Mahendra Kumar Vijay , Jaipur vs Department Of Income Tax

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. 791/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2008-09

Income Tax Officer, cuke Mahendra Kumar Vijay Ward 5(2), Jaipur. Vs. 146 A, Sindhi Colony, Adrash Nagar, Jaipur.

LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AALPV 0582 D vihykFkhZ@Appellant izR;FkhZ@Respondent

jktLo dh vksj ls@ Revenue by : Shri Rajesh Ojha (JCIT) fu/kZkfjrh dh vksj ls@ Assessee by : Shri Rajiv Sogani (C.A.)

lquokbZ dh rkjh[k@ Date of Hearing : 22/04/2015 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 19/06/2015

vkns'k@ ORDER

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

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

19/07/2012 passed by the learned CIT (A)-II, Jaipur for A.Y. 2008-09.

The respective grounds of appeal are as under:-

"On the facts and in the circumstances of the case and in law the Ld. CIT(Appeals) has erred in -

(i) Deleting the addition of Rs. 9,36,240/- made by the A.O. on account of unexplained cash credits in the

2 ITA 791/JP/2012_ ITO Vs. Mahendra Kumar Vijay

name of Shri Prafull Patel notwithstanding the fact that the creditworthiness and genuineness of the creditor was not proved by the assessee.

(ii) deleting the addition of Rs. 10,85,782/- made by the A.O. on account of disallowance U/s 40A(3) of the I.T. Act, 1961 notwithstanding the fact that assessee violated the provisions of Section 40A(3) of the I.T. Act, 1961."

2. The first ground of revenue's appeal is against deleting the

addition of Rs. 9,36,240/- made by the Assessing Officer on account of

cash credits. The ld Assessing Officer observed that the assessee filed

his return of income on 30/07/2008 declaring total income of Rs.

74,250/-. The case was scrutinized U/s 143(3) of the Income Tax Act,

1961 (in short the Act). The assessee was in trading of share and gems

and jewellery. During the assessment proceedings, it was noticed by

the Assessing Officer that the assessee had deposited cash in the name

of Praful Patel. The assessee had not filed any confirmation from Praful

Patel, his I.D. or address. The ld Assessing Officer has recorded the

statement U/s 131 of the Act of the assessee, which has been

reproduced by the Assessing Officer on page 3 and 4 of the Assessing

Officer. The ld Assessing Officer observed as under:-

a. The creditworthiness and genuineness of the creditor has not been proved by the assessee.

3 ITA 791/JP/2012_ ITO Vs. Mahendra Kumar Vijay

b. The identification is also not provided by the assessee.

c. The confirmation is also not provided by the assessee.

d. Repayment of cash loan as stated above the assessee has also not been made.

e. The loan of Praful Patel is also not appearing in the balance sheet of the assessee.

f. The assessee has not declared any loss from share trading as claimed in the statement.

g. The assessee had not submitted any written document which proved that he had entered in some agreement of share trading with Praful Patel.

It is concluded that the assessee had failed to discharge his onus in

respect of the cash introduced by him in the name of Praful Patel in his

books of account. Therefore, he made addition of Rs. 9,36,240/- in the

income of the assessee as unexplained cash credit.

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

assessee carried the matter before the ld. CIT(A), who had deleted the

addition made by the Assessing Officer by observing as under:-

"I have duly considered the submissions of the appellant. On perusal of the assessment order, it is seen that the A.O. was of the opinion that the appellant had deposited his own undisclosed cash in the name of Sh. Praful Patel in his books of

4 ITA 791/JP/2012_ ITO Vs. Mahendra Kumar Vijay

account. It was alleged that no confirmation was filed in this regard from Sh. Praful Patel. The A.O. held that the appellant had failed to prove the creditworthiness and genuineness of the said creditor. The A.O., therefore, made an addition of Rs. 9,36,240/- to the income of the appellant. On careful consideration of facts, I am inclined to accept the arguments of the appellant. At the outset, it is noticed that the appellant had declared loss of Rs. 10,14,308/- in the derivative transactions through the broker namely M/s Mangal Keshav Securities Ltd. The payments and receipts for these transactions were made through ICICI Bank Account No. 5075 and all the transactions were recorded in the books of account maintained by the appellant. Since it was mutually agreed between the appellant and Sh. Praful Patel that he was to bear all the losses which were incurred in the derivative transactions, the appellant received cash of Rs. 9,36,240/- from Sh Praful Patel and balance amount of Rs. 78,068/- was shown as receivable. IN this manner, the appellant was able to square up the losses in the derivative transactions and no loss was claimed in the return of income or computation of income. The receipts of Rs. 9,36,240/- from Sh. Praful Patel were itself treated as income by the appellant and the A.O. had erred in taxing the same amount twice as the amount had been credited in the ledger account of derivative transactions. Without prejudice to the above, even if the same was treated as undisclosed income of the appellant, it did not have any impact on the taxable income of the appellant. The net loss of Rs. 10,14,308/- in the derivative 5 ITA 791/JP/2012_ ITO Vs. Mahendra Kumar Vijay

transactions as per provisions of Section 43(5)(d) was to be set off against undisclosed income of Rs. 9,36,240/-. It is therefore, obvious that the A.O. had not properly appreciated the facts and ignored the entries in the books of account maintained by the appellant without any basis. Further, the A.O. had treated the amount in question as loan whereas the appellant had not shown any loan or liability in his books of account. Therefore, the question of repayment of loan did not arise. Since the loss in the derivative transactions was squared off with the amount received from Sh. Praful Patel, there was no question of claiming the same in the computation of income. Moreover, the appellant had himself credited the amount received from Sh Praful Patel in the ledger account of derivative transactions. Therefore, there was not any onus on him to prove the creditworthiness of the creditor or genuineness of the transaction as alleged by the A.O. I therefore, direct the A.O. to delete the addition of Rs. 9,36,240/- made by her. This ground of appeal is allowed."

4. Now the Revenue is in appeal before us. The learned D.R.

vehemently supported the order of the Assessing Officer and argued

that the creditworthiness and genuineness of credit has not been

proved by the assessee; identification and confirmation was not

provided by the assessee and repayment of cash/loan have not been

made. On the other hand, the loan is not appearing in the balance 6 ITA 791/JP/2012_ ITO Vs. Mahendra Kumar Vijay

sheet and the assessee had not declared any loss from sale trading as

claimed in the statement recorded on oath U/s 131 of the Act. The

assessee had not produced any document which proved that he entered

in share trading with Praful Patel. Therefore, he requested to reverse

the order of the ld CIT(A).

5. At the outset, the ld AR of the assessee has supported the order

of the ld CIT(A) and argued that the assessee was in derivative

transaction of shares. There was a loss in the derivative transaction,

which was settled with Shri Praful Patel, which has been shown as

income against the derivative transaction loss. Finally the assessee has

shown receivables from Sh Praful Patel at Rs. 78,068/-, which has been

also reflected in the balance sheet. Therefore, order of the ld CIT(A)

may please be confirmed.

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

perused the material available on record. It is undisputed fact that the

assessee had disclosed derivative transaction loss at Rs. 10,14,308/-

through the broker namely M/s Mangal Keshav Securities Ltd. The

payments and receipts for these transactions were made through ICICI

Bank account No. 5075. All the transactions have been recorded in the

books of account maintained by the appellant. There was a mutual 7 ITA 791/JP/2012_ ITO Vs. Mahendra Kumar Vijay

agreement with Sh Praful Patel that he was to bear all the losses which

were incurred in the derivative transaction, which has been received in

cash at Rs. 9,36,240/- and balance amount of Rs. 78,068/- had been

shown as receivables. Due to this reason, the assessee had not claimed

any loss on account of derivative transaction in computation of income.

Even it is presumed that the assessee had introduced own cash it has

been shown as income and it could be adjusted against the business

loss. The ld DR has not controverted the finding given by the ld CIT(A).

Therefore, we uphold the order of the ld CIT(A). This ground of

revenue's appeal is dismissed.

7. The second ground of revenue's appeal is against deleting the

addition of Rs. 10,85,782/- U/s 40A(3) of the Act. The ld Assessing

Officer observed that during the course of examination of various ledger

accounts, it was found that assessee had squared up various opening

balances of sundry creditors with account of different funds. Certain

entries in the debtors accounts were also reflected squaring up the

loans by adjusting their debit balances to other persons having credit

balance. The Assessing Officer gave reasonable opportunity of being

heard on payment, had not been made by account payee cheque or

demand drafts and as per his opinion, it was violation of Section 8 ITA 791/JP/2012_ ITO Vs. Mahendra Kumar Vijay

40A(3) of the Act. The assessee replied vide letter dated 18/11/2010.

After considering the various creditors account and assessee's reply, it

has been held that this adjustment was made without any specific

reason between the debtors and creditors. These adjustments were

made on 31/3/2008 by clearing the various accounts or other accounts.

The total value of such transaction against which credits have been

squared up worked out to Rs. 10,85,782/-. Finally he treated these

squared up account as violation U/s 40A(3) of the Act, therefore, he

disallowed whole amount by presuming that these amounts might have

paid how unaccounted money. Therefore, he made addition of Rs.

10,85,782/- U/s 40A(3) of the Act.

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

assessee carried the matter before the ld. CIT(A), who had deleted the

addition made by the Assessing Officer by observing as under:-

"I have duly considered the submissions of the appellant. During the year under reference, the appellant had squared off certain credit balances of the creditors brought forward from the earlier years by transferring the same to the account of other parties having debit balances. The relevant journal entries were passed with the consent of both the creditors and debtors and the appellant did not have any malafide intention to avoid any tax liability. The

9 ITA 791/JP/2012_ ITO Vs. Mahendra Kumar Vijay

A.O. on the other hand invoked the provisions of section 40A(3) and treated the same as payment otherwise than by account payee cheque or crossed bank draft to the various creditors from whom purchases had been made in the preceding years. Since the purchases had been debited in the books of account for the earlier years up to A.Y. 2007-08, the A.O. was not justified in making the impugned disallowance in the current year i.e. A.Y. 2008-

09. The disallowance if any could be made only in the relevant assessment year in which the liability was incurred by resorting to provisions of section 154 of the I.T. Act. This issue is squarely covered in favour of the assessee by the order of Hon'ble Ahmadabad Tribunal in the case of Anand Kumar Rawatram Joshi Vs. ITO (49 SOT

235) and Tushar A Sanghvi (HUF) Vs. ITO (22 Taxmann.com 108). In the latter case, the assessee had incurred certain expenses in A.Y. 2004-05 however, the payment in respect of those expenses was made in the assessment year 2008-09 by crossed cheques. Accordingly, it was held that no disallowance could have been made by the A.O. by invoking the provisions of Section 40A(3) of the I.T. Act. These decisions are fully applicable to the facts of the present case. I, therefore, direct the A.O. to delete the addition of Rs. 10,85,782/- made by her. This ground of appeal is allowed."

10 ITA 791/JP/2012_ ITO Vs. Mahendra Kumar Vijay

9. Now the revenue is in appeal before us. The ld DR has

vehemently supported the order of the Assessing Officer and argued

that the assessee had adjusted the creditors against the debtors on 31st

March, 2008, which is covered U/s 40A(3) of the Act. Therefore, the

same may please be confirmed.

10. At the outset, the ld AR of the assessee has supported the order

of the ld CIT(A).

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

perused the material available on the record. As per record, these

entries were made with the consent of creditor and debtors. These

creditors were pertained to earlier year, which has been debited in A.Y.

2007-08 whereas the year under consideration is 2008-09. The ld

CIT(A) also relied upon the decision of Coordinate ITAT, Ahmadabad

Bench in the case of Anand Kumar Rawatram Joshi Vs. ITO (49 SOT

235) and Tushar A Sanghvi (HUF) Vs. ITO (22 Taxmann.com 108), on

identical issue, which has not been controverted by the ld DR. The

Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Kishan

Chand Maheshwari Dass [1980] 121 ITR 232 (P&H) wherein identical

issue has been decided in favour of the assessee and held no violation 11 ITA 791/JP/2012_ ITO Vs. Mahendra Kumar Vijay

U/s 40A(3) of the Act. Therefore, we uphold the order of the ld CIT(A)

on this ground.

12. In the result, the revenue's appeal is dismissed.

Order pronounced in the open court on 19/06/2015.

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:- 19th June, 2015

*Ranjan

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

1. vihykFkhZ@The Appellant- ITO, Ward 5(2), Jaipur

2. izR;FkhZ@ The Respondent- Shri Mahendra Kumar Vijay, Jaipur.

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. 791/JP/2012)

vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar