Income Tax Appellate Tribunal - Panji
Acit, Sawai Madhopur vs Dinesh Kumar, Kota on 3 January, 2018
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No.350/JP/2017
fu/kZkj.k o"kZ@Assessment Year : 2012-13
Asstt. Commissioner of Income- cuke Shri Dinesh Kumar
tax, Circle Sawai Madhopur Vs. M/s Laddha Ornaments
Choumukha Bazar, Bundi
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ABPPL5675G
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy [email protected]. No. 34/JP/2017
(Arising out of ITA No. 350/JP/2017)
fu/kZkj.k o"kZ@Assessment Years : 2012-13
Shri Dinesh Kumar cuke Asstt. Commissioner of Income-tax,
M/s Laddha Ornaments Vs. Circle Sawai Madhopur
Choumukha Bazar,
Bundi
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ABPPL5675G
jktLo dh vksj ls@ Revenue by : Shri R. A. Verma (Addl.CIT)
fu/kZkfjrh dh vksj l@
s Assessee by : Shri P.C. Parwal (CA)
lquokbZ dh rkjh[k@ Date of Hearing : 04/12/2017
mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 03/01/2018
vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the Revenue and the Cross Objection by the assessee against the order of ld. CIT(A) Kota dated 22.02.2017 for AY 2012- 13 wherein the Revenue and the assessee have taken following grounds of appeal:-
ITA No. 350/JP/2017 & CO No. 34/JP/2017ACIT Vs Shri Dinesh Kumar, Bundi Grounds of Revenue's appeal:
"On the facts and in the circumstances of the case, the ld. CIT(A) has erred in:-
i). not upholding the rejection of books of account u/s 145(3) of the Act without appreciating the defects pointed out by the AO;
ii) deleting trading addition of Rs. 13,87,305/- without appreciating the facts of case;
iii) deleting addition of Rs. 3,98,025/- made by disallowing interest expenses;
iv) deleting addition of Rs. 4,52,332/- made by disallowing interest expenses incurred on non-business immovable property;
v) deleting addition of Rs. 10 lacs made u/s 68 on account of gift received from sister, merely on the basis of assessee's reply;
vi) restricting the addition of Rs. 33,854/- to Rs. 16,927/- made by disallowing vehicle depreciation and insurance on account of personal use;
vii) deleting addition of Rs. 3,42,200/- made on account of low withdrawal for household expenses and foreign tour expenses.
Grounds in assessee's Cross Objections:
" 1. The ld. CIT(A) has erred on facts and in law in confirming the addition of Rs. 5 lacs u/s 68 of the Act, 1961 by treating the loan received from Sh. Sunil Agarwal as undisclosed income of the assessee.
2. The ld. CIT(A) has erred on facts and in law in confirming the disallowance of Rs. 16,927/- out of depreciation on car, two wheeler and car insurance."
2. Regarding the 1st & 2nd ground of revenue's appeal, briefly the facts of the case are that the assessee is engaged in the business of trading of gold & silver ornaments under the name & style 'M/s Laddha Jewellers'. He has also income from real estate business. The AO observed that assessee does not maintain the item wise, quality wise & quantity wise stock records. In purchase & sales bills also, it is not mentioned that which quality of gold/silver is sold whereas the value of gold/silver items is determined on the basis of its purity. Accordingly, the AO rejected the books of account of assessee u/s 2 ITA No. 350/JP/2017 & CO No. 34/JP/2017 ACIT Vs Shri Dinesh Kumar, Bundi 145(3) of the IT Act, 1961. He further observed that assessee has declared g.p. rate of 49.55% as against g.p. rate of 56.12% in FY 2009-10. Out of total receipts of Rs.20,43,150/-, Rs.15,95,975/- pertains to gold & silver ornaments on which gross profit of Rs.8,80,695/- is declared giving a g.p. rate of 55.18%. Assessee has shown closing stock of gold & silver ornaments at Rs.13,52,132/-. It is a normal business practice that sales are 4-5 times of the closing stock. In assessee's case, after taking into considering all relevant facts, sales is estimated at 3 times of the closing stock which comes to Rs.40,56,396/- (13,52,132*3) but was determined at Rs.40,50,000/-. On this sales of Rs.40,50,000/-, g.p. rate of 56% is applied which gives gross profit at Rs.22,68,000/-. Hence, trading addition of Rs.13,87,305/- (22,68,00-8,80,695) was made to the total income of the assessee. The ld CIT(A) has however not agreed to the rejection of books of accounts and estimation of gross profit and has deleted the trading addition. Now, the revenue is in appeal before us.
3. The ld DR is heard who has vehemently argued the matter and supported the order of the AO.
4. During the course of hearing, ld. AR submitted that assessee is maintaining quantitative details (in terms of weight) of gold & silver ornaments purchased and sold. Maintaining item wise details is not possible as the jewellery so purchased is not sold as it is. In case of old jewellery, it is first melted, converted into bullion and issued to the sunars for manufacturing of new ornaments and then the new ornaments were sold to the customers. Sometimes the design of new jewellery is not accepted by the customer and even the new jewellery is remelted. Thus, in sarraffa business it is not possible to maintain item wise details of purchase & sales. Hence, only because item wise stock register is not maintained cannot be a ground for rejection of books of accounts.
3 ITA No. 350/JP/2017 & CO No. 34/JP/2017ACIT Vs Shri Dinesh Kumar, Bundi
5. Regarding tradition addition of Rs.13,87,305/- made by the AO, it was submitted that during the course of assessment proceedings, assessee has produced its books of accounts along with purchase & sale bills. The AO has verified the same and has not pointed out any single transaction of purchase or sales which are not supported by evidences or which is unrecorded. The AO hypothetically calculated that sales should be 4-5 times of the closing stock and accordingly assumed the sales at Rs.40,50,000/- as against Rs.20,43,150/- declared by the assessee without bringing out any evidence of unrecorded sales. On such sales of Rs.40,50,000/-, he applied the g.p. rate of 56.12% declared by the assessee in FY 2009-10. However, while doing so he ignored that g.p. rate of 49.55% declared during the year is better than the g.p. rate of 48.30% declared in the immediately preceding FY and n.p. rate of 93.62% declared during the year is much better than the previous two years. Thus, AO purely on suspicion and assumption, estimated the sales at Rs.40,50,000/- and applied the g.p. rate of 56.12% which is against the provision of law and the principle of natural justice. Hence, trading addition of Rs.13,87,305/- made by the AO be deleted.
6. It was submitted that it is a settled law that only because there is a decline in the G.P. rate or stock register is not maintained, the same should not necessarily lead to the trading addition or rejection of books of accounts. For this purpose, reliance is placed on the following cases:-
• PCIT vs. Bhawani Silicate Industries (2016) 236 Taxman 596 (Raj) • Pr. CIT vs. Hues India Ltd. 2015-TIOL-2275 (Raj.) dated 30.07.2015 • Malani Ramjivan Jagannath vs. ACIT (2009) 316 ITR 120 / 207 CTR 19 (Raj) • CIT vs. Smt. Poonam Rani (2010) 326 ITR 223/ 41 DTR 194 (Del) • CIT vs. Gotan Lime Khaniz Udyog (2002) 256 ITR 243 (Raj) 4 ITA No. 350/JP/2017 & CO No. 34/JP/2017 ACIT Vs Shri Dinesh Kumar, Bundi • Ashoke Refractories P. Limited V. CIT 279 ITR 457 (Cal)
6. We have heard the rival contentions and perused the material available on record. There is no dispute regarding the quantity of stock purchased and sold during the year as well as the stock at the beginning and at the end of the year. Only dispute possibly relates to valuation of such stock in absence of the qualitative data not being maintained by the assessee which the assessee has explained to have valued on average basis on a consistent basis on year to year. Further, no specific defects have been highlighted by the AO.
Further, the sales figures have been worked out based on closing stock without any evidence which can corroborates such sales being made out of books of accounts. In view of the same, the rejection of books of accounts and estimation of gross profit as done by the AO is not correct and such action cannot be sustained in the eyes of law. We accordingly confirm the following findings of the ld CIT(A) which is reproduced as under:
"As regards Grounds of Appeal no. 1 & 2, from a perusal of the assessment order & the submissions given, it is seen that the appellant assessee has both jewellery & property dealing businesses. The N.P rate is very high because of that reason while G.P is comparable to earlier years with slight upward trend this year as compared to earlier year.
Further, it is an accepted fact that in the jewellery business, the weight of Gold & Silver consumed is important as descriptive valuation is not practical due to several changes on customer's request especially in old jewellery remodelling. Further it is the weight of gold & silver in an item which decides the cost. The assessee has maintained quality wise and quantity wise stock of gold & silver. He is debiting labour costs of items to add to the stock & sells these items made for a profit. The AO has not been able to find any significant difference in expenses debited on account of labour costs or detected any significant fall in G.P., which is 5 ITA No. 350/JP/2017 & CO No. 34/JP/2017 ACIT Vs Shri Dinesh Kumar, Bundi higher than the previous year. Under the circumstances, to find fault in not keeping individual item wise stock is unrealistic. Therefore, in my opinion this objection of the AO is just for the sake of finding an unreal fault in the assessee's books. He has also not brought on record if any comparable party is also keeping such records or if the excise/Vat departments have such requirement which the assessee is not complying.
Thus insistence of the AO on descriptive stock in this case cannot be considered a significant anomaly while rejecting the books as this is not a case of undervaluation of stock. This is the only reason given by the AO for book rejection besides difference in G.P (being lower) in comparison to AY 2010-11. Non maintenance of stock register on day to day basis detailing individual items, by itself should not lead to inference that it is not possible to deduce the true income of the assessee from the accounts maintained by assessee, nor can the accounts be said to be defective or incomplete for this reason alone. If the assessee is dealing in such items where maintenance of stock register is not possible i.e. keeping in mind the quantity, size, varieties, processes involved in production etc it can't be treated as defect for application of section 145(3) of the Act.
The fact that there is no qualitative stock tally may caution the Assessing Officer against the falsity of the returns made by the assessee. He cannot show that merely because there is no qualitative stock tally the account books must be false. Similar proposition has been made in the case of Pandit Brothers vs. CIT(1954) 26 ITR 159.
Further, the AO's estimation of G.P. is based on a multiplication factor of amount which should be kept as closing stock (being 1/4th or 1/5th of total sales). Hence he has calculated from closing stock, sales by 6 ITA No. 350/JP/2017 & CO No. 34/JP/2017 ACIT Vs Shri Dinesh Kumar, Bundi multiplication and then calculated G.P. @ 56% (taking AY 2010-11 GP) to work out the trading addition.
The AO should have brought out specific defects in the above mentioned books and records, which he did not do. He has merely extrapolated and hypothetically created artificial ratios and profits to make the additions very high-pitched. He has not detected any additional turnover with evidences, but concocted an artificial G.P. on such theoretical turnover to reach the estimation of G.P. Further, presumptive calculation on what should be the ideal stock & sales ratio is unacceptable method in resorting to estimation. In fact he has increased the sales by more than double in this case & also the G.P. on jewellery trade shown by the assessee. This makes the G.P addition look both arbitrary & high pitched as it is not based on any evidences.
As a result, I am not in agreement on the rejection of books as well as the estimation adopted by the AO and accordingly do not uphold the addition made to the trading account of Rs. 13,87,305/-
The same is directed to be deleted."
7. In the result, ground no. 1 & 2 of the Revenue's appeal is dismissed.
8. Regarding the 3rd ground of revenue's appeal, briefly the facts of the case are that during the year under consideration, the assessee has taken loan of Rs.1,50,69,432/- from various persons namely Smt. Premlala Laddha, Smt. Rachna Laddha, Smt. Shalini Laddha, Sh. Suresh Agarwal, Sh. Harish Sharma, Sh. Ashok Shringi and Ms. Pratima Laddha and the assessee was asked to produce them for verification but the assessee failed to do so. The AO on verification of bank account of these persons observed that before giving loan to assessee, cash of similar amount was deposited in their 7 ITA No. 350/JP/2017 & CO No. 34/JP/2017 ACIT Vs Shri Dinesh Kumar, Bundi account. Accordingly, he disallowed the interest expenditure of Rs.3,98,025/- paid to these persons u/s 37 of the IT Act.
9. The Ld. CIT(A) held that in case it was suspected that this is the appellant's money, then the AO should have referred the matter to the concerned AOs of the lenders or examined the appellant and brought out any undisclosed receipt in his hands. Further, the interest rate of 9% paid to these persons also appears to be lower than the normal acceptable band of 12%- 15% in other cases as has been seen in various orders of higher appellate authorities. The AO has not been able to bring out how the said interest was not as per business expediency or such funds were not utilized for the purpose of business. Accordingly, he deleted the disallowance of interest expenses of Rs.3,98,025/-. Now, the revenue is in appeal against the said findings of the ld CIT(A).
10. During the course of hearing, the ld AR submitted that the only reason given by the AO for disallowing the interest expenses of Rs.3,98,025/- is that before giving loan to assessee, cash of similar amount was deposited in the lenders account. In this regard, it was submitted that the loan amount on which interest was disallowed by AO are not raised during the year but are old loans coming from last years which is verified by the AO from the ledger account and the confirmations produced by the assessee in course of assessment proceedings. All these persons are taxable under the IT Act and are regularly filing their returns. The interest paid by the assessee is duly shown by them in their return and in support of same assessee has filed the copy of their returns. Thus, when the assessee has not raised any fresh loan in the year under consideration, disallowance of interest on these loans without any finding that the same is not for the purpose of business is uncalled for and therefore, such disallowance is rightly deleted by Ld. CIT(A).
8 ITA No. 350/JP/2017 & CO No. 34/JP/2017ACIT Vs Shri Dinesh Kumar, Bundi In view of above, the order of Ld. CIT(A) be upheld by dismissing the ground of department.
11. We have heard the rival contentions and perused the material available on record. The loan transactions on which interest disallowance has been made has been accepted by the Revenue in the earlier years. Once the loan transaction has been accepted by the Revenue, there is no finding that loan funds have not been utilized for business purposes. There is also no finding that these transactions are with related entities and rate of interest is not comparable with similar loan transactions with unrelated parties. In light of the same, we hereby confirm the order of the ld CIT(A) who has rightly deleted the interest disallowance. The ground of appeal is accordingly dismissed.
12. Regarding the 4th ground of revenue's appeal, briefly the facts of the case are that during the year under consideration, the assessee has purchased an agricultural land for Rs.52,32,500/-. The AO observed that the land is not purchased for business purposes as the same is not shown in stock-in- trade. The explanation of assessee that this property is part of business as it has been purchased for further sales and assessee has sold one plot & earned income on it was not found acceptable as this property was not made part of stock-in-trade and assessee has not shown any evidence of sale of plot. The AO further observed that assessee has debited interest of Rs.8,50,357/- @ 9%-12% in its P&L A/c. On investment of Rs.52,32,500/-, interest @ 10.5% (9+12/2) is calculated at Rs.5,49,412/- which was treated as a non-business expenditure out of the total interest expenses of Rs.8,50,357/- debited by the assessee in its P&L A/c. Since the interest expenses of Rs.3,98,025/- was already disallowed, balance interest expenses of Rs.4,52,332/- (8,50,357-3,98,025) was disallowed.
9 ITA No. 350/JP/2017 & CO No. 34/JP/2017ACIT Vs Shri Dinesh Kumar, Bundi
13. The Ld. CIT(A) deleted the disallowance by holding that there is sale of plots of land during the year under consideration. The appellant plots the agricultural land & has shown profit from sale in his P&L A/c. Mere fact of non transferring the same into stock- in- trade cannot justify the conclusion that it was a personal investment. The AO should have examined if the same was plotted & sold later on or whether it still remained with the assessee as investment. Further, loans were apparently carried forward from earlier years except a loan of Rs 5 lacs from one person and thus, the nexus of diversion of interest bearing funds to purchase land could also not be held to be there. The disallowance of interest was accordingly deleted. Now, the revenue is in appeal before us.
14. During the course of hearing, the ld. AR submitted that the assessee is also engaged in real estate business and during the year, it has declared income of Rs.1,31,705/- on sale of plot. In course of this activity, he purchased an agricultural land for Rs.52,32,500/- in front of Railway Station, Bundi. The land is purchased is for the purpose of business only. The assessee has not immediately transferred the land to stock- in- trade as it is a normal business practice that land is transferred when there is a favourable market condition. Under the IT Act, assessee can transfer its assets at any time in stock-in- trade and therefore, the basis adopted by AO for disallowing the interest that the land is not appearing in stock- in- trade is not justified.
15. Without prejudice to above, it was submitted that all the unsecured loans on which interest was paid during the year was carry forward from previous years except the loan of Rs.5 lacs taken from Sh. Sunil Agarwal on which interest of Rs.17,500/- was paid whereas the land was purchased for Rs.52,32,500/-. Thus, there is no nexus between the interest bearing funds and the agricultural land purchased. Interest bearing loan was used for the purpose of business and not for purchase of agricultural land and thus interest 10 ITA No. 350/JP/2017 & CO No. 34/JP/2017 ACIT Vs Shri Dinesh Kumar, Bundi of Rs.4,52,332/- disallowed by AO is uncalled for and the order of the ld CIT(A) should be sustained.
16. We have heard the rival contentions and perused the material available on record. There is no finding recorded by the AO that interest bearing funds which have been taken in the earlier financial years have been utilized for the purposes of purchasing the agricultural land under consideration. In absence of such a finding, we are unable to accede to the contention of the AO that interest on such loans should be disallowed in the hands of the assessee. In the result, ground of revenue's appeal is dismissed.
17. Regarding the 5th ground of revenue's appeal, briefly the facts of the case are that during the year under consideration, the assessee has claimed to have received a gift of Rs.10 lacs from his sister Smt. Rekha Mantri on 02.04.2011. The AO observed that the gift deed so produced doesn't contain the date of execution as well as signature of witnesses. A show cause was accordingly issued to the assessee to produce the income tax return, bank statement, financial statement of Smt Rekha Mantri and also to produce her for necessary verification. It was observed by the AO that the assessee has not received/given any gift prior to this gift. It was observed by the AO that the assessee has failed to file the bank statement and return of income of Smt. Rekha Mantri through which her creditworthiness can be proved. Further, assessee has failed to explain the source of amount deposited in the bank account of Smt. Rekha Mantri on 31.03.2011 before giving gift to him. Accordingly, the AO treated the gift of Rs.10 lacs received from Smt. Rekha Mantri as unexplained income of the assessee and made addition u/s 68 of the IT Act.
18. The Ld. CIT(A) held that since the relation has not been disputed by the AO and the gift deed & copy of bank statement is there, matter gets covered u/s 56 and the source is considered as explained even if there were cash deposits in the said account prior to the gift. It was for the AO to prove that the source of such cash was 11 ITA No. 350/JP/2017 & CO No. 34/JP/2017 ACIT Vs Shri Dinesh Kumar, Bundi from assessee which he did not do. Nor has he referred the matter to the AO of the donor concerned. The non gifting by the assessee to his sister at any time is not material as any gift can be unilateral and not necessarily reciprocative. The account being joint with husband, his certificate of salary & authorization were incidental evidences on the creditworthiness of the donor. Hence, the onus has been discharged by the assessee in that sense. Accordingly, ld. CIT(A) deleted the addition of Rs.10 lacs made by the AO. Now, the Revenue is in appeal before us.
19. During the course of hearing, ld. AR submitted that during the course of assessment proceedings, the assessee has submitted all the evidences in support of the gift received from Smt. Rekha Mantri. From the gift deed executed between assessee and Smt. Rekha Mantri, it can be noted that gift of Rs.10 lacs was given through Cheque No.489281 of SBI dt. 02.04.2011. The gift was given from the joint bank account of Smt. Rekha Mantri and her husband Sh. Durgashanker Tejmal Mantri. Sh. Durgashanker Tejmal Mantri has given all the rights to his wife Smt. Rekha Mantri to use his income and savings for the purpose of donation or any kind of gift to relatives and family members and a certificate in this regard by Sh. Durgashanker Tejmal Mantri is submitted herewith. Sh. Durgashanker Tejmal Mantri in AY 2012-13 has gross salary income of more than Rs. 20 lacs as evident from his return of income. From the bank account, it can be noted that on 30.03.2011, there is a credit of Rs.15,19,365/- (8,11,200+7,08,165) by RTGS. Thus, assessee has duly discharged his burden to prove the identity of creditor, genuineness of transaction and creditworthiness of donor Smt. Rekha Mantri through Sh. Durgashanker Tejmal Mantri. Hence, addition made by the AO u/s 68 is uncalled for.
20. In support, the ld AR placed reliance on the following cases:-
CIT vs. Ram Dev Kumar Chitlangia 315 ITR 435 (Raj):12 ITA No. 350/JP/2017 & CO No. 34/JP/2017
ACIT Vs Shri Dinesh Kumar, Bundi Income--Cash credit--Genuineness of gifts--Question as to whether a gift is genuine is essentially a question of fact--In the instant case, identity of any donor is not disputed--Transactions were channelized through banks and four gifts were made by relatives although blood relationship between the donor and the donee is not necessary to establish the genuineness of the gift-- There is no tangible material on record to show anything which may cast any doubt on the genuineness of the gift or to establish that the purported transactions of gift were transactions of money laundering--Therefore, the findings of the CIT(A) and the Tribunal accepting the genuineness of gifts do not warrant any interference.
Nem Kumar vs. ACIT 274 ITR 575 (Raj):
Income--Addition--Genuineness of gift--Smt. A, the donor, has given an affidavit and also filed a declaration that she has given gift of Rs. 1 lakh to the assessee--In spite of CIT(A)'s direction the donor has not been examined by the AO--CIT(A) found that the donor was doing business at the relevant time and was assessed to tax--In his examination by the AO, assessee explained that he was knowing Smt. A since long and that she had good relations with his family--There is no material evidence whatsoever to show that the money was deposited by the assessee or by any relative in the bank from where it came back to the assessee as a gift--Thus, gift cannot be treated as non- genuine on mere conjectures and surmises--There was no justification for addition.
CIT Vs. Padam Singh Chouhan 315 ITR 433 (Raj):
Income--Cash credit--Genuineness of NRI gifts--AO, taking into account the facts that NRI donors made deposits in their accounts soon before the gifts and the assessee had withdrawn the huge amount within a short span of time, doubted the transaction as a managed affair and made addition treating the gifts as not genuine--CIT(A) found that the assessee had furnished gift 13 ITA No. 350/JP/2017 & CO No. 34/JP/2017 ACIT Vs Shri Dinesh Kumar, Bundi deeds and affidavits of donors and while observing that blood relationship was not necessary for making gift out of love and affection and it was not a case where money advanced by assessee to donors returned back to assessee by way of gift, reversed the findings of AO--Tribunal affirmed the findings of CIT(A)--Justified--Assessee having produced copies of gift deeds and affidavits of NRI donors, in the absence of anything to show that the transaction was by way of money laundering, addition could not be made in the hands of assessee donee for absence of blood relationship or close relationship between the donor and the donee.
21. We have heard the rival contentions and perused the material available on record. The AO has observed that the assessee has received a sum of Rs 10 lacs by way of gift from his sister on 2.4.2011 which was brought to tax as unexplained cash credit u/s 68 of the Act. The ld CIT(A) has however examined the matter from the perspective of section 56 given that the latter contains specific provision relating to receipt of gifts from the relative and held that since the confirmation or relation of the assessee with the Donor has not been disputed by the AO and even the gift deed and copy of bank statement is there and has deleted the addition so made by the AO. We are of the view that where any amount has to be brought to tax in the hands of the assessee, the same has to be classified under any of the specified heads of income and taxed in accordance with the respective provisions as contained in the specified head. In the instant case, even though the AO has invoked provisions of section 68, the fact remains that even an amount which is brought to tax under section 68 has to be classified under one of the specified heads. There is no finding of the AO that the amount of Rs 10 lacs found credited in the assessee's bank account is arising out of his business. Rather, there is a finding that the amount has been received as a gift from the assessee's sister. Once the said finding of receipt of sum of money as gift is recorded, such gift of money can be brought to tax, if at all, under the specific 14 ITA No. 350/JP/2017 & CO No. 34/JP/2017 ACIT Vs Shri Dinesh Kumar, Bundi provisions of section 56(vii)(a) of the Act. The said provisions provide that where an individual receives in any previous year, from any person on or after 1st day of Oct, 2009, any sum of money, without consideration, the aggregate value of which exceeds Rs 50,000, the whole of the aggregate value of such sum, shall be chargeable to tax. Regarding absence of any consideration, the assessee has submitted a copy of gift deed which talks out gifting of said money without any consideration. In absence of any independent enquiry or finding by the AO challenging the authencity of the gift deed or the fact that such receipt of money is in lieu of any consideration which the assessee has fulfilled in the past or in respect of any future obligation, the legality of the gift is not under challenge. The assessee who has received a sum of money exceeding Rs 50,000 thus falls under the charging provisions of section 56(vii)(a) of the Act. Further, the said provisions of section 56(vii)(a) of the Act provide for an exception stating that the said provisions shall not apply to any sum of money or any property received from any relative. In the instant case, the assessee has received a sum of Rs 10 lacs from his sister who is a specified person and falls within the definition of the term "relative". In light of the same, the sum of money so received though chargeable under the provisions of section 56(vii)(a) falls under the exception category as specifically carved out by the Statute and hence, cannot be brought to tax in the hands of the assessee. We accordingly affirm the order of the ld CIT(A) who has confirmed the deletion of addition of Rs 10 lacs. In the result, ground no. 5 of revenue's appeal is dismissed.
22. Regarding the 6th ground of revenue's appeal and cross objection no. 2 of assessee's appeal, briefly the facts of the case are that the AO observed that assessee has claimed depreciation on car at Rs.1,45,319/-, depreciation on two wheeler at Rs.551 and car insurance expenses at Rs.23,400/-, aggregating to Rs.1,69,270/-. Since the assessee has failed to prove that the car and two wheeler are used for business purposes by producing the log 15 ITA No. 350/JP/2017 & CO No. 34/JP/2017 ACIT Vs Shri Dinesh Kumar, Bundi book, personal use of the same cannot be ruled out. Accordingly, he disallowed 20% of Rs.1,69,270/-, i.e. Rs.33,854/-.
23. On appeal, the ld. CIT(A) held that AO has not given any basis for 20% disallowance. The expenses are not considered unreasonable and thus, the disallowance considering the nature of such expenses was restricted to 10%, being Rs.16,927/-. Now, both the parties are in appeal before us.
24. It was submitted by the ld AR that the vehicles were used for business purpose only. The expenditure is reasonable considering the volume of business. The lower authorities have not specified any instances where vehicles are used for personal purpose. In fact the Ld. CIT(A) has accepted that expenditure are not unreasonable but without any basis confirmed the disallowance of Rs.16,927/-. Thus, the disallowance made by the lower authorities is unjustified. Further, Hon'ble ITAT Jaipur Bench in case of Kailash Chand Gupta V/s DCIT 35 Taxworld 36 held that claim of depreciation is a statutory provision which cannot be denied on the basis of personal use of the assessee.
25. We have heard the rival contentions and perused the material available on record. Interestingly, depreciation on car and two-wheeler, and car insurance has been disallowed to an extent of 20% by the AO which has been reduced to 10% by the ld CIT(A) on the presumption that personal use of such vehicles cannot be ruled out. However, there is no disallowance of the vehicle fuel expenses incurred by the assessee. At the same time, it is true that where the AO has questioned the usage of the vehicles, the onus is on the assessee to provide the necessary explanation that the vehicles have been used for the purposes of his business. Depreciation is no doubt a statutory allowance but at the same time, the assessee has to demonstrate that the vehicles on which the depreciation is so claimed is used for the purposes of the business. Where the assessee has failed to provide the necessary details, 16 ITA No. 350/JP/2017 & CO No. 34/JP/2017 ACIT Vs Shri Dinesh Kumar, Bundi the onus cast on the assessee cannot be said to be discharged. In the peculiar facts and circumstances of the case, the disallowance made by the AO is sustained. In the result, ground no. 6 of the revenue's appeal is allowed and ground no. 2 of the assessee's cross objection is dismissed.
26. Regarding the 7th ground of revenue's appeal, briefly the facts of the case are that the AO observed that assessee has shown household expenses of Rs.2,39,800/-. It was observed by the AO that assessee's children were studying outside and he has also gone for foreign tour in this period. Accordingly, he required the assessee to explain the details of household expenses and foreign tour expenses incurred by him. In response to same, assessee submitted the reply vide letter dt. 24.02.2015. However, AO did not accept the explanation of assessee and after assuming the household expenses of Rs.6,000/- per month per person, determined the total household expenses at Rs.4,32,000/- (6000*12*6) and made addition of Rs.1,92,200/- (432,000-239,800). He further made addition of Rs.1,50,000/- on account of foreign travelling expenses, thereby totalling to Rs.3,42,200/- (1,92,200+1,50,000).
27. The Ld. CIT(A) deleted the addition by holding that AO has not find any adverse evidences in this regard. He held that the AO did not considered that besides the regular household expenses, assessee had also shown expenses of Rs.2,15,000/- on tuition fees and Rs.1,10,496/- on foreign travel. Thus, the AO's estimation is based on presumption and not based on evidences.
28. During the course of hearing, the ld AR submitted that during the course of assessment proceedings assessee has submitted detailed reply in which various head of expenses like electricity, water, telephone, education and rent paid was explained. The contribution made by other family members was also submitted. Besides the regular household expenses, assessee had 17 ITA No. 350/JP/2017 & CO No. 34/JP/2017 ACIT Vs Shri Dinesh Kumar, Bundi also shown expenses of Rs.2,15,000/- on tuition fees and Rs.1,10,496/- on foreign travel. Thus, the assessee has shown total withdrawal of Rs.6,01,296/- which is very reasonable. In the written submission, assessee also explained that his daughter was living with her uncle and thus the assessee has not incurred any major expenditure on her in the year under consideration. The AO without any basis estimated the household expenses at Rs.4,32,000/- and made further addition of Rs.1,50,000/- on account of foreign travelling expenses. Since the estimation made by AO is purely on assumption and presumption, Ld. CIT(A) has rightly deleted the addition. In view of above, the order of Ld. CIT(A) be upheld by dismissing the ground of department.
29. We have heard the rival contentions and purused the material available on record. The ld CIT(A) has returned a finding that the assessee had shown expenses of Rs.2,15,000/- on tuition fees and Rs.1,10,496/- on foreign travel other than regular household withdrawals of Rs 2,39,800. The said finding remains uncontroverted before us. Before, no specific verifiable evidence has been brought on record to justify low household withdrawal or the fact that the assessee has incurred any household expenditure which is more than the declared withdrawals during the year. In the result, we upheld the order of the ld CIT(A) and dismiss the ground no. 7 of the revenue's appeal.
30. Now coming to the 1th ground of assessee's cross Objection, briefly the facts of the case are that during the year under consideration, the assessee has taken unsecured loan of Rs.5 lacs from Sh. Sunil Agarwal on 11.11.2011. AO recorded the statement of Sh. Sunil Agarwal on 05.01.2015 which is reproduced at Pg 6-7 of the order. AO observed that Sh. Sunil Agarwal has deposited cash of Rs.2,50,000/- on 08.11.2011 and 09.11.2011 in his bank account before giving loan to assessee. Sh. Sunil Agarwal explained that he has income from commission, agriculture, godown rent, interest income, etc. 18 ITA No. 350/JP/2017 & CO No. 34/JP/2017 ACIT Vs Shri Dinesh Kumar, Bundi but no evidence is filed nor the detail of the persons to whom advance has been given is provided. He therefore, made addition of Rs.5 lacs u/s 68.
31. The Ld. CIT(A) confirmed the addition by holding that assessee has not able to provide evidence in support of the creditworthiness of the lender and his statement remained unproved regarding agriculture, interest or other source of income.
32. During the course of hearing, the ld. AR submitted that Sh. Sunil Agarwal is assessed to tax. He has filed return for AY 2012-13 declaring gross total income of Rs.2,97,845/- and agricultural income of Rs.42,500. In the Balance Sheet filed with the return, the amount of advance & loan as on 31.03.2012 is reflected at Rs.14,68,520/- out of which Rs.5 lacs is reflected in the name of M/s Laddha Jewellers, i.e. the assessee. Sh. Sunil Agarwal responded to the AO and furnished the required information called u/s 133(6) of the Act. His statement was recorded by AO on 05.01.2015 where he explained the source of income and accepted having given loan to the assessee. He further stated in response to the question of the AO that why his case be not reopened u/s 147 that whatever action is deemed reasonable may be taken. Thus, when Sh. Sunil Agarwal has accepted having advance loan to the assessee and also explained his source, the onus required u/s 68 is discharged by the assessee and therefore, the addition made by the AO and confirmed by Ld. CIT(A) is not as per law.
33. Reliance in this connection was placed on the following cases:-
• CIT Vs. Orissa Corporation Pvt. Ltd. 159 ITR 78 (SC) • CIT vs. Shiv Dhooti Pearls & Investment Ltd. (2016) 237 Taxman 104 (Del.) • CIT vs. Jai Kumar Bakliwal (2014) 366 ITR 217/ 101 DTR 377 (Raj.) • CIT vs. H.S. Builders (P.) Ltd. (2012) 78 DTR 169 (Raj.) 19 ITA No. 350/JP/2017 & CO No. 34/JP/2017 ACIT Vs Shri Dinesh Kumar, Bundi • Labh Chand Bohra vs. ITO 189 Taxman 141/ 219 CTR 571 (Raj.) • Kanhaialal Jangid vs. ACIT 217 CTR 354 (Raj.) • Aravali Trading Co. vs. ITO 187 Taxman 338 (Raj.)
34. The ld DR has vehemently argued the matter and relied upon the order of the lower authorities.
35. We have heard the rival contentions and purused the material available on record. The AO has invoked the provisions of section 68 whereby unsecured loan taken by the assessee from Shri Sunil Agarwal has been brought to tax for failure of the assessee to discharge the initial onus cast on him. Further, the ld CIT(A) has also returned a finding that the assessee has failed to support through demonstrable evidence the creditworthiness of shri Sunil Agarwal who has advanced the loan of Rs 5 lacs to the assessee company. Similar contentions as raised before the lower authorities have been taken before us. It is a settled position in law that where the AO intends invoking provisions of section 68, the initial onus is cast on the assessee to satisfy the requirements and provide the necessary explanation supported by verifiable evidence in terms of identity, creditworthiness and genuineness of the transaction and on perusal of evidence on record, we agree with the ld CIT(A) that the same has not been discharged in the instant case. We accordingly confirm the following findings of the ld CIT(A) which is reproduced as under:
"As regards Ground of appeal no. 5 regarding addition u/s 68 it is seen that the lender has not been able to provide evidences in support of his creditworthiness and all the statements remain unproved regarding agricultural, interest or similar sources of income. Although the identity of the lender is proved, however, as per section 68, unless the genuineness & the creditworthiness of the lender is also beyond doubt, the credit would be considered unexplained. Under the facts involved, it 20 ITA No. 350/JP/2017 & CO No. 34/JP/2017 ACIT Vs Shri Dinesh Kumar, Bundi is seen that the lender has not been able to prove his capacity or the source of the amount lent beyond doubt so the credit cannot be held to be explained within the meaning of section 68 and the addition of Rs. 5,00,000/- made by the AO is liable to be upheld."
In the result, the appeal of the Revenue is partly allowed and Cross objection of the assessee is dismissed.
Order pronounced in the Open Court on 03/01/2018.
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(Vijay Pal Rao) (Vikram Singh Yadav)
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Jaipur
Dated:- 03/01/2018
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1. vihykFkhZ@The Appellant- ACIT, Sawai Madhopur
2. izR;FkhZ@The Respondent- Shri Dinesh Kumar, Bundi
3. vk;dj vk;qDr@CIT
4. vk;dj vk;qDr¼vihy½@The CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@Guard File (ITA No. 350/JP/2017 & CO No. 34/JP/2017 vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar.21