Income Tax Appellate Tribunal - Amritsar
Narinder Kumar , Hoshiarpur vs Assessee on 11 July, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR.
(CAMP AT JALANDHAR)
BEFORE SH. A.D. JAIN, JUDICIAL MEMBER
AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER
ITA No.14 (Asr)/2015
Assessment Year:2006-07
PAN: ABCPK-0859N
Sh. Narinder Kumar vs. Income Tax Officer,
S/o Sh. Brij Mohan, Ward-2, Hoshiarpur.
Hoshiarpur.
(Appellant) (Respondent)
Appellant by: Sh. Sandeep Vijh,CA
Respondent by: Sh. Bhawani Shanker, DR
Date of hearing: 28/06/2016
Date of pronouncement: 11/07/2016
ORDER
PER A.D. JAIN, JM:
This is the assessee's appeal for the assessment year 2006-07, against the order dated 19.12.2014, passed by the ld. CIT(A)-I, Jalandhar. The sole ground of appeal raised by the assessee is as follows:
"1. That the ld. CIT(Appeals) has erred in sustaining the addition of Rs.20,00,000/- towards alleged unexplained credits in bank account. The submissions made have not been appreciated. The ld. CIT(A) has made presumptions while sustaining the addition."
2. The facts of the case are that the assessee, an individual, had shown his income by way of salary and interest income apart from commission income from the sale and purchase of immovable properties and had filed his return of income for the year under consideration on 2 ITA No.14(Asr)/2015 A.Y. 2006-07 30.03.2007 declaring therein an income of Rs.4,48,755/-. During the course of assessment proceedings in the case of M/s Janta Oil Mills (in which the assessee is a partner), it was noticed by the Assessing Officer that the assessee had introduced funds in the said concern and the source of these funds were stated to be withdrawals from bank account No. 14380 maintained by the him with OBC, Hoshiarpur. A perusal of the bank account revealed that there were huge deposits in the bank account of the assessee during the year under consideration. When asked to explain the source of deposits in the bank account, the assessee explained the source as loan from the following persons:-
Date Name of lender Relation Amount (In Rs.)
30.06.2005 Smt. Sumiti Mittal Wife 2,00,000/-
11.08.2005 Sh. Rakesh Aggarwal, Ldh. Borther-in-law 5,00,000/-
05.09.2005 Sh. Rakesh Aggarwal, Ldh. Borther-in-law 5,00,000/-
19.08.2005 Smt. Shraddha Bajoria, Distant relative 2,00,000/-
14/110, Golf Club Road,
Calcutta
30.08.2005 Smt. Shraddha Bajoria, Distant relative 1,00,000/-
14/110, Golf Club Road,
Calcutta
04.10.2005 Smt. Shraddha Bajoria, Distant relative 2,70,000/-
14/110, Golf Club Road,
Calcutta
04.10.2005 Smt. Sushila Aggarwal, Distant relative 1,30,000/-,
125, Mukherjee Road,
29/3, Calcutta
27.09.2005 Smt. Urmila Bajoria, Distant relative 4,00,000/-
14/110, Golf Club Road,
Calcutta
30.08.2005 Smt. Urmila Bajoria, Distant relative 4,00,000/-
14/110, Golf Club Road,
Calcutta
19.08.2005 Smt. Geeta, Calcutta Distant relative 5,00,000/-
3 ITA No.14(Asr)/2015
A.Y. 2006-07
The source of loan from the wife of the assessee and Sh. Rakesh Aggarwal was treated by the Assessing Officer as explained and no adverse inference was drawn in respect of these loans. However, the other loans amounting to Rs.20,00,000/- were treated by the Assessing Officer as accommodation entries and unexplained income of the assessee himself in view of detailed discussion made in the assessment order. The assessment in this case was ultimately completed by the Assessing Officer under section 143(3) of the Act vide order dated 30.12.2008, at an assessed income of Rs.24,48,760/-, which included an addition of Rs.20,00,000/- on account of unexplained loan from four ladies, namely, Smt. Shraddha Bajoria, Smt. Urmila Bajoria, Smt. Sushila Aggarwal and Smt. Geeta Bajoria of Calcutta.
3. By virtue of the impugned order, the ld. CIT(A) dismissed the assessee's appeal, holding as follows:
"6.13 I have considered the observations of the Assessing Officer as made by him in the assessment order as well as in various remand reports. I have also considered written submissions filed by the assessee including additional evidences produced by the assessee as well as his counter comments on the remand reports of the Assessing Officer. I have also considered enquiry reports of the ADIT/DDlT(Inv.), Kolkata as well as assessment records. I have again considered various judicial pronouncements relied upon by the assessee as well as other material brought on record. The only addition made in the assessment order which is being contested in appeal is the addition of Rs.20,00,000/- made by the Assessing Officer in respect of unexplained deposits received from four ladies of Kolkata. On careful consideration of the rival contentions, I am also of the opinion that the lenders do not have any capacity to advance any loan to the 4 ITA No.14(Asr)/2015 A.Y. 2006-07 assessee. The interest in the books of Terpene & Allied Products was provided @15% whereas the interest paid by the assessee is only @12%. This creates a doubt that as to why a person will lend her hard earned money at lesser interest when she is already getting higher return from other concern. Smt. Shraddha Bajoria & Smt. Sushila Aggarwal have not even appeared before the DDIT(Inv.), Kolkata to explain the sources of their income. Various cash deposits have also been made by some of the lenders before advancing loan to the assessee and the sources have been explained to be from saving. This fact is hardly digestible. In my opinion, the source of cash deposits remained unexplained as the four ladies do not have capacity to advance. Even in the affidavits filed by four ladies, none of them has disclosed her sources of income. Even the interest is being credited in the account and no actual payment has been made during the year under consideration or in subsequent assessment years. The balance sheets of the lenders show that they have accepted deposits without paying any interest. Similarly, the advances were shown without charging any interest. This clearly creates a doubt in the authenticity of the documents produced during assessment/investigation proceedings. None of the case laws relied upon by the assessee support his case as each case has distinguishable facts."
4. Before us, on behalf of the assessee, it has been contended, by way of written submissions, as reiterated by the ld. counsel, as under:
"The first ground of appeal is that the learned CIT(A) has erred in sustaining the addition of Rs. 20,00,000 towards alleged unexplained credits in bank account. The submissions made have not been appreciated and the Id. CIT(A) has made presumptions while sustaining the addition. The brief fact of the case are that certain credits were appearing in the pass book of the assessee I and during the course of the assessment proceedings, these credits were explained by the assessee. Some credits were accepted but four creditors listed at the bottom of page no. 9 of the assessment order were disbelieved despite the fact that acknowledgment of income tax return, bank accounts and other connected documents were filed. The general reason given by the assessing officer [first seven lines of the last para at page no. 2 of the assessment order] was that the assessee has obtained loans from far of place like Kolkata whereas loans are being offered by all the Banks at every station at a reasonable rate of interest. The assessing office had 5 ITA No.14(Asr)/2015 A.Y. 2006-07 failed to appreciate that that banks lend money after proper financial evaluation and obtaining primary as well as collateral security. It is not a situation that any person can go to any bank and borrow any amount of money. An assessee can borrow from friends, relatives etc who do not live in the same town and it cannot be presumed that all such deposits are not genuine. The assessing officer has in the borrowing rate of 12 % and observed that this was "not digestible and not free from doubt". Why the rate of interest of 12 % is not digestible and why he has raised doubts has not been mentioned in the assessment order.
(a) The assessing officer got a commission issued u/s 131(l)(d) of the Income Tax Act from the Additional Commissioner Of Income Tax, Hoshiarpur Range, Hoshiarpur through letter dated 16/10/2008 to the Additional Director of Income Tax (Investigation) (HQ), Kolkata for conducting inquiries regarding the genuineness of deposits and also to verify the source of the source [last five lines at page no. 2 of the assessment order]. The report of the assessing officer at Calcutta dated 26/12/2008 which is stated to have been received on fax was used against the assessee without even confronting the report to the assessee [first para at page no. 3 of the assessment order]. If the assessing officer wanted to use the faxed document against the assessee, in order to comply with the principles of natural justice, a copy of the fax received should have been forward to the assessee on 26/12/2008 itself when the hearing took place before him. It is submitted that 27th and 28th December were holidays being Saturday and Sunday. On 29th when the hearing took place the focus of the assessing officer was on the verification of books of accounts of M/s Trin Enterprises and interest paid to only one depositor - Smt. Urmila Bajoria. When the proceedings were concluded he informed that the fax copy of the report of the ADI Kolkata had been received and was in the assessment file. Under these circumstances, it cannot be said that the report was confronted to the assessee. Merely informing that the report was available in the assessment record and without giving a copy of the same along with the query as to what inference was proposed to drawn, the principles of natural justice have not been complied with [above contention before the CIT(A) is in the second para at page no.
2], In fact the CIT(A) had in the case of Mayor & Company considered this legal position in detail and held that opportunity to rebut a charge must be adequate and merely showing a document to the charged person without informing the inference proposed to be drawn from the document and without giving adequate time to rebut the allegation is against the principles of natural justice. The addition made was accordingly deleted. Copy of the relevant portion of the order is enclosed at page no. 108 to 116 [please see first para 6 ITA No.14(Asr)/2015 A.Y. 2006-07 at page no. 115]. In fact appeal against this order filed by the revenue had also been dismissed. Copy of the order of IT AT, Amritsar Bench is at page no. 76 to 78 [please see para no. 19 & 20 at page no. 77 & 78]. It is not clear as to why the CIT(A) chose to ignore this order which had been upheld by the jurisdictional IT AT and was binding upon him. It is an accepted legal principal that any material which is to be used against the assessee has to be confronted to him. This is supported by the decision of the Supreme Court in the case of Kishinchand Chellaram vs. CIT reported at 125 ITR 713. The addition thus made is in violation to the principles of natural justice and deserves to be quashed on this score itself. We would like to draw your attention to the decision of the Jurisdictional High Court in the case of CIT vs. Ram Kumar reported at 163 Taxman 253 wherein it was held that the order passed in violation of the principles of natural justice was bad in law. Copy of the order is enclosed at page no. 90 to 92 [please see page no. 90]. Similar view has been expressed by the Delhi High Court in the case of CIT vs. Gulati Industrial Fabrication Pvt. Ltd reported at 217 CTR 494. Copy of the order is enclosed at page no. 93 to 95 [please see page no. 93]. SLP against this order has been dismissed by the Supreme Court. Copy of the order of the Supreme Court dismissing the SLP in the case of Gulati Industrial Fabrication Pvt. Ltd on merits is enclosed at page no. 1. [Setting aside without specific directions amounts to annulment as has been held by the Calcutta High Court in the case of Fu Sheen Tannery vs. ITO reported at 262 ITR 456]. This view has also been
(b) dorsed by the ITAT, Delhi Bench in the case of Sanjay Kumar Bansal vs. ITO. Copy of the decision is at page no. 68 to 75 [please see page no. 75] and in the case of the ITAT, Delhi 'A' Bench in the case of ITO vs. Smt. Kanti Devi Gupta reported at 3 SOT
893. Copy of the decision is enclosed at page no. 96 to 99 [please see page no. 96]. Similar view has also been expressed by the ITAT, Mumbai Bench in the case of ACIT vs. Tristar Jewellery. Copy of the decision is enclosed at page no. 100 to 105 [please see page no. 104]. The Punjab & Haryana High Court has recently in the case of Surjit Singh vs. CIT deleted the addition where principles of natural justice had not been complied with. Copy of the decision is enclosed at page no. 106 & 107 [please see page no. 107 and reverse of page no. 107], Arguments on the above aspect made before the CIT(A) are at second para at page no. 2, at page no. 54 and first para at page no. 55. The addition of Rs. 20,00,000 thus deserves to be deleted on this score itself."
7 ITA No.14(Asr)/2015
A.Y. 2006-07
5. The ld. DR, on the other hand, strongly relied on the impugned order.
6. On having heard the rival contentions in the light of the material available on record, it is seen that it remains undisputed that a commission was issued under section 131(1)(d) of the Income Tax Act, vide letter dated 16.10.2008, by the Addl. CIT, Hoshiarpur Range, Hoshiarpur to the Additional Director of Income Tax (Investigation) (HQ), Kolkata. The report of the Additional Director of Income Tax (Inv.) (HQ), Kolkata, dated 26.12.2008 is stated to have been received by Fax. In this regard, the relevant portion of the assessment order at page 2, reads as follows:
"The assessee did not produce the lenders and the entries in the bank accounts appear to be accommodating entries and as the complete particulars of income enjoyed by the so called lenders were not provided it was not possible to ascertain the credit worthiness of these ladies, a reference was made by way of issue of commission u/s 131(1)(d) of the I.T. Act, 1961 to the Addl. Director of Income-tax (Inv.) (HQ), Kolkata, by the Addl. CIT, Hoshiarpur Range, Hoshiarpur under letter no. 4840 dated 16.10.2008 for conducting enquiries regarding the genuineness of the aforesaid loans. He was also requested to verify the source of source in respect of the so called lenders. The ADI (Inv.), Unit IV, Kolkata issued summons to the so called lenders. These lenders did not appear before him in compliance to the said summons. Only photo copies of the returns filed and bank statements of the lenders were filed before him. The ADI (Inv.), Kolkata, submitted a detailed report through Fax on 26.12.2008 in which he came to the conclusion after examining the documents filed that the lenders were not in a position to advance such huge amount and that too without any security to Sh. Narinder Mittal. The report of the ADI (Inv.) is reproduced below for ready reference in which he elaborately dealt with the genuineness of loan advanced by each so called lady lender separately."8 ITA No.14(Asr)/2015
A.Y. 2006-07
7. The assessee contends that the above report of the Addl. DIT (Inv.) was used against the assessee at the back of the assessee without confronting the same to the assessee. This contention of the assessee appears to be correct, in as much as the assessment order evinces that after the above reproduced portion of the assessment order at pages 2-3, from pages 3 to 8, the AO has reproduced the Addl. DIT (Investigation)'s report dated 26.12.2008. Immediately thereafter, at pages 9 & 10, the findings of the AO are contained, which, for ready reference, are reproduced hereunder:
"From the above facts it is clear that the assessee procured accommodating ^entries from the above mentioned Kolkata ladies . The credit worthiness of these lenders is not proved. The lender ladies have filed their returns of income below the taxable limit. This itself proves that they are engaged in formation of capital without payment of any income-tax. Such device can be described as Tax Avoidance but when these persons abet to give such accommodation entries to other assesses it amounts to Tax Evasion because from the capital so built up the non tax payers advances loans or making gifts to other tax payer assesses in order to give colour of genuineness and convert their undeclared income in the shape of such gifts/loans. When put to scrutiny it requires to be given a different and deterrent treatment and such transactions are made to evade the true transaction or subvert welfare legislation. Where a smoke screen is created , the Court should not override the substance of the transaction . It is the duty of the judiciary to probe into the dark recesses of the transaction , however, legal it may be (Workman Associated Rubber Industries Ltd. 48CTR (SC) 355. It is the duty of the Court to expose a Tax Evasion device and refuse approval to it. (Me. Dewell & Co. (SC) 154 ITR 148. By making payment through banking channel it cannot be taken that the transaction have become pious and there does not exist any mala fide. The assessee has not yet paid interest on the so called loans except Rs.42,000/- claimed to have been paid on 08-08-2006 and Rs.85,000/- on 07-08-2008 through cheques to Smt. Urmila Bajoria. The other lady lenders have not yet been paid anything up till now 9 ITA No.14(Asr)/2015 A.Y. 2006-07 i.e. for the last two years or more. This very fact goes to prove without any shadow of doubt that these are accommodation entries procured by the assessee to give colour of genuineness to undeclared income earned by him from his business of real estate dealing as the assessee has not disclosed the names and addresses of the persons from whom he received commission and shown under the head "Other commission." Accordingly, the following amounts introduced by the assesseee in the garb of so called loans are disallowed and added to the total income of the assessee as income from undisclosed sources. Where explanation offered by the assessee in regard to alleged deposits were not satisfactory and there was no sufficient evidence to indicate depositor's capacity to deposit the alleged amount, it could be said that transaction as stated by the assessee, had never taken place in the form claimed by the assessee and, therefore, addition of alleged deposits was justified vide Govindram M. Oberoi Vs. ITO (1996) 58 ITD, 73 (Pune Tribunal).
S.N. Name of the party Amount 1. Smt. Shradha Bajoria: 5,70,000/- 2. Smt. Urimila Bajoria: 8,00,000/- 3. Smt. Geeta Bajoria: 5,00,000/- 4. Smt. Sushila Aggarwal: 1,30,000/-
Accordingly, an addition of Rs.20,00,000/- is made to the total income of the assessee, the source of which has not been explained by the assessee. Penalty proceedings u/s 271(l)(c ) have been initiated in this behalf."
8. From the above, it is evident that the aforesaid report dated 26.12.2008, of the ADIT (Inv.) (HQ), Kolkata, which, according to the assessment order, was received through Fax on 26.12.2008 was never confronted to the assessee though it was used against the assessee by the AO to pass the assessment order, making the addition of Rs. 20,00,000/-. Now this, evidently, is wholly unsustainable in law. It is against the very first principles of natural justice. The principle of audi alterem partem requires the party being condemned to be heard before such condemnation. Now, on an issue, a party can only be heard if the 10 ITA No.14(Asr)/2015 A.Y. 2006-07 material proposed to be employed against the party on such issue is first confronted to them. If this is not done, what will the party heard of. Obviously, a party is required to submit their explanation with regard to the material which, in the view of the Investigating Officer/AO is going against the assessee. Judgment cannot be passed against the party on the basis of such material/report, etc., against the assessee, without confronting the party that such material/report, etc., and without providing them adequate opportunity to rebut the same.
9. In the present case, this has evidently not been done and the addition has been made on the basis of the ADIT (Inv.)'s report, which was not confronted to the assessee. Merely informing the assessee at the time of conclusion of the proceedings that the ADIT (Inv.)'s report was available and passing the assessment order without supplying a copy thereof to the assessee, much less raising any query as to what inference against the assessee was proposed to be drawn against such report, cannot be said to be complying with the natural justice principle on affording due and adequate opportunity of hearing to the assessee.
10. In view of the above, we deem it appropriate to remit this matter to the AO, to be decided afresh in accordance with law, on affording due and adequate opportunity to the assessee, including confronting the ADIT (Inv.)'s aforesaid report dated 26.12.2008 to the assessee alongwith the query of the AO as to what action, if any, is proposed to be taken against the assessee. The assessee shall be afforded due and adequate 11 ITA No.14(Asr)/2015 A.Y. 2006-07 opportunity to rebut the report and to reply to the query of the AO, if any. The assessee, no doubt, shall cooperate in the fresh assessment proceedings. Ordered accordingly.
11. In the result, the appeal is treated as allowed for statistical purposes.
Order pronounced in the open court on 11/07/ 2016.
Sd/- Sd/-
(T.S. KAPOOR) (A.D. JAIN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
/SKR/
Dated: 11/07/2016
Copy of the order forwarded to:
1. The Assessee:Sh.Narinder Kumar, Hoshiarpur.
2. The ITO Ward-2, Hoshiarpur.
3. The CIT(A), JLR
4. The CIT, JLR
5. The SR DR, ITAT, Amritsar.
True copy By order Income Tax Appellate Tribunal, Amritsar Bench: Amritsar.