Income Tax Appellate Tribunal - Ahmedabad
R. Kantilal & Co., , Ahmedabad vs Acit, Central Circle-1, , Surat on 16 February, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "C" BENCH
(BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER
& SHRI S. S. GODARA, JUDICIAL MEMBER)
ITA. No: 1335/AHD/2014
(Assessment Year: 2011-12)
M/s. R Kantilal & Co. 105, V/S ACIT, Central Circle-1,
1st Floor, Vrujswami Surat
Complex, Doshiwadani
Pole, Zaveriwad,
Ahmedabad-380002
(Appellant) (Respondent)
PAN: AAIFR2867E
Appellant by : Urvashi Sodhan, A.R.
Respondent by : Shri Prasoon Kabra, Sr. D.R.
(आदे श)/ORDER
Date of hearing : 10 -02-2017
Date of Pronouncement : 16 -02-2017
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:
1. With this appeal, the Assessee has challenged the correctness of the order of the Ld. CIT(A)-II, Ahmedabad dated 11.02.2014 pertaining to A.Y. 2011-
12. 2 ITA No. 1335/Ahd/2014
. A.Y. 2011-12
2. The grievance of the assessee is twofold. Firstly, the assessee is aggrieved by the addition made by the A.O. and confirmed by the ld. CIT(A) amounting to Rs. 42.20 lacs on alleged unexplained cash credits of Rs. 48.18 lacs made u/s. 68 of the Act. Secondly, the assessee is further aggrieved by the disallowance of interest paid to the cash creditors to the extent of Rs. 1,83,878/- on the ground that the cash credits were held as non genuine.
3. The assessee derives income from business of courier in respect of post parcel, packet and cash etc. A search action u/s. 132A of the Act was carried out in the case of Shri Jagdish R. Patel on 16.04.2010. Some unaccounted cash was found and seized which was offered for taxation by the assessee for the A.Y. 2011-12.
4. Subsequently, the assessee was served with a notice in reply to which the assessee stated that the return filed on 27.08.2011 may be treated in response to the said notice.
5. Statutory notice u/s. 143(2) of the Act was issued and served upon the assessee. During the course of the scrutiny assessment proceedings, the A.O. noticed that the assessee has introduced fresh loans of Rs. 48.18 lacs from 19 cash creditors. The assessee was asked to justify the genuineness of the loan transactions and the creditworthiness of the cash creditors. Assessee filed confirmations along with the copies of the Income Tax returns in respect of all 19 cash creditors. In order to check the genuineness of the transactions and creditworthiness of the cash creditors, summons 3 ITA No. 1335/Ahd/2014 . A.Y. 2011-12 u/s. 131 of the Act were issued to the cash creditors and their statements were recorded on oath.
6. Pursuant to the statements of all the 19 cash creditors, the A.O. was of the opinion that all the cash creditors are not genuine. The A.O. accordingly issued a show cause to the assessee asking it to show cause why addition of Rs. 48.18 lacs should be made on account of unexplained cash creditors. The assessee was also provided with certified photo copies of the statements of all the cash creditors and accordingly was allowed an opportunity for cross-examination of the creditors.
7. In response, the assessee filed a detailed reply as under:-
(i) He stated that your office has issued nineteen summons to the 'alleged ^^ cash creditors' who are uneducated and were attending before any Income-tax authorities for the first time in their life and were afraid of giving true and correct picture of facts. Further, most of them were acquainted with only Gujarati language and by experience only, they were having working knowledge of spoken Hindi (not having knowledge of writing or reading Hindi). Your honour is very much fluent and perfect in Hindi and perhaps, these nineteen 'alleged cash creditors' were unable to understand your question in the very first attempt and in such circumstances, we are afraid that the statement recorded by your honour may not be depicting the correct and real picture of facts.
(ii) Further, all these nineteen 'alleged cash creditors' are from villages having agricultural activities as their main bread and butter and every agriculturist father would wish and try to support' and push his son or young family members to progress in some other business activities and for this purpose, he would definitely try to help him by giving financial support by applying his life time saving and/or even by providing finance by BEG-BORROW OR STEAL If you analyses all these nineteen 'alleged cash creditors', twelve 'alleged cash creditors' amounting to Rs.35.20 lacs are taken up as partners in the subsequent year. They were also most efficient employees of the firm and since, during most critical period, and (when the capital was blocked in seizure by police) when the firm was in need of instant finance support, they had whole heartedly 4 ITA No. 1335/Ahd/2014 . A.Y. 2011-12 supported the firm by arranging finance towards working capital requirement and in token of appreciation, the senior partners invited them to become partner in the firm. It would not be out of place to invite your kind attention to the fact that out of these twelve depositors, six depositors have just contributed one or two lacs in accordance with their capacity and ability. Even the Income-tax department does not tax anything on basic income of Rs.2 lacs and therefore, in our humble submissions, contributions of Rs.l lacs or Rs.2 lacs is not a big alarming sum such that your office does not believe such peety sum as savings of past years of the family or of the depositors. In today's era and fastly growing economy, sum of Rs.l lacs or Rs.2 lacs would be available with small businessman or agriculturist and for such income or savings, the agriculturist would not care or feel it necessary to keep and maintain records of purchase or sale or of expenses incurred for earning that income and for this reason only, your honour has proposed to reject or disbelieve his Identity, capacity, creditworthiness and even the genuineness. Genuineness of transactions is out of question considering the presence and final reply given by them. Your honour has also noted that yourself are from the same agro based field but, with due respect, we state that agricultural income depends not only on the area of the land but also on the location of land, environment and atmosphere of the area, rainfall, availability of water, type of irrigation, type of crop, method of agriculture, type of seeds, the type of fertilizers applied, etc. etc. and therefore, it would be very difficult to apply a general rate of income per bighas of land holding.
(iii) Further, none of the 'alleged cash creditors' have denied of giving fund to the firm and almost all have not only given details of first source of funds but they have also provided second source of fund and accordingly, we humbly state that none of them are bogus and in genuine. The loans are given through cheques.
(iv) Further, in villages of Gujarat, income of individual person is not important or is not recognized but, the family income matters more which means, family fund and family income is considered to be everyone's own income and own fund and therefore, your honour would observe at some point of time that, some depositors are unable to distinguish and/or identity, individual income and/or family income. The collectiveness and unity are the basic principles on which, the villagers' economy is dependent.
(v) Of course, going through the statements, there are certain loose ends but, these loose ends should not to be read and considered as most negative points, but, the same be read with reference to the above noted main weaknesses and explanations.5 ITA No. 1335/Ahd/2014
. A.Y. 2011-12 In nut shell, all the "alleged cash creditors' fulfill the three principles namely, capacity to land, creditworthiness of the depositors and genuinely of the transactions.
8. The A.O. considered the detailed submissions made by the assessee in the light of the statements of all the 19 cash creditors and came to the conclusion that the assessee could not satisfy all the two conditions to prove the genuineness of cash creditors, their creditworthiness, though only one condition that is identities have been established. The A.O. accordingly added Rs. 48.18 lacs as unexplained cash credits appearing in the name of the following persons:-
Sr.No Name of the cash creditors Amount of cash credit 1 Shri Ashish S Patel Rs.1.00 Lacs 2 Shri Ashish P Patel Rs.2.00 Lacs 3 Shri Bhavesh R Patel Rs.1.00 Lacs 4 Shri Chetankumar R Patel Rs.5.20 Lacs 5 Shri Chandresh M Patel Rs.1.00 Lacs 6 Shri Dhavalkumar M Patel Rs.2.00 Lacs 7 Shri Dinesh K Patel Rs.4.00 Lacs 8 Shri Hasmukh A Patel Rs.2.00 Lacs 9 Shri Jagdishkumar R Patel Rs.2.00 Lacs 10 Shri Jignesh N Patel Rs.98,000/-
11 Shri Kalesh B Patel Rs.5.00 Lacs
12 Shri Niraj D Patel Rs.2.00 Lacs
13 Shri Paresh Prajapati Rs.1.00 Lacs
14 Shri Ramesh A Patel Rs.2.00 Lacs
6 ITA No. 1335/Ahd/2014
. A.Y. 2011-12
15 Shri Anil H Patel Rs.1.00 Lacs
16 Shri Ramesh A Patel Rs.4.00 Lacs
17 Shri Rakesh B Patel Rs.4.00 Lacs
18 Shri Sanjay B Patel Rs.4.00 Lacs
19 Shri Satish K Patel Rs.4.00 Lacs
Total Cash creditors 48,18,000 /-
9. The A.O. further disallowed the claim of interest paid to the aforementioned unexplained cash creditors and made an addition of Rs.
2,00,775/-.
10.Assessee carried the matter before the ld. CIT(A) and assailed the assessment order.
11.The assessee strongly contended that it has discharged the initial onus by establishing the identity, creditworthiness and genuineness of the transaction. Therefore, the addition made by the A.O. is unwarranted and uncalled for and the same should be deleted.
12.After considering the facts and the submissions and the material evidence brought on record, the ld. CIT(A) was convinced with the genuineness of the cash credits amounting to Rs. 3.98 lacs and allowed the relief to that extent and confirmed the balance.
13.Aggrieved by this, the assessee is before us. The ld. counsel for the assessee vehemently stated that the assessee has completely discharged 7 ITA No. 1335/Ahd/2014 . A.Y. 2011-12 the initial onus. It is the say of the ld. counsel that not only the identities were established but genuineness of the transactions and the creditworthiness of the cash creditors have been fully established. Referring to the relevant documentary evidences brought on record in the form a paper book, the ld. counsel drew our attention to the copies of the Income Tax returns of all the cash creditors which were duly supported by the copies of the respective bank statements. The ld. counsel also pointed out that all the cash creditors have confirmed the loan transactions in their respective statements recorded by the A.O.
14.The ld. counsel heavily relied upon the judgment of the Hon'ble Jurisdictional High Court of Gujarat in the case of Ranchhod Jivabhai Nakhava 208 Taxmann.com 35 and on another decision of the Hon'ble Jurisdictional High Court of Gujarat in the case of Rohini Builders 256 ITR
360. The ld. counsel concluded by saying that since the assessee has successfully discharged the initial onus; no addition can be made u/s. 68 of the Act.
15.Per contra, the ld. D.R. strongly relied upon the findings of the lower authorities. It is the say of the ld. D.R. that the assessee failed to prove the creditworthiness of all the cash creditors.
16.We have given a thoughtful consideration to the orders of the authorities below qua the rival contentions. We have also carefully perused the 8 ITA No. 1335/Ahd/2014 . A.Y. 2011-12 relevant documentary evidences brought on record in the form of paper book in the light of Rule 18(6) of the ITAT Rules.
17.The undisputed fact is that all the cash creditors in response to the summons issued to them by the A.O. u/s. 131 of the Act appeared before the A.O. It is also an undisputed fact that in their respective statements recorded by the A.O., all the cash creditors have accepted the loan transactions. We also find that all the cash creditors have furnished the details of their sources of income.
18.The Hon'ble High Court of Gujarat in a binding judgment in the case of Ranchhod Jivabhai Nakhava (supra) has observed as under:-
"Once the Assessing Officer gets hold of the PAN of the lenders, it was his duty to ascertain from the Assessing Officer of those lenders, whether in their respective return they had shown existence of such amount of money and had further shown that those amount of money had been lent to the assessee. If before verifying of such fact from the Assessing Officer of the lenders of the assessee, the Assessing Officer decides to examine the lenders and asks the assessee to further prove the genuineness and creditworthiness of the transaction, in our opinion, the Assessing Officer did not follow the principle fold down under Section 68 of the Income Tax Act.
If on verification, if was found that those lenders did not disclose in their Income tax return the transaction or that they had not disclosed the aforesaid amount, the Assessing Officer could call for further explanation from the assessee to prove the genuineness of the transaction or creditworthiness of the same. However, without verifying such fact from the Income Tax return of the creditors, the action taken by the Assessing Officer in examining the lenders of the assessee 9 ITA No. 1335/Ahd/2014 . A.Y. 2011-12 was a wrong approach. Moreover, we find that those lenders have made inconsistent statement as pointed out by the Commissioner of Income Tax (Appeals) and in such circumstances, we find that both the Commissioner of Income Tax (Appeals) and the Tribunal were justified in setting aside the deletion as the Assessing Officer, without taking step for verification of the Income Tax Return of the creditors, took unnecessary step of further examining those creditors. If the Assessing Officers of those creditors are satisfied with the explanation given by the creditors as regards those transactions, the assessing Officer in question has no justification to disbelieve the transactions reflected in the account of the creditors. In other words, the Assessing Officer had no authority to dispute the correctness of assessments of the creditors of the assessee when a co-ordinate Assessing Officer is satisfied with the transaction".
19.The Hon'ble Supreme Court in the case of Orissa Corporation Ltd. 159 ITR 78, on similar facts, has held as under:-
"Held, that in this case the respondent had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under section 131 at the instance of the respondent, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the respondent could not do anything further. In the premises, if the Tribunal came to the conclusion that the respondent had discharged the burden that lay on it, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such arose. The High Court was right in refusing to state a case. "10 ITA No. 1335/Ahd/2014
. A.Y. 2011-12
20.If the facts of the case in hand, as mentioned hereinabove are considered in the light of the ratio laid down by the Hon'ble Supreme Court and the Hon'ble Jurisdictional High Court of Gujarat, we have no hesitation in holding that the assessee has successfully discharged the initial onus cast upon it by the provisions of Section 68 of the Act. We, therefore, do not find any merit in the impugned additions made by the A.O. We, accordingly, set aside the findings of the ld. CIT(A) and direct the A.O. to delete the addition of Rs. 42.20 lacs. Ground no. 1 is allowed.
21.The next ground relates to the disallowance of interest paid to the cash creditors as the case cash credits were held as non genuine.
22.Since, we have directed the A.O. to delete the additions made on account of unexplained cash credits, there remains no reason why the interest paid on such cash credits should be disallowed. We, therefore, direct the A.O. to allow the claim of interest paid to such cash creditors. This ground is also allowed.
23.The next grievance relates to the levy of interest u/s. 234A, 234B & 234C of the Act. The charge of interest is mandatory, though consequential. Therefore, the A.O. is directed to levy interest as per the provisions of law.
24.The next grievance relates to the initiation of penalty u/s. 271(1)(c) of the Act. This grievance is premature and, therefore, not entertained.11 ITA No. 1335/Ahd/2014
. A.Y. 2011-12
25.In the result, appeal filed by the Assessee is allowed.
Order pronounced in Open Court on 16- 02- 2017
Sd/- Sd/-
(S. S. GODARA) (N. K. BILLAIYA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad: Dated 16/02/2017
Rajesh
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals) -
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad