors as a payment of loan earlier given to M/s. Gandhar Rocktech. Accordingly, in view of the documentary evidence establishing the source of cash deposits in the bank accounts of the loan creditors, the addition made by the AO is not justified.

5.1. Similarly, in case of Shri Arvind Ajmera and Shri Akshay Ajmera, the amounts advanced to the assessee are as under :-

Name of person Date of advance Amount advanced
Sh. Arvind Ajmera 22.09.2014 Rs. 9.75 lacs
Sh. Akshay Ajmera 22.09.2014 Rs. 9.75 lacs

In respect of these two loan creditors, there were cash deposits in the bank accounts of equal amount. However, it is also matter of record that there were withdrawals by these loan creditors in the month of August, 2014 of Rs. 10 lacs each. Thus the withdrawals from the bank accounts in the preceding month is much more than the deposits made in the subsequent month clearly establish the source of cash deposits made in the bank accounts of these loan creditors. The details of deposits and withdrawals are as under :-

Name of creditor Date of withdrawal Amount withdrawn Name of person withdrawing the amount Date         of cash deposit Amount of cash deposited Name of person depositing the cash
Arvind Ajmera 04.08.2014 Rs. 10 lacs Manish Chauhan 22.09.2014 Rs. 9.75 lacs Manish
Akshay Ajmera 04.08.2014 Rs. 10 lacs Manish Chauhan 22.09.2014 Rs. 9.75 lacs Manish

In the cases of these two loan creditors, the amounts withdrawn from the bank accounts in the month of August 2014 also represent the repayment of the loan by M/s. Gandhar Rocktech. Thus once the source of deposit is explained as prior withdrawal from the bank of more than the amount deposited subsequently then the creditworthiness of the creditor and genuineness of the transaction cannot be doubted. All the creditors were assessed to income tax and they provided their confirmations, PAN, affidavits and all the relevant documentary evidence in support of the claim that the loans were given from the funds available with them through banking channel. The deposits of the cash in the bank accounts is certainly a relevant aspect and strong reason to conduct an enquiry and to verify the transaction but the deposit itself cannot be a ground to hold that the transaction is not genuine and the loan creditors were not having the capacity to grant the loan. Accordingly, when the assessee has produced all the documentary evidence to dispel the doubts of the AO, then the transaction cannot be held as non-genuine without bringing any material or fact to show that the assessee’s own unaccounted money has routed through the bank accounts of the loan creditors.

5.2. The last loan credit is Ms Neha Jain of Rs. 5 lacs. The assessee has produced the income tax returns filed by Ms Neha Jain for the assessment years 2007-08 to 2014-15 showing opening cash balance of Rs. 7,61,376/-. The AO has rejected the claim on the ground that there was a cash deposit of Rs. 5 lacs in the bank account of Ms Neha Jain prior to the loan of Rs. 5 lacs given to the assessee. It is also brought on record that prior to the present loan of Rs. 5 lacs on 16.09.2014, Ms Neha Jain already given an advance of Rs. 13,81,392/- to the assessee as on 01.04.2014 and shown the interest income in her return of income. Therefore, the source of income of Ms Neha Jain is not in dispute as she was having income from bank interest, advances, tuition fees as well as salary income. Thus when the assessee has explained the source of deposit of cash in the bank account then mere fact of deposit in bank cannot be a ground for rejecting the claim. As per the books of account of Ms Neha Jain, the opening cash balance of Rs. 7,61,376/- was not doubted and hence if the cash deposit is less than the said opening cash balance, then the creditworthiness and genuineness of the transaction is duly established. Accordingly, when the identity and creditworthiness of the creditor is established then the genuineness of the transaction cannot be disputed merely because of deposit of cash. In view of the above facts and circumstances as well as the documentary evidence produced by the assessee, the addition made by the AO and sustained by the ld. CIT (A) is not justified and the same is deleted.

Ground No. 2 is regarding the addition of Rs. 14,25,000/- on account of capital introduced by the assessee.

6. During the year under consideration, the assessee has introduced capital total aggregating to Rs. 14,25,000/- from the month of April, 2014 to February, 2015. When the AO asked the assessee to explain the source of the said amount, the assessee submitted that it is out of opening cash balance as on 01.04.2014 available with the assessee in her personal balance sheet. The AO rejected the claim of the assessee on the ground that for the assessment year 2014-15 the assessee has filed return of income declaring income under section 44AD showing Nil cash balance and, therefore, the personal balance sheet submitted by the assessee was not accepted as an authentic and reliable. The assessee challenged the action of the AO before the ld. CIT (A) but could not succeed.

7. Before the Tribunal, the ld. A/R of the assessee has submitted that the assessee is about 52 years old and is a regular income tax assessee from the year 1998-99. He has referred to the assessment orders passed under section 143(3) for the assessment years 2007-08, 11-12 and 12-13. The ld. A/R has referred the personal Balance Sheet of the assessee from the assessment year 2007-08 onwards and submitted that there was an opening cash balance of more than Rs. 44 lacs as on 1st April, 2014 and, therefore, the introduction of capital of Rs. 14,25,000/- during the year is from the opening cash balance of Rs. 44,41,950/-. He has referred the personal balance sheet as well as proprietorship balance sheet of the assessee and submitted that the assessee has produced these records before the ld. CIT (A) which was sent to the AO for remand report. However, the ld. CIT (A) has confirmed the addition without considering all these evidences produced by the assessee. Thus the ld. A/R has submitted that in view of the assessee was having more than Rs. 44 lacs of opening cash balance in her personal balance sheet then the source of capital of Rs. 14,25,000/- introduced during the year is duly explained and established.

8. On the other hand, the ld. D/R has submitted that the authenticity of the personal balance sheet cannot be accepted when these are not filed along with the return of income or in the assessment proceedings. These documents are assessee’s own documents not part of the assessment record. She has relied upon the orders of the authorities below.

9. We have considered the rival submissions as well as the relevant material on record. The only dispute is regarding the source of capital of Rs. 14,25,000/- introduced by the assessee during the year under consideration. The assessee has claimed that she was having more than Rs. 44 lacs as opening cash balance in her personal balance sheet which was not accepted by the AO. We find that the assessee has produced the details of the total income as well as balance sheet along with the personal balance sheet from the assessment years 2010-11 to 14-15. On careful consideration and analysis of the details as appearing in the personal balance sheet of the assessee, it is clear that there is a matching of each and every item of the cash balance with in-flow as well as out-flow for each of the years including the assessee’s capital balance in the proprietorship concern M/s. Leela Kothari. These documents were produced by the assessee before the authorities below and particularly when the ld. CIT (A) referred all these details to the AO for verification and to submit the remand report then in the absence of finding any discrepancy or irregularity in the details given in the personal capital account and balance sheet of the assessee along with the balance sheet of the proprietorship concern, the rejection of the claim merely because the personal balance sheet was not part of the assessment record is not justified. Once the assessee has established the availability of the opening cash balance of more than Rs. 44 lacs as on 1st April, 2014, then the source of introduction of capital of Rs. 14,25,000/- is duly explained and established and the same is deleted.

10. In the result, appeal of the assessee is allowed.

Order pronounced in the open court on 21.10.2019.

Download Judgment/Order

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