Income Tax Appellate Tribunal - Lucknow
Manish Singh, Kanpur vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL,
SMC BENCH, LUCKNOW.
Before Shri N.K.Saini, Accountant Member
I.T.A.No.80(LKW.)/2011
A.Y. : 2005-06
Shri Manish Singh, vs. The Dy.CIT, Range-V,
C-59,Sector A, Mahanagar, Lucknow.
Lucknow.
Present address- 183/1,
Juhi Lal Colony,
Kanpur-208014
PAN AUNPS0031N
(Appellant) (Respondent)
Appellant by : Shri M.P. Mishra, Advocate
Respondent by : Shri P.K.Bajaj, Sr.D.R.
O R D E R
This appeal by the assessee is directed against the order of the CIT(A)-II, Lucknow dated 16.12.2010 relating to assessment year 2005-06.
2. The first issue agitated in ground No.1 relates to the sustenance of addition of Rs.18,335 (wrongly written Rs.18,355).
3. The facts relating to this issue, in brief, are that the assessee derives income from sale and purchase of weighing machines and filed the return of income on 31.3.2006 declaring an income of Rs.1,02,200, which was processed under section 143(1) of the income-tax Act,1961. Later on, the case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee had furnished the estimated Profit and loss 2 Account and admitted that his case falls in no account category. Therefore, the AO was of the view that the assessee had not maintained books of accounts, expenses, vouchers etc. and hence the assessee's income could not be computed correctly. The AO estimated the sales of the assessee at Rs.8,50,000 in place of Rs.8,07,275 and applied the gross profit rate of 30.25% as disclosed by the assessee. The AO also noticed that the assessee had furnished a TDS certificate issued by M/s. ESSAE Teraoka Ltd. no.377/22, 6th Cross Wilson Garden,Bangalore-27 for amount paid/credited of Rs.18,335 on which the tax was deducted at Rs.1,008. The AO made the addition of Rs.18,335 by stating that the assessee had neither shown his income for the aforesaid amount in his computation of income nor in the estimated Profit and Loss Account.
4. The assessee carried the matter to the ld.CIT(A) and submitted that he had received the sum of Rs.18,335 as performance incentive from M/s.Essae Teraoka Ltd. for achieving certain targets in sales and the said receipt was duly accounted for in the gross profit shown by estimate at Rs.2,44,187, which was 30.25% of the turnover and even if brokerage of Rs.18,335 was separated from the gross profit shown at Rs.2,44,187, the gross profit (so reduced) amounts to Rs.2,25,852, which was about 28% and quite reasonable as trading profit. It was further submitted that net profit shown by the assessee was 12.65%, which was more than 5% and mandated as acceptable in no account cases of retail business as per provisions of Section 44AF of the I.T.Act, hence the addition of Rs.18,335 deserves to be deleted.
5. The ld.CIT(A) after considering the submissions of the assessee, observed that the commission/brokerage income had not been found 3 included in the estimated Profit and Loss Account submitted by the assessee and that the assessee had claimed credit of the TDS of corresponding income, hence this income should have been added in the total income of the assessee. He, therefore, confirmed the action of the AO for making the addition of Rs.18,335.
Now, the assessee is in appeal.
6. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the assessee had not maintained the books of accounts in accordance with the provisions contained in Section 44AF of the I.T.Act since the turnover of the assessee was less than the turnover prescribed for maintaining the books of accounts. It was further submitted that as per the provisions contained in section 44AF of the I.T. Act, the assessee was required to show the profit of 5% on the total turnover. However, a net profit rate of 12.65% had been shown by the assessee, which was much more than the prescribed rate of net profit. It was further submitted that the sales incentive was part and parcel of the turnover and when the AO himself estimated the turnover and applied the gross profit rate, there was no occasion to make separate addition for the sales incentive.
7. In his rival submissions, the ld.D.R.supported the orders of the authorities below.
8. After considering the submissions of both the parties and the material on record, it appears that the assessee was not maintaining the books of accounts. For that reason, the AO estimated the sales of the assessee and 4 applied the gross profit rate which was disclosed by the assessee in the estimated Profit and Loss Account. This contention of the assessee that a sum of Rs.18,335 was received as performance incentive relating to the sales targets has not been rebutted at any stage. Since the sales incentive is a part of the turnover and the AO estimated the turnover, there was no occasion to make separate addition on account of performance incentive received by the assessee. In that view of the matter, I delete the addition sustained by the ld.CIT(A).
9. The next issue vide ground No.2 relates to the confirmation of the addition of Rs.50,000 in respect of gift received from Shri Shailesh Kumar Singh, brother of the assessee.
10. The facts relating to this issue, in brief, are that he AO during the assessment proceedings, asked the assessee to justify the cash deposits in his bank account. To substantiate the cash deposits, the assessee stated that he had received cash gifts of Rs.40,000 and Rs.50,000 from his father and brother respectively and the balance of Rs.56,000 was the interest free loan from four persons. As regards to the cash gift of Rs.50,000 from brother, Shri Shailesh Kumar Singh, the assessee furnsihed affidavit of the donor dated 8.12.2007 mentioning his PAN and also enclosed copy of his brother's Form No.16. The AO noticed that no gift deed has been prepared at the time of gift and an affidavit of the donor was prepared on 8.12.2007, which did not have the acceptance of the donee. From the Form No.16 issued by the employer of the donor, the AO noticed that his gross salary in the relevant period was Rs.1,76,265 against which the deposits for rebate under Chapter VIII-A were Rs.80,395. The AO was of the view that the 5 donor was not in a capacity to make a gift of Rs.50,000 in cash besides meeting out his family expenses out of known sources of income. The AO accepted that the identity of the donor was proved. However, he did not accept the creditworthiness and genuineness of transaction and made the addition of Rs.50,000.
11. The assessee carried the matter to the ld.CIT(A) and submitted that his real brother had given the gift out of his savings from salary income for which proof had been filed. It was further stated that the donor had merely a family of self, his wife and a minor son and he had been provided free residential facility as well as free electric and water supply from his employer. Reliance was placed on the following case laws:
(i) CIT vs. Taj Borewells (2007) 291 ITR 232 (Mad.),
(ii) Tam Tam Pedda Guruva Reddy vs.Joint CIT(Assessments) and another (2007) 291 ITR 44(Karnataka).
12. The ld. CIT(A), after considering the submissions of the assessee, observed that the donor in his affidavit dated 8.12.2007 has not mentioned the dates of cash gifts totalling to Rs.50,000 given to his brother. He further observed that in the affidavit it was only mentioned that cash gifts were given during the financial year 2004-05, which shows that the donor was not aware on which dates and what amounts were given on a particular occasion. Thus, the genuineness of gifts remained to be proved. According to him, the entries reflected in the bank account were in the nature of credit in the books of accounts and there were discrepancies in the cash flow statement submitted by the assessee. Therefore, it was amply clear that the assessee failed to establish the genuineness of gift. He accordingly confirmed the addition made by the AO.
6Now, the assessee is in appeal.
13. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the gift was received by the assessee from his real brother, who disclosed his sources of earning the income and was assessed to the Income-tax regularly. It was further submitted that the donor furnished the affidavit to substantiate that gift was given to the assessee out of natural love and affection and also disclosed his PAN in the said affidavit dated 8.12.2007. Therefore, the assessee proved the identity , creditworthiness as well as genuineness of the gift, so, there was no occasion to make the addition.
14. In his rival submissions, the ld.D.R. supported the orders of the authorities below.
15. After considering the submissions of both the parties and the material on record, it is noticed that the assessee received the gift of Rs.50,000 from his real brother, who was having the salary income of Rs.1,76,265 and was provided rent free accommodation by his employer. The AO pointed out that against the income of Rs.1,76,265, the donor deposited a sum of Rs.80,395 for rebate under Chapter VIII-A. Therefore, the donor was still having Rs.95,870 as savings from his salary and he had a small family of self, his wife and a minor son so, it cannot be said that he was not in a position of giving gift of Rs.50,000 to his real brother, particularly when the AO has not brought any material on record that in earlier years also the donor was not having any savings from his salary income. The AO accepted that the 7 identity of the donor was proved, but doubted the creditworthiness and genuineness of transaction in spite of the fact that the assessee furnished copy of Form No.16, which revealed that the gross salary of the donor was Rs.1,76,265 and this contention of the assessee that the donor was provided free residential facility as well as free electric and water supply from his employer, has not been controverted. Considering the totality of the facts, I am of the view that the assessee proved the identity of the donor as well as creditworthiness and genuineness of the transaction, so, there was no occasion to make the addition of Rs.50,000 received by the assessee as a gift from his real brother. In that view of the matter, the order of the ld.CIT(A) is set aside on this issue and the AO is directed to accept the gift as genuine. Accordingly, the addition sustained by the ld.CIT(A) is deleted.
16. Grounds No.4,5 and 6 relate to the confirmation of addition of Rs.56,000, which was made by the AO on account of interest free loans of Rs.15,000, Rs.15,000, Rs.11,000 and Rs.15,000 received by the assessee from Shri Govind Singh, Shri Inderesh Singh, Smt.Rekha Singh and Shri S.N.Singh.
17. The facts relating to this issue, in brief, are that the assessee received a sum of Rs.15,000 from Shri Govind Singh, his cousin and filed the affidavit dated 10.12.2007 of Shri Govind Singh, son of Shri Nihal Singh. The AO pointed out that the assessee had filed photocopy of ration card of Nihal Singh, father of Shri Govind Singh. In the said photo copy in the name of family members, a name 'Krishna Govind' aged 18 years was mentioned instead of Govind Singh. Therefore, the identity was not proved. As regards to the another loan of Rs.15,000 received from Shri Indereash 8 Singh, real brother of the assessee, an affidavit dated 10.12.2007 of the said person was filed alongwith photo copy of ration card and copy of appointment order stating therein the monthly salary of lender. The AO pointed out that in the copy of appointment letter of Shri Indereash Singh, his salary was merely Rs.2,950 per month. He also pointed out that the spelling of the loaner is 'Indereash Singh' in the document filed, while in the affidavit it was 'Indraeash Singh' and in the appointment order it is mentioned as 'Indresh Singh'. He was of the view that the identity and the creditworthiness of the lender was not proved. Regarding interest-free loan of Rs.11,000 from Smt.Rekha Singh, sister of the assessee, an affidavit dated 10.12.2007 was furnished. The AO did not accept the said loan by stating that the affidavit was not prepared on the date of the loan i.e. 10.6.2004 and that she was simply a house-wife and the assessee also made a payment of Rs.8,000 to her on 1.12.2004. Regarding interest free cash loan of Rs.15,000 from Shri S.N.Singh, brother-in-law of the assessee, an affidavit dated 10.12.2007 of Shri S.N.Singh was furnished. The AO observed that the said affidavit was not prepared on the date when loan was given and in the affidavit it was stated that he was a teacher in Aditya Birla Public School, Renukoot, but date of giving alleged loan was not mentioned. The AO also did not find merit in the explanation of the assessee and treated the said loan as disclosed income of the assessee. Accordingly, the addition of Rs.56,000 was made on account of aforesaid four loans.
18. The assessee carried the matter to the ld.CIT(A) and submitted that the aforesaid amounts were taken as interest-free cash loans and that the AO made those additions on the reasons that the assessee could not prove the creditworthiness of those loans and genuineness of transaction. It was 9 stated that all the lenders were close relatives of the assessee and that Shri Govind Singh, Shri Indereash Singh and Shri S.N.Singh were deriving below taxable income, while Smt. Rekhja Singh had given the loan out of her stridhan.
19. The ld.CIT(A), after considering the submissions of the assessee, observed that the aforesaid cash loans had been deposited in the bank account of the assessee, hence the entries reflected in the bank account were in the nature of credit in the books of accounts and there were certain discrepancies in the cash flow statement submitted by the assessee. He was of the view that the assessee failed to establish the creditworthiness of the loans and also the genuineness of the loans. He accordingly confirmed the addition made by the AO.
Now, the assessee is in appeal
20. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the lenders are close relatives of the assessee and had given the loans out of their savings. The assessee furnished the affidavits about the lenders and the AO never asked to produce those lenders in person, therefore, it cannot be said that the assessee did not discharge the onus cast upon him.
21. In his rival submissions, the ld.D.R. reiterated the observations made in the orders of the authorities below.
22. After considering the submissions of both the parties and the material on record, it is noticed that the assessee received interest free loans 10 of Rs.15,000, Rs.15,000,. Rs.11,000 and Rs.15,000 from his cousin Shri Govind Singh, real brother Shri Indereash Singh, real sister Smt.Rekha Singh and real brother-in-law Shri S.N.Singh respectively The assessee filed photo copy of ration cards and the affidavits to prove the identity of those persons and the AO never asked the assessee to produce those persons. Therefore, it cannot be said that the identity of the lenders was not proved. It is also noticed that the assessee furnished appointment letter of Shri Indereash Singh wherein it was mentioned that his monthly salary was Rs.2,950 per month and in the affidavit of Shri S.N.Singh it was stated that he was a teacher in Aditya Birla Public School, Renukoot. As regards to the loan from his sister, Smt.Rekha Singh, the claim of the assessee was that the loan was out of her stridhan. It, therefore, appears that the assessee received the loan from his close relatives and disclosed all the particulars to substantiate that genuine loans were taken. Therefore, considering the smallness of the amounts received by the assessee from his close relatives in the form of interest free loans, I am of the view that the addition made by the AO was not justified and the ld.CIT(A) without appreciating the facts in right perspective had confirmed the action of the AO. I, therefore, delete the impugned addition.
23. In the result, the appeal is allowed.
The order was pronounced in the open Court on 23.2.2011.
(N.K.Saini)
ACCOUNTANT MEMBER
February 23rd ,2011.
Copy to the :
1. Appellant 2. Respondent 3. CIT(A) (4) CIT 5.DR.
A.R.,ITAT, Lucknow.
Srivastava.
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