Case Law Details

Case Name : Shree Samruddhi Overseas Trading Co. Vs DCIT (ITAT Ahmedabad)
Appeal Number : ITA No. 909 & 910/Ahd/2018
Date of Judgement/Order : 19/04/2021
Related Assessment Year : 2013-14

Shree Samruddhi Overseas Trading Co. Vs DCIT (ITAT Ahmedabad)

It is submitted on behalf of the assessee that the assessee had taken a temporary loan of Rs.8 Lakhs and Rs.2 Lakhs aggregating Rs.10,00,000/- in the month of June 2012 from Shri Rakesh Vallabhbhai Swadia. The loan so obtained was also repaid in the month of September 2012 and therefore loan was ultimately squared off in the same year. It is the case of the assessee that all relevant details like; copy of confirmation obtained from lender, copy of return of income and relevant bank statements of the party was furnished before the lower authorities. The creditworthiness of the loan received stands proved by the return of income where gross total income declared by the lender is stated to be Rs.13.01 Lakhs. The copy of bank statement of the assessee and also of lender was also furnished before the lower authorities to support the transaction. The AO had issued notice under s.133(6) of the Act to the lender and observed from the details furnished by the lender (Rakesh Swadia) that amount of Rs.5 Lakhs in cash and Rs.3 Lakhs by cheque were deposited on 15.06.2012 prior to the transfer of Rs.8 Lakhs to the assessee. The AO accordingly doubted the genuineness of the loan transaction having regard to the cash deposits. In rebuttal, the attention was adverted on behalf of the assessee to the fact that the assessee has earlier withdrawn cash amount of Rs.10 Lakhs on 06.04.2021 out of which Rs.5 Lakhs were deposited on 15.06.2012 and therefore deposit of cash prior to issue of cheque by the lender is not of significance in view of cash in hand.

We find merit in the various plea  raised  on  behalf  of  the assessee towards bonafides of credits received  from  Rakesh  The confirmation, the bank statement  of  the  assesse  and  lender showing transactions through banking channel, the return of income of the lender and also re-payment of loan in a span of 3-4 months clearly proves the bonafide of  the loan when seen in  totality.  The lender has also responded to  the notice of the AO  under s. 133(6) of the Act.  The AO  after collecting the information in  the event of  any doubt, could have extended suitable enquiries if required instead of  entering into arena of  assumptions and  presumptions.  Except for  a deposit of  cash of Rs. 5 lakhs, there is no other cogent case made to draw the adverse inference against the assessee. The deposit of cash out of earlier withdrawal of large amount provides plausible explanation towards source of cash deposits in the absence of any  enquiry in  this regard by the Revenue from the lender. Needless to say, the borrower assessee could not be seen to have any perceptible control over the manner of carrying transactions by the lender. The repayment of loan exists as a strong mitigating circumstance and transcends all considerations. We thus find that the documents placed  by  the  assessee  before  the Revenue authorities sufficiently discharge the onus  towards  the identity and genuineness of the transaction and creditworthiness of the lender contemplated under s.68 of the Act. In our view, in the facts of case, the statutory discretion available to AO under s. 68  of  the  Act ought to  have been exercised in  favour of  the assessee.  The action of the Revenue authorities thus cannot be  countenanced having regard to the extenuating circumstances existing in the case. The addition made under s.68 of the Act on credit received from Rakesh Swadia therefore deserves to be reversed and cancelled.

FULL TEXT OF THE ITAT JUDGEMENT 

The captioned appeals have been filed at the instance of the assessee against the orders of the Commissioner of Income Tax (Appeals)-12, Ahmedabad (‘CIT( A)’ in short), both dated 13.03.2018 arising in the assessment orders dated 22. 02.2016 & 07.12.2016; respectively, passed by the Assessing Officer ( AO) under s. 143( 3) of the Income Tax Act, 1961 (the Act) concerning AYs. 2013- 14 & 2014- 15.

2. Both the appeals are  related  to  same   Accordingly, both the appeals are  being disposed of  by  common order  for  the  sake of convenience.

3. We shall first take the facts concerning AY 2013- 14 in ITA 909/Ahd/ 2018 for adjudication purposes.

ITA No. 909/Ahd/2018-AY-2013-14 

4. The ground of appeal raised by the assessee for AY 2013- 14 is reproduced hereunder:

“ 1. The Ld. CIT(A)12 , Ahmedabad erred in law and  on  facts  in confirming the addition of Rs. 11, 36 , 454/- being  the  difference  i/,n closing balance as per the books of  the  Appellant  and  M/ s. PSL Limited.”

5. Briefly stated, the assessee is a partnership firm engaged in the business of trading in minerals and iron ores. The return filed by the assessee for AY  2013-14 was subjected to  scrutiny assessment.   The AO in the course of the scrutiny assessment inter alia found that the nature and source of unsecured loan received from (i) Khemka Udyog 1Lakh & (ii) Rakesh Swadhyay Rs. 10 Lakhs is not found to be satisfactory on the touchstone of Section 68 of the Act. The AO, accordingly, inter alia added the aforesaid sum to the income  of assessee.

6. Aggrieved, the assessee preferred appeal before the CIT(A) without any success.

7. Further aggrieved, the assessee preferred appeal before the Tribunal.

8. We have carefully heard the rival submissions  on  the controversy and also perused the material available on The assessee in in appeal against the respective orders of the AO and CIT(A) whereby the additions of  Rs.11,00,000/- made  and  confirmed by invoking provisions of Section 68 of the Act is under challenge.

8.1 It is submitted on  behalf of  the assessee that the assessee had taken a temporary loan of 8 Lakhs and  Rs. 2 Lakhs  aggregating Rs.10, 00,000/- in the month of June 2012  from  Shri  Rakesh Vallabhbhai Swadia. The loan so obtained  was  also  repaid  in  the month of  September 2012  and  therefore loan  was ultimately squared off in the same year.  It  is  the case of  the assessee that all relevant details like; copy of  confirmation obtained from lender, copy of  return of income and relevant bank statements of the party  was  furnished before the lower  authorities.  The creditworthiness  of  the  loan received stands proved by the return of income  where  gross  total income declared by the  lender is  stated to  be  Rs.13.01 Lakhs.  The copy of bank statement of the assessee and also of lender was also furnished before the lower authorities to support the transaction.   The AO had issued notice under s. 133( 6) of the Act to the lender  and observed from the details furnished  by  the  lender  ( Rakesh  Swadia) that amount of Rs. 5 Lakhs in cash and Rs. 3 Lakhs by cheque were deposited on 15.06. 2012 prior to the transfer of Rs.8 Lakhs to the assessee. The AO accordingly doubted the genuineness of the loan transaction having regard to the  cash  deposits.  In  rebuttal,  the attention was adverted on behalf of the assessee to the fact that the assessee  has  earlier  withdrawn  cash  amount  of   Rs.10   Lakhs   on 06. 04. 2021 out of which Rs.5 Lakhs were deposited on 15. 06.2012 and therefore deposit of cash  prior to  issue of  cheque by  the  lender is  not of significance in view of cash in hand.

8.2 We find merit in the various plea  raised  on  behalf  of  the assessee towards bonafides of credits received  from  Rakesh  The confirmation, the bank statement  of  the  assesse  and  lender showing transactions through banking channel, the return of income of the lender and also re-payment of loan in a span of 3-4 months clearly proves the bonafide of  the loan when seen in  totality.  The lender has also responded to  the notice of the AO  under s. 133(6) of the Act.  The AO  after collecting the information in  the event of  any doubt, could have extended suitable enquiries if required instead of  entering into arena of  assumptions and  presumptions.  Except for  a deposit of  cash of Rs. 5 lakhs, there is no other cogent case made to draw the adverse inference against the assessee. The deposit of cash out of earlier withdrawal of large amount provides plausible explanation towards source of cash deposits in the absence of any  enquiry in  this regard by the Revenue from the lender. Needless to say, the borrower assessee could not be seen to have any perceptible control over the manner of carrying transactions by the lender. The repayment of loan exists as a strong mitigating circumstance and transcends all considerations. We thus find that the documents placed  by  the  assessee  before  the Revenue authorities sufficiently discharge the onus  towards  the identity and genuineness of the transaction and creditworthiness of the lender contemplated under s.68 of the Act. In our view, in the facts of case, the statutory discretion available to AO under s. 68  of  the  Act ought to  have been exercised in  favour of  the assessee.  The action of the Revenue authorities thus cannot be  countenanced having regard to the extenuating circumstances existing in the case. The addition made under s.68 of the Act on credit received from Rakesh Swadia therefore deserves to be reversed and cancelled.

8.3 As regards another credit of 1 Lakh from Khemka Udyog, it is the case of the assessee that the  relevant  confirmation  from  the lender towards repayment of loan could not  be  furnished  due  to strained relations cropped up owing to some dispute. The assessee, however, adverted to the  bank  statement of  the  assessee to  show  that an amount of  Rs.51,070/- was promptly repaid on  30.08. 2012 against the credit received on 03.08.2012 which proves the bonafides of the credit received from Khemka Udyog. It is also fairly submitted that additions may, at best, be restricted to the balance amount remaining unpaid.

9. Having regard to the fact of repayment of credit to the extent of 51, 070/-, we find merit in the plea of the assessee for claim of bonafide to the extent of at least Rs. 51,070/-. The additions on this score is therefore restricted to  Rs. 48, 930/- and  the  remaining amount of addition of Rs. 51,070/- is reversed.

10. In the result, the appeal of the assessee for AY 2013-14 is partly allowed.

ITA No. 910/Ahd/2018- AY- 2014- 15 

11.  The solitary issue arising from the order of the  CIT( A)  is addition of  11,36,454/- on  account of  reconciliation difference in the closing balance as per the books of account of the assessee and that of debtor M/s. PSL Ltd.

12. The AO noticed that under the head  ‘sundry  debtors’  the assessee had inter alia shown receivables of  51, 08,925/-  in  the name of PSL Ltd. However, as per the letter submitted by Chartered Accountant firm (T R Chadha & Co LLP) on behalf of PSL Ltd. the balance stands at Rs. 62, 45,379/- as on 31. 03.2014. This difference between the version of assessee and that of  corresponding  party triggered the impugned additions in the hands of assessee.

13. In this regard, we find the  following  contentions  raised  on behalf of the assessee to be  noteworthy: (i) no  copy of  ledger accounts in the books of debtor (PSL) was  collected  by  the  AO  while relying upon the outstanding balance declared by the Chartered Accountant of PSL Ltd. The Chartered  Accountant  showing confirmation was stated to be mandated by ICICI Bank Ltd. to carry out satisfactory audit of the PSL Ltd.; (ii) no transactions have been carried out during the year with PSL  Ltd.  and  the  difference  in balance, if any, relates to some earlier year and therefore no event has occurred during the year for  taxation  purposes;  (iii)  the  excess balance, if any, when received from the party by the assessee would be eventually become taxable in the year of  receipt  and  therefore  the entire exercise is, in fact, tax neutral; (iv)  the  CIT( A)  by  way  of cryptic and non- speaking order confirmed the stand of the AO without taking note of the glaring facts.  For the reasons noted above, we find great force in the plea of the assessee for reversal of additions made on account of so called difference in balances.

13. In the result, the appeal of the assessee for AY 2014- 15  is allowed.

14. In the combined result, assessee’s appeal for AY  2013- 14  is partly allowed and for AY 2014-15 is allowed.

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Mr.Kapil Goel B.Com(H) FCA LLB, Advocate Delhi High Court [email protected], 9910272804 Mr Goel is a bachelor of commerce from Delhi University (2003) and is a Law Graduate from Merrut University (2006) and Fellow member of ICAI (Nov 2004). At present, he is practicing as an Advocate View Full Profile

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