Ashok Kumar Saraswat, Jaipur vs Assessee

Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM

vk;dj vihy la-@ITA No. 466/JP/2011 fu/kZkj.k o"kZ@Assessment Year : 2004-05

Shri Ashok Kumar Saraswat, cuke The I.T.O., Contractor, S/o- Shri Ram Gopal, Vs. Ward-2, Sikar. Fatehpur Shekhawati, Sikar. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AISPS 2012 V vihykFkhZ@Appellant izR;FkhZ@Respondent

fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal jktLo dh vksj ls@ Revenue by : Shri Ajay Malik.

lquokbZ dh rkjh[k@ Date of Hearing : 01/12/2014 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 13/02/2015

vkns'k@ ORDER

PER: T.R. MEENA, A.M.

This is an appeal filed by the assessee against the order dated

01/02/2011 passed by the learned CIT (A)-III, Jaipur for A.Y. 2004-05.

The effective grounds of appeal are as under:-

"1 The learned CIT(A) has erred on facts and in law in confirming the addition of Rs. 20,88,524/- made by the A.O. by treating the loan and creditors appearing in the balance sheet as unexplained income of the assessee. He has further erred in confirming the 2 ITA 466/JP/2011_ Ashok Kr. Saraswat Vs. ITO

addition on the basis of balance sheet when the same has already been held to be unreal.

2 The learned CIT(A) has erred on facts and in law in confirming the above addition ignoring that the A.O. has not followed the direction of Hon'ble ITAT in correct perspective.

3 The assessee craves to amend, alter and modify any of the grounds of appeal.

4 The appropriate cost be awarded to the assessee."

2. The first ground of appeal is against the addition confirmed by

the learned CIT(A) at Rs. 20,88,524/- U/s 68 of the Income Tax Act,

1961 (hereinafter referred as the Act). In this case, original assessment

was completed on 30th November, 2006 at total income of Rs.

33,62,835/-, in which, addition on account of loan and creditors at Rs.

20,88,524/- was made by the Assessing Officer, which was challenged

by the assessee before the learned CIT(A), who had deleted the

addition in first assessment, which was challenged by the Revneue

before the Hon'ble ITAT. The Hon'ble ITAT vide its order in ITA No.

950/JP/2008 dated 19/09/2008 had set aside to the file of Assessing

Officer on addition of Rs. 20,80,524/- on the ground that the learned

CIT(A) had failed to uphold an opportunity to the Assessing Officer as

required under Rule 46A of Income Tax Rules, 1962 (in short the Rules)

to comment upon those documents and explanation made by the 3 ITA 466/JP/2011_ Ashok Kr. Saraswat Vs. ITO

assessee before the learned CIT(A) whereas the assessee had not

produced any evidence before the Assessing Officer. In compliance to

above direction, the learned Assessing Officer again issued notice of

hearing to the assessee. The assessee was asked to produce the books

of account/documents in support of genuineness of loan and creditors

of Rs. 20,88,524/-. He was also requested by the Assessing Officer to

furnish the list of creditors alongwith complete address thereof and

confirmation, mention mode of receipt of such amount by specifying the

cheque/DD number alongwith bank and branch and also produce

supporting papers by balance sheet/capital account/statement of

affairs, relevant bank pass book etc. of the loanee to evidence sources

of such funds in the hands of loanee for advancement of loan. In

response to this notice, the assessee filed written reply and produced

photo copy of affidavits of creditors and simply furnished a list of loans

and creditors without any documentary evidence regarding their

genuineness. The assessee had also not produced complete books of

accounts before him. He had also not produced any documentary

evidence in support of genuineness of loan and creditors in spite of

specific requirement vide letter dated 17/09/2009. During the

assessment proceedings, statement on oath recorded of four persons 4 ITA 466/JP/2011_ Ashok Kr. Saraswat Vs. ITO

namely Shri Shyam Bihari Sharma, Shri sudarshan Kumar Sharma, Shri

Devki Nandan Sharma and Shri Sunil Kumar Sharma. Out of four

persons, three persons are younger brothers of the assessee. The

learned Assessing Officer reproduced the gist of statement on page

Nos. 3-4 of assessment order. The remaining creditors were not

produced by the appellant for verification. No evidence to satisfy the

genuineness of land and books of account were produced, therefore, he

again decided that these loans and creditors amounting to Rs.

20,88,524/- shown in the balance sheet remained unexplained and

same were added in the income of the assessee.

3. Being aggrieved by the order of the Assessing Officer, the

assessee carried the matter before the learned CIT(A), who had

dismissed the appeal by observing that four creditors were produced

before the Assessing Officer, had no capacity to advance the money.

Therefore, the conclusion of the Assessing Officer was right to add back

the creditors in the income of the assessee. During the

assessment/appellant proceedings, it was claimed by the appellant that

these creditors were in form of loan but the appellant purchased the

material and taken services from them. The detailed list had been

furnished before the Assessing Officer alongwith affidavits. The 5 ITA 466/JP/2011_ Ashok Kr. Saraswat Vs. ITO

creditors have admitted in affidavit that they have received the

outstanding in subsequent year. The learned Assessing Officer did not

ask any question regarding repayment of outstanding. There is no need

in case of material and services provided to prove the creditworthiness

of the depositors. The remaining creditors were not in touch with the

assessee and left the native place in search of employment. The main

contractor M/s Agarwal Construction had not paid the outstanding to

the appellant, therefore, he could not make the payment of outstanding

on account of material and services rendered by them. The books of

accounts could not be produced because there was a dispute with the

Munim Shri Vikash Kumar, whatever income disclosed in the return, the

learned CIT(A) had accepted the income from it as income from other

sources. The assessee also relied before the Assessing Officer the

decision of Hon'ble Allahabad High Court in the case of CIT Vs.

Pancham Das Jain 205 CTR 444. After considering the assessee's reply,

the learned CIT(A) held that the appellant had shown these parties as

depositors, which were related to material and services supplied and

also furnished the affidavits but the assessee's argument that these

deposits are genuine but the income from the other sources cannot be

held justified. The onus on the assessee to prove that these are 6 ITA 466/JP/2011_ Ashok Kr. Saraswat Vs. ITO

genuine expenditure. The assessee's claim that these deposits are

against the material supplied and services rendered are not verifiable as

no books of account were produced either in original proceeding or in

remand proceeding. There is no evidence with the assessee for not

producing the books of account that there was a dispute between

Munim, Accountant and assessee in form of police complaint. The

deposits have no capacity to advance or provide any goods or service to

the appellant. The depositors are labour class and earning between

10,000/- to 60,000/-. The labourers cannot advance to that extent

money or goods on credit in limited source of income. All the income

has been shown as deposited with the assessee and no amount to look

after the family of the deposits with them. They also are casual

labourers. Smt. Krishna Devi and Smt. Usha Devi had not produced for

verification at the time of reassessment proceedings. There is also not

evidence that these labourers have gone to foreign country.

Accordingly, he did not find any reason to intervene in the order of

Assessing Officer. The appeal of the assessee was rejected.

4. Now the assessee is in appeal before us. The learned AR for the

assessee submitted as under:

7 ITA 466/JP/2011_ Ashok Kr. Saraswat Vs. ITO

"the AO completed the original assessment of assessee by making trading addition & addition on account of unexplained loans & creditors on 'protective basis' since assessee was held as not a genuine sub-contractor in the assessment of M/s Agarwal Construction Company, the main contractor. Thereafter, Ld. CIT(A) deleted the trading addition by holding that assessee is not having any income from sub-contract business & also deleted the addition on account of unexplained loans & creditors by holding that the same has no base when figures related to civil contract work is held to be unreal. He, therefore, assessed the income of Rs. 2,93,390/- declared by assessee under the head 'Income from Other Sources'. Before Hon'ble ITAT, department only challenged the deletion of addition of Rs. 20,88,524/-

on account of unexplained loans & creditors. It, therefore, accepted the findings of CIT(A) that assessee is not having any income from sub- contract business & the income declared by the assessee is 'Income from Other Sources'. Thus, when the accounts of the assessee is held to be unreal & this fact was not challenged by the department before Hon'ble ITAT, any addition on the basis of these accounts is unjustified. CIT(A) in the set aside order while confirming the addition of Rs. 20,88,524/- on account of unexplained loans & creditors held that assessee is trying to take double benefit by relying on the order of predecessor CIT(A) on one hand & on other hand claiming the creditors to be real by producing affidavits. It may be noted that the same CIT(A) while confirming the addition has also taken a double stand in as much as he has accepted that the accounts prepared by the assessee is not real & thereby taxing the business income declared by the assessee as income from other sources & at the same time relying on the same 8 ITA 466/JP/2011_ Ashok Kr. Saraswat Vs. ITO

books of accounts for confirming the addition on account of unexplained creditors whereas in the first order on these very facts he has deleted the addition. The addition of Rs. 20,88,524/- on account of unexplained loans & creditors made by AO & confirmed by CIT(A) in set aside order is u/s 68. In fact this is not the amount of loan but creditors for unpaid expenses. The condition for applicability of s. 68 is that there should be a credit of sum in the books of account of an assessee. In the present case, no sum is credited in the books of accounts of assessee. The credit is on account of unpaid salary/hire charges/supply of material. Four persons who were produced vide letter dt. 15.12.2009 & other persons who have filed affidavits vide letter dt. 15.10.2009 have also stated that outstanding was against salary/hire charges/supply of material & not against providing any sum to the assessee. Even CIT(A) in set aside order gave a finding that in the statement creditors accepted to have worked. In view of same, no addition could be made u/s 68. Reliance in this connection is placed in case of CIT Vs. Pancham Dass Jain 156 Taxman 507 (All.) (HC) wherein it was held that where the Tribunal had recorded a categorical finding of fact based on appreciation of materials and evidence on record that the amounts represented the purchases made by assessee on credit and therefore the provisions of section 68 could not be attracted, the view taken by the Tribunal was correct & therefore there was no question of making any addition u/s 68. In respect of creditors of unpaid salary/hire charges/supply of material, the burden of proof is not the same as the burden of proof required u/s 68. The assessee by providing the following explanations/documents has discharged his burden:-

9 ITA 466/JP/2011_ Ashok Kr. Saraswat Vs. ITO

(i) Complete list indicating the nature of expenses against which the amount was outstanding.

(ii) The creditors were outstanding since assessee did not receive the payment from the main contractor. In subsequent year, when assessee received the payment from main contractor i.e. M/s Agarwal Construction Company for Rs. 5,56,000/- and Rs. 17,60,000/- on 6-04-2004 & 9-04-2004 respectively, the amount was withdrawn in cash and payment to the creditors were made. This is also established from the affidavit of the creditors wherein they have accepted to have received the outstanding amount in the subsequent year.

(iii) So far as observation of AO & CIT(A) with regard to credit worthiness of the creditors is concerned, the same has no relevance as the outstanding credit is on account of unpaid salary/hire charges/supply of material in respect of which the burden of proof is not the same as the burden of proof required u/s 68.

(iv) The fact that the creditors are only for expenses is also proved from the fact that assessee has not claimed any expenditure on interest.

As per the Balance Sheet filed by the assessee, the loan & creditors is shown at Rs. 20,88,523/- but in fact it only represent the creditors for expenses for which list is available at. As per this Balance Sheet, cash & bank balance including cheques in hand is of Rs. 25,33,810/- out of which an amount of Rs. 23,16,000/- is cheque in hand which cleared from the bank account on 06.04.2004 for Rs. 5,56,000/- and on 09.04.2004 for Rs. 17,60,000/-. This amount was withdrawn from 10 ITA 466/JP/2011_ Ashok Kr. Saraswat Vs. ITO

the bank & utilized in payment to creditors. In the first round of appeal, this fact was explained to CIT(A) & this fact is recorded by him in Para 4.2 of the order. Since this was explained for the first time before CIT(A), Hon'ble ITAT set aside the order of CIT(A) to examine the claim of the assessee in view of the material on record. The material on record clearly establish that these are creditors for expenses & has been paid subsequently. Still, the AO without following the direction of Hon'ble ITAT in correct perspective has made the addition which is confirmed by CIT(A).

The learned A.R. also drawn our attention that appeal of the main

contractor namely Shri Jai Prakash Agarwal in ITA No. 948/JP/2008 for

A.Y. 2003-04, ITA No. 763/JP/2008 for A.Y. 2004-05 has been decided

by this Hon'ble Bench vide his order dated 25/1/2010. It was argued

that the appellant namely Ashok Kumar Saraswat have done only

contract work of Rs. 70,85,318 on which TDS @ 2% at Rs. 1,41,706/-

had been deducted by the main contractor, which proves that the

assessee had purchased the material and taken services of persons

referred in the balance sheet. Therefore, he prayed to reverse the order

of the learned Assessing Officer confirmed by the learned CIT(A).

5. At the outset, the learned D.R. vehemently supported the order

of the learned CIT(A).

11 ITA 466/JP/2011_ Ashok Kr. Saraswat Vs. ITO

6. We have heard the rival contentions of both the parties and

perused the material on record. It is a fact that the assessee is a sub-

contractor of Shri Jai Prakash Agarwal, from which he got the contract

business, on which the main contractor has deducted the TDS @ 2%.

The income in the hands of Jai Prakash Agarwal has been assessed

substantially and in the hands of sub-contractor on protective basis. The

Coordinate Bench had confirmed the trading addition in case of Jai

Prakash Agarwal and held that payment to the sub-contractor are

genuine in paragraph No. 3 on page 12 of its order. The creditors were

outstanding since the assessee did not receive the payment from the

main contractor. In subsequent year, the assessee paid these

outstanding when received from the main contractor namely M/s

Agarwal Construction Company, for which the A.R. paper book annexed

at page No. 23 to 37 are relevant. The assessee received the amount

from the main contractor, which was cleared in the bank on 06/04/2004

and 09/04/2004. The amount was withdrawn from the bank and paid to

the creditors. The material fact that these creditors were related to

material supplied and services rendered were before the Assessing

Officer as well as the CIT(A) in original assessment as well as in set

aside proceedings. Therefore, the learned CIT(A) overlooked the facts 12 ITA 466/JP/2011_ Ashok Kr. Saraswat Vs. ITO

of the case and has not considered the evidences properly. Accordingly

we reverse the order of the learned CIT(A).

7. In the result, the assessee's appeal is allowed.

Order pronounced in the open court on 13/02/2015.

Sd/- Sd/- ¼vkj-ih-rksykuh½ ¼Vh-vkj-ehuk½ (R.P.Tolani) (T.R. Meena) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member

Tk;iqj@Jaipur fnukad@Dated:- 13th February, 2015

*Ranjan

vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:

1. vihykFkhZ@The Appellant- Shri Ashok Kumar Saraswat, Sikar

2. izR;FkhZ@ The Respondent- The ITO, Ward-2, Sikar.

3. vk;dj vk;qDr@ CIT(A)-III, Jaipur

4. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

5. xkMZ QkbZy@ Guard File (ITA No. 644/JP/2011)

vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar