Income Tax Appellate Tribunal - Mumbai
Giltedge Financial & Management ... vs Assessee on 12 March, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "C", MUMBAI
BEFORE SHRI RAJENDRA SINGH, A.M. AND SHRI V.D. RAO, J.M.
ITA No. : 569/Mum/2006
Assessment Year : 2001-02
Giltedge Financial & Income tax Officer
Management Services Ward 4-(1)(2)
103, Liberty apt. 80-A Mumbai.
Sarojini Road, Vile Parle(W)
Vs.
Mumbai-400 056.
PAN NO: AABCG 1699 K
(Appellant) (Respondent)
Appellant by : Shri Shalin S. Divalia
Respondent by : Dr. P. Daniel
Date of hearing : 12.3.2012
Date of Pronouncement : 11.4.2012
ORDER
Per RAJENDRA SINGH (AM) This appeal by the assessee is directed against the order dated 18.11.2005 of CIT(A) for the assessment year 2001-02. The assessee in this appeal has raised disputes on seven different grounds.
2. The first dispute is regarding addition of Rs.12,51,748/- on account of brokerage and commission income. The AO noted that the assessee had credited a sum of Rs.96,09,120/- as brokerage and commission income. The AO asked the assessee to give details of 2 ITA No. 569/M/06 A.Y.01-02 brokerage income such as gross brokerage, sub-brokerage and other expenses but the sane was not complied with. The AO thereafter noted from the special audit report that the assessee had earned brokerage income of Rs.87,433/- in respect of BSE settlement No.A/40/2000 but in the ledger account income shown was negative (-) Rs.1,72,962/-. Thus there was understatement of brokerage and commission of Rs.2,60,400/-. Similarly special audit report also showed that in respect of NSE settlement No.NB/13 for the period 22.3.2000 to 28.3.2000, the assessee had negative commission and brokerage of Rs.9,55,858/- but as per the transactions conducted during the period, the income should have been Rs.35,762/-. Thus assessee had understated brokerage and commission by Rs.9,91,348/- . The total understatement as per special audit report was Rs.12,51,748/-. The assessee was specially asked by AO to explain the above discrepancy as per special audit report but no submissions were made by the assessee. The AO therefore made and addition of Rs.12,51,748/-.
2.1 In appeal, the assessee submitted that it had adjusted brokerage charged to various parties in earlier settlements from which credits were granted in the previous settlement, considering the business brought by them which was the reason for the negative income. Assessee, however, did not submit any evidence to 3 ITA No. 569/M/06 A.Y.01-02 substantiate the claim and no confirmation was also filed from the parties. CIT(A) therefore, confirmed the addition aggrieved by which assessee is in appeal before the Tribunal.
2.2 We have heard both parties, perused the records and considered the matter carefully. The ld. AR for the assessee reiterated the submissions made before CIT(A) that negative income was because of incentives given to certain parties. However, no evidence has been produced before lower authorities or before us to substantiate the claim. Addition has been made based on special audit report finding of which have not been controverted by production of any evidence. We, therefore, confirm the order of CIT(A) upholding the addition.
3. The second dispute is regarding addition of Rs.24,89,378/- on account of disallowance of brokerage and commission. The AO noted from the special audit report that the assessee had claimed deduction on account of brokerage and commission as per details given below:-
S.No. Name Amount
1. Shri Subhash Shah Rs.1,19,119/-
2. Shri Sanjay Agarwal Rs.8,20,000/-
3. M/s. Global Tele Rs.9,55,585/-
4. M/s. Zebu Guidlines Rs.1,94,572/-
5. Shri Mukesh Gandhi Rs.71,063/-
6. Bala Rs.53,000/-
7. M/s. Aum Rs.2,76,039/-
Investments
Rs.24,89,378/-
4 ITA No. 569/M/06
A.Y.01-02
3.1 The AO asked the assessee to substantiate the claim by filing confirmations from the parties and giving details and evidence of services rendered for payment of commission and brokerage. The assessee however could not produce any evidence nor the assessee gave any details of nature of services rendered and quantum of brokerage earned from those parties. The AO therefore disallowed the claim which was disputed by the assessee. In appeal assessee submitted before CIT(A) that the AO followed the report of special auditor blindly. It was pointed out that the assessee had not paid any brokerage to Global Tele and therefore sum of Rs.9,55,585/- mentioned against the said name was not brokerage. It was also submitted that the scrip of Global Tele had been bought and sold on behalf of the various parties and special auditors had pointed out debit of Rs.9,55,585/- which was treated by AO wrongly as brokerage paid and therefore addition of Rs.9,55,585/- was not justified. 3.2 We have heard both the parties, perused the records and considered the matter carefully. The dispute is regarding disallowance of brokerage and commission income. No evidence had been produced before the lower authorities regarding rendering of services for payment of brokerage and commission. Even confirmation had not been filed. Even before us no details and evidence have been 5 ITA No. 569/M/06 A.Y.01-02 produced. The disallowance is therefore, justified. However, the ld. AR for the assessee has made a point that a sum of Rs.9,55,585/- shown under the head "brokerage and commission" is against Global Tele and assessee had not paid brokerage and commission to Global Tele which is a reputed company and not a broker/sub-broker. We find substance in the argument. Obviously, the payment mentioned could not be brokerage paid/payable to Global Tele. However, it is admitted by the assessee that the scrip of Global Tele had been bought and sold on behalf of various clients and therefore, it is possible that the amount could relate to brokerage in relation to deals with Global Tele. The matter has not been examined in detail. In our view, this aspect requires fresh examination. We, therefore, set aside the order of CIT(A) and restore the limited aspect back to him for passing fresh order after necessary examination and after allowing opportunity of hearing to the assessee.
4. The third dispute is regarding disallowance of vyaj badla interest of Rs.25,88,127/- and addition of Rs.2,56,20,897/- confirmed by the CIT(A) by way of enhancement of account of net credit in vyaj badla transactions. The AO noted from the special audit report that the assessee had debited brokerage and commission account by Rs.25,88,127/- on account of vyaj badla paid/payable to C.A. Parikh. The special auditor report pointed out that there was opening credit 6 ITA No. 569/M/06 A.Y.01-02 balance of Rs.1,03,44,301/- in the account of C.A. Parikh and on 31.3.2001 a journal entry had been passed crediting C.A. Parikh account by Rs.2,95,66,215/- and debiting Guiltedge Credit Capital Ltd. (GCCL) by the same amount which was assessee's sister concern. The AO thus concluded that the said amount had been diverted from C.A. Parikh account by the assessee to the sister concern without charging any interest whereas vyaj badla interest of Rs.25,88,127/- had been debited to brokerage and commission account.
4.1 Assessee submitted C.A. Parikh was common customer of the assessee and GCCL. As agreed by C.A. Parikh sum of Rs.2,95,66,215/- had been written off against the amount due to GCCL. There was no question of any interest being payable. AO however observed that the assessee did not explain the purpose for which vyaj badla interest of Rs.25,88,127/- had been paid and observed that vyaj badla was in relation to traditional carry forward system which was linked to speculation business in the market. The AO also observed that there was no material to show that the assessee was involved in any such trading. Therefore, AO disallowed the claim holding that the same was not incurred wholly and exclusively for the purpose of business.
7 ITA No. 569/M/06
A.Y.01-02 4.2 In appeal, the assessee submitted that it had received funds from various clients for badla transactions through the BSE. It was not correct that the assessee had debited the brokerage and commission account by Rs.25,88,126/-. It was pointed that the vyaj badla account had been debited by Rs.25,88,126/- on 31.3.2001 which was a transfer entry from another account i.e. C.A. Parikh Vyapar account whose debit balance had been transferred to this account. After transferring the said amount, the account had become nil. The closing balance in the C.A. Parikh vyaj badla was Rs. 3,72,20,897/- which was shown in the balance sheet as creditors. It was also submitted that there was no diversion of funds in crediting the sum of Rs.2,95,66,215/- to C.A. Parikh Vyaj Badla account and debiting the same amount to GCCL account. On examination of details and of the submissions made by the assessee, CIT(A) observed that the assessee had taken vyaj badla loans from various parties and the same were routed through C.A. Parikh Byaj Badla Account. Assessee had taken total loans of Rs.3,72,20,897/- on which vyaj badla interest of Rs.9,55,585/- had been paid. CIT(A) asked the assessee to prove genuineness of the loans. The assessee filed loan confirmation letters in respect of some loans and filed address of parties in respect of some other loans. It was submitted that parties were not filing confirmations of loans the as assessee was in financial 8 ITA No. 569/M/06 A.Y.01-02 crisis. CIT(A) remanded the matter to the AO for detailed examination and report. The AO in the remand report submitted that he had issued summons to the parties whose addresses were made available asking to explain the sources of loan giving the P.A. No., details of business done and copy of bank statements etc. 4.3 The AO after necessary examination summarized the position in the remand report as under :-
A Transaction in respect of following persons were not verifiable.
i) Kailash Construction
ii) Shri Sunil K. Gandhi
iii) Shower Finvest Pvt. Ltd.
iv) Axis Enterprises
v) Shri M.B. Kulkarni
vi) Shri Soli Mehta
vii) Ms. Piroza Mehta
viii) Shri Chetan Dadia
ix) Ms. Seema Vaidya
x) Shri Zubin Balsara
The AO pointed out that parties at Sl.No. (i) to (iv) were not found staying at the addresses given; address of S.No.(v) was not provided; Parties at S.No.(vi) to (viii) sought time to give details but ultimately did not file any details; and parties at Sl.No. (ix) and (x) did not respond to summons.
B. The following parties denied any transactions with the assessee :-
i) Shri Udayan V. Desai
ii) Shri Kiran Gandhi
9 ITA No. 569/M/06
A.Y.01-02
iii) Ms. Deepti Gandhi
iv) Ms. Jyotsana Dholabai
v) R.R. Hosiary P.Ltd.
vi) Ms. Ila Dholakia
C. In the following cases, the parties had confirmed having given
funds to the assessee for vyaj badla.
S.No. Name of the Nature of Income
person transaction earned(Rs.)
1. Shree Dutt Vyaj Badla 0.00
Polytextiles
2. Nikunj Gandhi Vyaj Badla 40171.00
3. Manish Pabari Vyaj Badla 82,849.00
4. Harikishan Pabari Vyaj Badla 75,889.53
5. Ramesh Parekh Vyaj Badla 4,169.61
6. Hansa Parekh Vyaj Badla 4,114.63
7. Pravin parekh Vyaj Badla 4,169.61
8. Meena Parekh Vyaj Badla 4,114.63
9. Kirit Sanghvi Vyaj Badla 37,302.80
10. Kokila Sanghvi Vyaj Badla 2,501.43
11. Sanjay Desai Vyaj Badla 4,42,047.00
12. Atul Ashok Ruia Vyaj Badla 6,18,884.00
Trust
Total 13,16,213.7
4.4 The AO therefore reported that vyaj badla interest in respect of
16 parties had been rightly disallowed as they either did not confirm transactions or denied the transactions. In respect of 12 parties, who confirmed transactions, the AO observed that investors, provided funds for investing in vyaj badla transactions for deriving profit and therefore the claim of payment of interest by the assessee was nothing but profit earned by those parties which could not be allowed as deduction in case of the assessee. AO therefore rejected the 10 ITA No. 569/M/06 A.Y.01-02 explanation holding that cliam of vyaj badla interest was not correct.
It was also pointed out that break up of vyaj badla had not been given and no tax had also been deducted. The AO also requested CIT(A) to consider enhancement of income in respect of funds claiming to have been received by the assessee through various investors. 4.5 The findings of the AO were confronted to the assessee by the CIT(A). Assessee submitted that it had furnished details relating to vyaj badla transactions alongwith explanation. It was also submitted that the assessee had not debited sum of Rs.25,88,127/- to brokerage and commission account and therefore disallowance of such amount did not arise. The assessee objected to the proposed enhancement by CIT(A). It submitted details of credits in the case of 12 parties which had been referred to by the AO. After considering the details and submissions, CIT(A) held that assessment was required to be enhanced on account of credits in the name of different parties in relation to vyaj badla transactions which were not explained, except in case of 12 parties involving Rs.1,16,00,000/-. CIT(A), therefore, enhanced the assessment by Rs.2,56,20,897/- (37220897 - 11600000). Aggrieved by the decision of CIT(A), assessee is in appeal before Tribunal .
11 ITA No. 569/M/06
A.Y.01-02 4.6 Before us, the ld. AR for the assessee reiterated the submissions made before CIT(A) that it had not claimed any deduction of vyaj badla interest of Rs.25,88,122/- which was added by AO. In relation to the enhancement of Rs.25,56,20,697/-, the assessee in the paper book had mentioned that the ground was not pressed. However, the ld. AR for the assessee submitted that the assessee had not accepted the said enhancement and was ready to argue the matter. It was argued that, in many cases, assessee had received amount through account payee cheques and names and addresses were available but the investors were scared to come forward. It was accordingly requested that the addition made was not justified and the matter should be examined afresh. The ld. Departmental Representative on the other hand strongly supported the orders of authorities below and placed reliance on the findings given in the respective orders. 4.7 We have perused the records and considered the rival contentions carefully. The dispute is regarding disallowance of claim of Vyaj Badla Rs.25,88,127/- and enhancement of income made by CIT(A) by Rs.2,56,20,697/- on account of cash credits in relation to vyaj badla. CIT(A) has given a finding that the assessee had taken vyaj badla loans from various parties and some were routed through C.A. Parikh vyaj badla Account. The total loans taken on this account were Rs.3,72,20,897/-. The assessee could not produce full details 12 ITA No. 569/M/06 A.Y.01-02 and confirmations in all the cases the ground that parties were not co- operating. The details given by the assessee were examined by the AO in the remand proceedings. The findings of the AO are given at page 7 and 8 earlier. There were six parties which denied any transactions with the assessee. In respect of 10 other parties, it was reported that either these were not found staying at the address given or did not give any details or did not respond to summons. Even before us, no confirmations with P.A. Nos. have been given in respect of the above sixteen parties. We, therefore, see no infirmity in the order of the CIT(A) confirming addition in relation to the sixteen parties. As regards, cash credits in respect of 12 other parties which had confirmed the transactions, CIT(A) has already allowed relief and revenue is not aggrieved with the decision of CIT(A). Therefore, we confirm the order of CIT(A) regarding addition of Rs.2,56,20,697/-. As regards the disallowance of claim on account of brokerage and commission of Rs.25,88,126/- we find, that CIT(A) has not passed any specific order on this issue. The assessee has submitted that it had not made any claim of deduction mentioned above. We, therefore, restore this issue to the file of CIT(A) for fresh order after hearing the assessee.
5. The fourth dispute is regarding addition of Rs.14,51,493/- on account of interest expenditure. AO noted that, in the P&L Account, a 13 ITA No. 569/M/06 A.Y.01-02 sum of Rs.2,48,900/- had been credited as security trading profit. The assessee however failed to furnish details such as opening stock, closing stock, purchases and sales in respect of such trading profit despite specific requisitions made by the AO. From the details given in the special audit report, AO noted that the assessee had entered into debt market transactions with M/s. Giltedge Investment Services Ltd. as per which date of purchase was much after date of sale. The transactions were thus speculative transactions and securities profit shown by the assessee was only speculation income. The AO also noted that a sum of Rs.16,51,493/- was interest attributable to the security trading which was included in the total interest debited in the P&L Account. Thus interest which related to speculative transactions could not be allowed against normal income. He therefore, added sum of Rs.10,42,595/- (248900 - 1651494) which was net loss from speculative activity. The same was added to the total income and allowed to be carried forward to be set off against future speculative profit.
5.1 Assessee disputed the decision of AO and submitted before CIT(A) that on short selling of securities, assessee received money from sister concern M/s. Giltedge Investment Banking Services (GIBS) which had been utilized for the purpose of business activity. The 14 ITA No. 569/M/06 A.Y.01-02 details of transactions entered into by the assessee in the Government Bonds, profit earned and interest paid/received was given as under :-
S. Name Date of Sale Price Date of Purchase Price Surplus/Defi Interest No. of Short sale Purchase cits Paid/Interest Script Received
1. 10.75 10/06/00 2,36,42,400/- 27/11/00 2,32,80,000/- +3,62,400/- -15,33,667/-
% +3,56,666/-
GOI
2020
2. 10.75 03/02/00 2,25,86,500/- 11/06/00 2,27,00,000/- -1,13,500/- -4,74,493/-
% +3,52,480**
GOI (Last Year)
2020
+2,48,900/- -16,51,494/-
5.2 The assessee submitted that in the security market, there are
various methods to raise funds. Assessee had raised funds by short selling the securities and the interest cost incurred was much lower than the prevailing market rate which was 15%. Further, interest cost had nothing to do with the security transactions. It was therefore urged that the addition made by AO should be deleted. CIT(A) however did not accept the contentions raised. It was held by him that the interest had been paid by assessee only in relation to debt market transactions which were speculative and therefore disallowance was justified.
5.3 Before us the ld. AR for the assessee submitted that the assessee had received money on sale and paid back the money after purchase and there was thus no speculative transactions. The disallowance made therefore was not justified. The ld. Departmental 15 ITA No. 569/M/06 A.Y.01-02 Representative on the other hand supported the orders of authorities below.
5.4 We have perused the records and considered the rival contentions carefully. The dispute is regarding the interest expenditure incurred by the assessee in relation to security trading in govt. bonds. There is no dispute that the assessee had short sold securities which meant that the sale was not supported by delivery of securities. Similarly when the assessee squared up the transactions by purchasing the same quantities of securities, there was no delivery involved. This was therefore clearly a speculative transaction, during the course of which the assessee had paid interest of Rs.16,51,494/-
and earned profit of Rs.2,48,900/-. Since interest was paid in relation to the speculative transactions, it had to be adjusted against the profit and net income which was loss of Rs.14,02,594/- has been rightly treated by AO as speculative loss and not adjusted against normal profit and carried forward to next year. Order of CIT(A) upholding the stand taken by the AO in our view is justified and the same is confirmed.
6. The fifth ground is regarding disallowance of management fees of Rs.25.00 lacs paid to Salecha Consultant for providing professional services. The AO noted that the assessee had claimed a sum of 16 ITA No. 569/M/06 A.Y.01-02 Rs.25.00 lacs on account of payment to Salecha consultants as management fees. The AO asked the assessee to substantiate the claim by filing necessary evidence such as confirmations and services rendered. Assessee only filed copy of account of Salecha Consultants Private ltd. without any confirmation or P.A. No. of the party. The assessee submitted that the payment had been made for following up with the clients for their pay-in and pay-out and arrangement of funds. The AO observed that the assessee itself was a sub-broker and, therefore, there was no need of any consultant and the claim was also not substantiated. Even confirmations, client list etc. was not given. AO therefore disallowed the claim which in appeal was confirmed by CIT(A) aggrieved by which assessee is in appeal before Tribunal. 6.1 We have heard both the parties, perused the records and considered the matter carefully. Before us also no evidence to substantiate the services rendered etc. for making payment has been produced. The ld. AR fairly admitted that identical claim had been disallowed in assessment year 2000-01 in assessee's own case and the Tribunal vide order dated 8.4.2011 in ITA No.568/M/2006 has confirmed the disallowance. We, therefore, respectfully following the decision of the Tribunal (supra), confirm the addition. Order of CIT(A) is accordingly upheld.
17 ITA No. 569/M/06
A.Y.01-02
7. The sixth dispute is regarding disallowance of interest. The AO noted that the assessee had debited a sum of Rs.32,14,691/- as interest which included a sum of Rs.16,51,494/- which had been disallowed earlier as relating to speculative transactions. In relation to the balance amount of Rs.15,63,197/-, the special audit reported that most of the funds borrowed had been given to associate concerns for non business purposes. The AO therefore asked the assessee to explain as to why interest should not be disallowed. The assessee explained that the loans had been utilized to square up earlier loans and had not been diverted to sister concerns. The AO however did not accept the explanation. It was noted by him that the loans taken by the assessee had been utilized for giving loans to the following concerns from whom no interest had been charged :-
1. M/s. Giltedge
2. M/s. K.C.S.
3. M/s. Century
4. Shri Sanjay Agarwal
5. M/s. G.C.C.
6. Shri Pratap P.
7. Ms. Harsha Shah
8. M/s. Ketan Seth & Co.
9. M/s. Giltedge Credit & Capital
10. M/s. Salecha Consultants.
7.1 The AO further observed that most of the above concerns/persons were related to the assessee in one way or the other. The AO also observed that it may be true that some of the 18 ITA No. 569/M/06 A.Y.01-02 funds had been utilized for the purpose of squaring up of earlier loans but the assessee was a sub broker and did not require deployment of huge funds and in case of delay of payment by clients, the burden to pay interest was on the clients. The AO therefore, concluded that funds borrowed had been utilized for non business purposes. Further, the assessee had also given part of the funds to connected parties interest free. The AO therefore, disallowed the claim of interest. The assessee disputed the decision of AO and submitted before CIT(A) that the loan funds had been utilized for payment of credit balance of Ketan Seth and GCCL and other parties which were interest free. CIT(A) however observed that the assessee could not furnish any evidence to show that the loans had been utilised for the business of the assessee.
CIT(A) further observed that funds had been diverted to associate concerns for non business purposes. He therefore, confirmed the disallowance.
7.2 Before us the ld. AR for the assessee reiterated the submissions made before the lower authorities. It was argued that the sub brokers also need working capital and it was not correct to say that no funds were required by the assessee. The ld. DR supported the findings of authorities below.
19 ITA No. 569/M/06
A.Y.01-02 7.3 We have perused the records and considered the rival contentions carefully. The dispute is regarding disallowance of interest of Rs.15,63,197/- paid by the assessee on account of borrowed funds. The AO has listed several parties to whom borrowed funds had been given interest free. It can not therefore, be said that funds to that extent had been borrowed for the purpose of business. The assessee submitted that it had also used borrowed funds for paying outstanding credits in the name of different parties. However the finding of CIT(A) that no evidence had been produced to substantiate that funds had been utilized for the purpose of business has not been controverted before us by producing any evidence. The assessee is a sub-broker who executes orders on behalf of clients who are required to pay the money for the purchases. In such situation if the assessee claims that it has borrowed funds for the purpose of business, it has to give full details of the funds requirement for business purposes with supporting evidence which has not been done in this case. Therefore, disallowance of interest on borrowings holding the same for non business purposes has to be upheld. We, therefore, confirm the order of CIT(A) on this point.
8. The seventh dispute is regarding addition of Rs.1,26,50,000/- under section 68 of the Income tax Act on account of several loans taken by the assessee. The AO noted that the assessee had taken 20 ITA No. 569/M/06 A.Y.01-02 fresh loans during the year, some of which had also been squared off during the year itself. The details of such loans have been mentioned in the assessment order which are as under :-
S.No. Name of Party Loan Amount(Rs.) Whether repaid or not during the year
1. Associated Brothers 25,00,000/- Yes
2. Mehul Mehta 5,00,000/- Yes
3. Natwarlal N. Ghia 1,00,000/- Yes
4. Mansukhlal N. Ghia 1,00,000/- Yes
5. Arunkumar N. Ghia 1,00,000/- Yes
6. Nitin Mehta 7,00,000/- No
7. Dahyabhai Shares & 4,00,000/- Yes Stock Brokers
8. Shah Babulal Revchand 5,00,000/- No HUF
9. Shah Jagartilal 11,00,000/- No Revchand HUF
10. Hitendra H. Gogri HUF 4,44,000/- No
11. Narendra M. Dedhiya 5,60,000/- No
12. Soli Mehta 3,25,000/- No
13. Premchand J. Gada 3,75,000/- No
14. Kishore Hatechand Shah 2,25,000/- No
15. Deepak Bhawanji Gala 2,50,000/- No
16. Ravi Daulatbhai Rathod 2,50,000/- No
17. P.P.Shah 1,00,000/- Yes
18. Bharat Patel 2,25,000/- No
19. Ashok Patel 2,25,000/- No
20. Rajnikant Shah 2,25,000/- No
21. Madhumati B. Ruia 2,50,000/- No
22. Parekh Chandrakant A 7,00,000/- No
23. Peddar & Peddar Tles 4,00,000/- No
24. Jaikal Exports 15,00,000/- Yes
25. Radhika Shah 1,00,000/- Yes
26. Euro Asian Securities 5,00,000/- Yes Total 12,65,00,000 21 ITA No. 569/M/06 A.Y.01-02 8.1 The AO asked the assessee to substantiate the loans by filing confirmations and other details regarding identity and creditworthiness of the creditors. The assessee filed certain confirmations but the AO noted that none of them were complete.
Most of them were without signatures of the parties. As per AO, the assessee also produced no material to prove the identity and capacity of the creditor. The AO therefore, added the sum of Rs.1,26,50,000/- under section 68 of the Income tax Act.
8.2 The assessee disputed the decision of the AO and submitted before the CIT(A) that it was not correct to state that the assessee had failed to discharge the initial burden. Assessee had made attempts to file confirmations but the process could not be completed due to non availability of certain parties. AO had ignored the confirmations filed without any examination only on the ground that these were not complete. CIT(A), however, did not accept the contentions raised. It was observed by him that the onus was on the assessee to establish the identity, creditworthiness and genuineness of transactions. He referred to several judgments in support of the said proposition. The assessee had failed to do so, and therefore, CIT(A) confirmed the addition made by AO aggrieved by which, assessee is in appeal before the Tribunal.
22 ITA No. 569/M/06
A.Y.01-02 8.3 Before us the ld. AR for the assessee submitted that the loans had been added without any examination. It was submitted that because of financial condition of the assessee, creditors were not co- operating in giving confirmations but the assessee had given full details such as name and address etc. along with their P.A. No. He referred to special audit report a copy of which was placed on record to point out that the list of creditors given by special auditors also gave name, address and P.A. No. in several cases but these were not examined. It was further argued that loans had been repaid by cheque in most of the cases and in some cases in the subsequent year. Ledger copy of different creditors was placed on record to substantiate the point. It was pointed out that the addition had been made without any examination or application of mind as even the loan already added on account of vyaj badla such as in case of Soly Mehta had also been added again under this head. The ld. AR further pointed out that in assessee's own case in the immediate preceding year i.e. assessment year 2000-01 similar addition made on account of cash credit had been set aside and matter restored back to CIT(A) by Tribunal in order dated 8.4.2011 vide ITA No.568/M/2000. In that case also the order of CIT(A) had been passed around the same time which was dated 14.11.2005, whereas, in assessee's case CIT(A) had passed the order on 18.11.2005 . It was therefore requested that the 23 ITA No. 569/M/06 A.Y.01-02 issue may be restored to the file of AO for fresh examination after allowing opportunity of hearing to the assessee. The ld. DR on the other hand supported the orders of authorities below and placed reliance on the findings given in respective orders. 8.4 We have perused the records and considered the rival contentions carefully. The dispute is regarding addition of Rs.1,26,50,000/- under section 68 of the Act on account of several loans taken by the assessee, details of which, have been given in para 8 earlier. There were 26 parties from whom loans were taken . Both AO and CIT(A) have confirmed the addition on the ground that no complete confirmations had been filed and assessee had not discharged the onus to establish the identity and credit worthiness of the parties and genuineness of the transactions. The ld. AR for the assessee has argued that parties were not co-operating because of the bad financial condition of the assessee. It has been pointed out that the assessee had given full details such as name and address along with P.A. Nos. Such details were also available in the special audit report before AO, copy of which has been placed in the paper book which, it is submitted, had not been examined by the authorities below. It has also been submitted that in most of the cases loans had been repaid by cheque within the year and in some cases in the subsequent years. The ledger copies of the creditors have been placed 24 ITA No. 569/M/06 A.Y.01-02 on record to substantiate the claim. It has also been submitted that in assessment year 2001-02, similar addition had been set aside by ITAT and restored back to CIT(A). The order of CIT(A) in that year had been passed around the same time.
8.5 We have carefully considered the various aspects of the matter. We find that the details of cash credits have been taken by the AO only from special audit report a copy of which has been placed on record. A perusal of the said report shows that name and address, P.A. No. are available except in seven cases as mentioned below in which P.A. Nos. are not available.
i) Premchand J. Gada Rs.3,75,000/- ii) P.P. Shah Rs.1,00,000/- iii) Bharat Patel Rs.2,25,000/- iv) Ashok Patel Rs.2,25,000/- v) Rajnikant Shah Rs.2,25,000/- vi) Madhumati B. Ruia Rs.2,50,000/- vii) Peddar & Peddar Tiles Rs.4,00,000/- viii) Soli Mehta Rs.3,25,000/- 8.6 Thus, out of 36 cases, in 28 cases name, address and P.A. Nos.
were available before AO as per special audit report, and therefore, even if the assessee could not file the confirmations because of non- co-operation of the parties, the AO was required to examine the genuineness of these loans as these parties had been allotted P.A. Nos. We, therefore, set aside the order of CIT(A) in relation to these 25 ITA No. 569/M/06 A.Y.01-02 28 loans and restore the matter back to him for passing a fresh order after necessary examination of genuineness and creditworthiness based on details available and after allowing opportunity of hearing to the assessee. In respect of other loans numbering 8, assessee has not provided P.A. No. details even at this stage, therefore, addition in respect of these 8 parties is justified. These 8 parties also include the name of Soli Mehta in which addition has already been upheld as vyaj badla loan earlier. Therefore, the addition is confirmed only in relation to seven parties.
9. In the result, appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 11.4.2012.
Sd/- Sd/-
(V.D. RAO) (RAJENDRA SINGH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dated: 11.4.2012.
Jv.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR " " Bench
True Copy
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.