Ramesh Chand Gupta, vs Assessee

Ramesh Chand Gupta, Proprietor, Vs. ITO, Ward 1(1), M/s. Bookman India, Muzaffarnagar U.P. 151/1A, South Civil Lines, Muzaffarnagar (U.P.) GIR / PAN:AAPTG8477C

(Appellant) (Respondent)

Appellant by : Shri Rakesh Gupta, Adv. Respondent by : Shri Vikram Sahay, Sr. DR

Date of hearing : 01.06.2015 Date of pronouncement : 29.07.2015

ORDER

PER J. S. REDDY, AM:

I.T.A. No. 475/Del/2008 has been directed against the order of Ld. CIT(A), Muzaffarnagar dated 07.211.2007 for the Assessment Year 2001-

02.

2. The brief facts of the case are that that the assessee is an individual being publisher of school books. Return of income was filed on 29.10.2001 declaring income of Rs.1 ,00,020/-. Original assessment was done U/s 143(3) on 27.2.2001 at a total income of Rs.7,90,020/- by making agreed addition of Rs.6,25,000/- on account of unexplained loans and gifts and 2 ITA No.475 , 2928/Del/2008

expenses. The case was reviewed by the CIT, Muzaffamagar V/s 263 of the Act whereby assessment was set aside to be reframed after proper examination of unsecured loans, commission, gifts, salary payments, manufacturing valuation of closing stock and other expenses. During re-assessment proceedings U/s 143(3) read with 263, following additions/disallowances have been made as given by Ld. CIT(A).

(i) Addition of Rs.2,00,000/- on account of bogus gift:

The assessee had received gifts of Rs.4,00,000/-. After examination of creditworthiness of the donations, the AO observed that the donor Shri Pankaj Jain, who had given gift of Rs.l ,00,000/- to Km. Arti Gupta assessee's daughter, had been given by cheque after cash deposits, According to AO, the assessee has not been able to explain the source of this cash deposit.

Similarly, one Shri Shree Pal Jain had given gift of Rs.1,00,000/- to assessee's son Shri Tarun Gupta. It was submitted that the donor had received this fund from Shri S.P. Jain & Sons (HUF). However, no copy of account of the donor is in the books of M/s S.P. Jain & Sons was furnished. The AO held that this gift was also from assessee's undisclosed income'.

(ii) Addition of Rs.3, 70,000/- on account of unsecured loans:

The assessee had received total of Rs.31,30,000/- unsecured loan from 32 persons. Out of these, following were questioned and added by the AO:

1. Sh. S.C.Agarwal 1,50,000/-

2. Sh.Anant Lakshendra 1,00,000/-

3. Lakhshendra Kr. & Sons 1,00,000/-

4.Madhu Garg 20,000/-

3 ITA No.475 , 2928/Del/2008 Shri S.C. Agarwal was stated to be dead and hence his, pass book could not be furnished. In the cse of Sh. Lakshendra, Rs.1,00,000/- was deposited in his bank account on 13.3.2007 and loan had been given on 1 14.3.2007 to the assessee. The source of cash was not satisfactorily explained.

Similarly, in the bank account of Lakshendra Kumar Garg & Sons HUF, there was cash deposit of Rs.1 ,00,000/- on 2.3.2007, before the loan was given on 14.3.2007.

Similarly Smt. Madhu Agarwal had deposited Rs.20,000/- in cash before giving loan of the same amount to the assessee.

Therefore, these loans were treated as unexplained and were added back.

(iii) Disallowance/Addition of Rs.1,11,000/- on account of commission:

Out of total commission of Rs.1, 75,511/-, commission of Rs.1,11,009/-had been paid to assessee's son. Shri Sandeep Gupta. Shri Sandeep Gupta was being paid regular salary as well. Further Sandeep Gupta was having his own publishing work in the name of Premier Publishing House. The assessee explained that the commission had been given to Shri Sandeep Gupta for the sale of assessee's books. The AO rejected this contention on the ground that Shri Sandeep Gupta was having his own publishing work and further he was being paid salary for the work of the assessee's concern. It was not convincing that he was doing some other work also for which commission should have been paid to him. The commission of Rs.1,11,009/-was disallowed U/s 40A(2) of the Act.

(iv) Disallowance of Rs.20,000/- out of expenses:

4 ITA No.475 , 2928/Del/2008 The assessee had shown conveyance expenses or Rs.2,70,571/- in the conveyance expenses there were entries for petrol and diesel, all of which were not found to be verifiable. The A.O. found total expenses on excessive side, in view of the fact that the assessee was showing expenses of Rs.97,100/- specially on account of vehicle maintenance and repairs. On estimate basis, the AO disallowed Rs.20,000/- out of such expenses.

3. On appeal, the first appellate authority granted part relief. Further aggrieved, the assessee is before us on the following grounds:

"1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making aggregate addition of Rs.2,00,000/-- on account of gift received from Sh. Pankaj Jain and Sh. S.P. Jain and that too by recording incorrect facts and finding and without considering the submissions of assessee and without providing adequate opportunity of hearing.

2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making aggregate addition of Rs.2,00,000/- on account of gift received from Sh. Pankaj Jain and Sh. S.P. Jain is bad in law and against the facts and circumstances of the case and the impugned addition is not sustainable on various legal and factual grounds.

3. That having regard to the facts and circumstances of the case, Ld. CIT(A) bas erred in law and on facts in confirming the action of Ld. AO in making aggregate addition of Rs.3,70,000/- on account of unsecured loans received from four parties as mentioned in the assessment order and that too by recording incorrect facts and findings and without considering the submissions of assessee and without providing adequate opportunity of hearing.

4. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making aggregate addition of Rs.3,70,000/- on account of unsecured loans is bad in law and against the facts and circumstances of the case and the impugned addition is not sustainable on various legal and factual grounds.

5 ITA No.475 , 2928/Del/2008 5. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making disallowance of Rs.l,11,000/- u/s 40A(2) on account of commission paid to Sh. Sanjeev Gupta.

6. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making disallowance ofRs.l,11,000/- u/s 40A(2) is bad in law and against the facts and circumstances of the case and the impugned disallowance is not sustainable on various legal and factual grounds.

7. That having regard to the facts and circumstances of the case, Ld. CIT( A) has erred in law and on facts in confirming the action of Ld. AO in making disallowance of Rs.20,000/- on account of travelling and conveyance expenses.

8. That in any case and in any view of the matter, impugned additions/disallowances and impugned assessment order are bad in law, illegal, unjustified, barred by limitation, contrary to facts & law and based upon recording of incorrect facts and finding, without giving adequate opportunity of hearing, in violation of principles of natural justice and the same deserves to be quashed.

9. That having regards to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in charging the interest U/S 234A, 234B and 234C of the Income Tax Act, 1961.

10. That the appellant craves to leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other."

4. Shri Rakesh Gupta and Ld. Counsel for the assessee submitted that the application for admission of additional grounds as well as the application for admission of additional evidence made before this bench is not pressed. In view of these submissions, both these applications are dismissed as not pressed.

5. Ld. Counsel for the assessee submitted that assessee's minor children have received two gifts of Rs.1 lac each from Mr. Pankaj Jain and Shri Pal Jain & Sons (HUF) and these gifts were received through proper banking 6 ITA No.475 , 2928/Del/2008

channel and that the assessee has filed an documents such as gift deed income tax particulars and copies of bank account as evidence. The A.O. made addition u/s 68 only on the ground that cash was deposited in the donor's account just before issuance of cheques and also that the donor Mr. S.P. Jain had explained that he had given the gifts as 'Karta' of M/s S.P. Jain & Sons (HUF) but however, no explanation, books of accounts of HUF were furnished. He relied on the following case laws for the proposition that once the identity is proved, production of creditor, proving of source of source, cannot be demanded from the assessee.

i) Smt. Shanti Devi Vs ITO 90 TTJ 651, ii) CIT Vs Gourdin Herbals India Ltd. in I.T.A.No. 665/2009 dt. 17.09.2009

iii) CIT Vs. Padmini Mishra, in I.T.A.No. 541/2013 order dated 27.05.2014.

6. On observation of Ld. CIT(A) that there is no occasion for the gift and with regard to referring to human probabilities, he submitted that the assessee and donor were close family friends and long standing income tax assessees and the confirmations have been filed. He relied on the decision of Hon'ble Rajasthan High Court in the case of CIT Vs Padma Sungh Chauhan 214 Taxman 792 (Raj.) He further relied on the following case laws:

i) CITS Vs Jeeta Khan 160 Taxman 373 (P&H) ii) CIT Vs Manoj Kumar Sekhri 86 TTJ 510 (ASR) and certain other cases.

7. On the addition made u/s 68 on account of unsecured loans, he submitted that in the case of S. C. Agarwal, Anant Lakshendra and Lakshendra Kumar Garg and Madhu Agarwal, confirmation, income tax 7 ITA No.475 , 2928/Del/2008

particulars, copy of accounts were filed. He reiterated the proposition of law relied by him by arguing addition of gifts received. He further furnished copies of various documents filed by him and submitted that the addition in question is bad in law.

8. On grounds No.5 & 6, which is disallowance of commission paid to Shri Sand Gupta, he took this bench through all the confirmations, acknowledgement of returns, ledger accounts etc. filed before the A.O. and disputed the findings of Ld. CIT(A) that Mr. Sandeep Gupta is very busy and carrying out work of his own publication and he has no time to do salesmanship of assessee and that he is the son of the assessee and received salary etc. and submitted that this is mere surmises and conjecture.

9. Regarding ground No.7, he submitted that it is an ad-hoc disallowance and hence, cannot be sustained.

10. Ld. D.R. on the other hand submitted that in the original assessment proceedings, the assessee had made a surrender of gifts received and in second round of assessment proceedings, in pursuance to the order u/s 263, the assessee went back of his surrender. He referred to page 63-69 of assessee's paper book and submitted that's reliance cannot be placed on these documents. Regarding independent surrender of Rs.6.25 lacs of loan and gifts, the Ld. D.R. submitted that the assessee has failed to prove the creditworthiness of persons who have given the gifts as well as persons who alleged to have given the loan. Referring to the gift deed placed at paper book I, Ld. D.R. submitted that it is a stereotyped document and cannot be considered as evidence. He pointed out that all the documents are identical.

He relied on the order of Ld. CIT(A) and submitted that relationship between the donor and done, occasion for gift, creditworthiness and general 8 ITA No.475 , 2928/Del/2008

wellbeing, source of a particular fund, past conduct etc. have to be looked into and as there is no relationship nor the occasion, the gifts are not genuine. Similarly, on the issue of loan, he relied on the order of A.O. as well as the first appellate authority and submitted that's the creditworthiness of persons were not proved by merely filing confirmation from the persons who have given the loan along with their income tax details is not enough to satisfy the genuineness of loan. It was submitted that no details and confirmations have been filed in respect of loan from Smt. Madhu Agarwal. On the issue of rendering services and commission payment to Shri Sandeep Gupta, it is submitted that factum of services rendered is not proved and hence, disallowance should be upheld. The ad-hoc disallowance of expenditure was also supported.

11. We have heard rival contentions and perused the material placed on record. On a careful consideration of the facts and circumstances of the case, perusal of papers on record and the order of authorities below as well as case law cited, we hold as follow:-

12. As regards the surrender made by the assessee during the course of original assessment proceedings, we hold that this surrender does not hold good in the fresh assessment proceeding where all the additions have been considered on merit. At best, this surrender can be circumstantial evidence to be taken into consideration while considering the issue on merit.

13. We first take up the addition on account of gift:

The assessee submitted that he has received gifts of Rs.1 lac from Shri Pankaj Jain on behalf of his minor daughter and further Rs.1 lac from Shri Pal Jain on behalf of his minor son Tarun Gupta. The assessee filed following documents in this regard:

9 ITA No.475 , 2928/Del/2008 i) Gift deed of donor ii) Income tax particulars of donor and confirmation

iii) Bank account of donor and supporting evidence.

13.1 The gifts were disallowed for the reason that gift deeds are stereotyped documents and the cash was deposited in bank account before issue of cheques in the case of Pankaj Jain on the ground that gifts are against human probabilities.

13.2 We have considered the evidences produced before us. The declaration of gift and acceptances are on pre printed stereotyped papers and confirmation of gifts is also on pre printed stereotyped papers. When the donors have confirmed and the fact that they have given gifts to the minor children of assessee in whatever manner and when they are furnishing the income tax particulars and copies of bank account then addition on this account cannot be made based on mere human probabilities. No doubt such transaction create doubt in the human mind. Whatever may be the suspicion, the evidence filed by the assessee cannot be disregarded without any adverse material on record. In case the revenue authorities find that evidence produced are not reliable, then the proper course would be to conduct further investigation by summoning the parties, recording statement claiming in their sources etc. No addition can be sustained when, no effort whatsoever is made by the A.O. to collect evidence which disproves the claim of assessee.

13.4 Agra Bench of the Tribunal in the case of Shanti Devi Vs ITO 90 TTJ 651 has held as follows:

"If the assessee has furnished the confirmation from the creditors and the details of their income-tax returns then the onus put on the assessee by virtue of provision' of s. 68 stands discharged. So far as 10 ITA No.475 , 2928/Del/2008

the present case is concerned, both the creditors being income-tax assessees and having shown the loans in their statements and affidavits furnished before the AO, both the creditors having appeared before the AO and having confirmed the amount of loan given to the assessee during the course of their examination by the AO, and both the creditors having explained even the source of deposits in their bank accounts, the onus put on the assessee stood discharged and it was then for the Revenue to place the material to refute the factual position of the record. Simply to doubt the capacity only because the deposits in bank accounts of the creditors were made in cash and just before issuing cheque could not be sufficient ground for doubting the capacity of the creditors. The Revenue authorities have not brought any evidence on record to show that the amounts deposited in cash in the bank accounts of the creditors belong to the assessee. In absence of such evidence their finding is of no use except that the same has to be held to be on conjectures and surmises. Assessee having discharged the onus put on her by the provision of s. 68 and there being no evidence contrary to that brought by the Revenue, the addition made cannot be sustained and consequently the same is deleted."

13.5 The Hon'ble Jurisdictional High Court in I.T.A. No. 665/2009 in the case of CIT Vs Gourdin Herbals India Ltd. order dated 17th Sep. 2009 held as follows:

"Three companies, viz., M/s. Kuberco Sales Pvt. Ltd., M/s. Garg Finvest Pvt. Ltd. and M/s. Mafico Leasing and Consultants Pvt. Ltdhad subscribed to the share capital issued by the assessee. The Assessing Officer had some doubts about the source of the investment made by those three companies and therefore, made certain inquiries. In response, the assessee produced the copy of the bank accounts of all the three companies, their certificates of incorporation and also the income tax returns filed by them. From the above documents, the identity and genuineness of these companies is clearly established. The only ground for making addition by the AO was that the bank accounts of the three companies revealed that the amounts in cash were deposited in those accounts and thus cheques were issued in favour of the assessee company along with share application money.

11 ITA No.475 , 2928/Del/2008 In these circumstances, we are of the opinion that following the judgment of the Supreme Court in the case of Commissioner of Income Tax Vs. Lovely Exports Pvt. Ltd., 216 CTR 195, the ITAT has rightly held that the assessee had discharged its burden. In case those three companies had received certain cash, which were deposited in the bank accounts, it was for the Income Tax Department to take action against the said companies.

We are, therefore, of the opinion that no substantial question of law arises for our consideration in this appeal, which is accordingly dismissed."

13.6 Hon'ble Rajasthan High Court in the case of CIT Vs Padama Sungh Chauhan 214 Taxation 792 has held as follows:

"that there is no legal basis to assume that to recognize the g.ift to be genuine, there should be any blood relationship, or any close relationship, between the donor and the donee, When assessee produced the affidavit, gift deed in the absence of anything to show that the gift was by way of money laundering addition under section 68 as cash credit not justified. In view of these submissions CIT(A)'s objection is highly unjustified and contrary to the facts also and without any basis and without considering the material available on record and the same may kindly be withdrawn."

13.7 Applying the proposition laid down in these various case laws to the facts of the present case, we hold that the A.O. has not rebutted with the evidences, submissions and documentary evidences filed by the assessee. Ld. CIT(A) has wrongly upheld the addition on the basis of preponderance of human probabilities. Hence, we allow these grounds of the assessee. 13.8 In the result, these additions are deleted.

14. Coming to the addition of Rs.3.70 lacs on account of unsecured loan u/s 68, we find that Mr. Sandeep Agarwal who has given Rs.1.50 lacs, Shri Anant Lakshendra who has given Rs.1 lac, Shri Lakshendra Kr and Sons 12 ITA No.475 , 2928/Del/2008

which has given Rs.1 lac have given confirmation letters, produced copies of bank pass books and filed acknowledgement of their return of income. In the case of Late Shri S. C. Agarwal, the legal heir has confirmed that his father has deposited Rs.1.50 lacs with M/s. Bookmark India, by way of accounts payee cheque and that his father was a pensioner and was having income from pension and LIC commission. Interest has been paid to parties on account of deduction at source. In the case of Shri Anant Lakshendra, interest has been paid after deduction of tax at source and Mr. Lakshendra is income tax assessee. Similar is the case of of Lakshendra Kr. & Sons. Only in the case of Madhu Garg, no confirmation has been filed. Only copes of ledger account and payment of interest with TDS has been filed. As in the case of gift, addition u/s 68 has been made by the A.O. without enquiry and without bringing on record any material to contradict the claim of assessee and to discredit the evidences produced before him by the assessee.. 14.1. Various courts have held that the assessee cannot be compelled to prove the source of source. Since the assessee furnished confirmation, PAN and income tax details, he discharged the burden of proof that lay on him u/s 68 and the onus shifted to the Revenue. An addition cannot be made on mere surmises and conjectures by simply rejecting all the documentary evidences filed by the assessee as not sufficient or not believable. By applying the propositions laid down in various case laws referred to in the earlier generations, we delete all the additions except in the case of Madhu Garg as he has not provided either confirmation letter or income tax details. Hence, all the additions made u/s 68 ought the addition of Rs.20,000/- made being loan from Madhu Garg is deleted.

14.2 In the result, this ground of assessee is allowed in part.

13 ITA No.475 , 2928/Del/2008 15. Regarding disallowance of Rs.12.11 lacs made on account of commission paid to Shri Sandeep Gupta, we find that Ld. CIT(A) has disallowed the commission on the ground that Shri Sandeep Gupta has the business of publication of books and it is not possible for him to do work with the assessee. Ld. CIT(A) has confirmed the disallowance by observing that Shjri Sandeep Gupta is busy in carrying out the entire work of his publishing house and has no time to do salesmanship for the assessee. In our view, there is no basis for the A.O. and the Ld. CIT(A) to come to such a conclusion. The assessee has submitted confirmation form Shri Sandeep Gupta, his income tax details along with acknowledgement of return, computation of income, as well as ledger account copies. If the A.O. doubted the confirmation letter of Mr. Sandeep Guipta and his capability of doing sale for the assessee, he could have summoned him and recorded his statement. There is no material whatsoever with the Revenue authorities to contradict the evidence filed by the assessee. When the amount in question is taxed in the hands of Mr. Sandeep Gupta then there is no loss to revenue. There is no evidence to come to a conclusion that Mr. Sandeep Gupta has not rendered services. Thus, this disallowance is hereby deleted.

16. The last ground is on ad-hoc disallowance. After considering rival submissions, we find no infirmity in the same. This ground of assessee is dismissed.

17. I.T.A. No. 2928/Del/2008 is against the penalty levied u/s 271(1)(c) of the Act for the same Assessment Year. In view of our decision in the quantum proceedings, the penalty is deleted and the only additions upheld are; Rs.20,000/- u/s 68 and ad hoc disallowance of expenses. Both these 14 ITA No.475 , 2928/Del/2008

additions / disallowance cannot be considered fit for levy of penalty u/s 271(1)(c) of the Act. Hence, this appeal of assessee is allowed.

18. In the result, assessee's appeal in I.T.A. No. 475/Del/2008 is partly allowed and appeal in I.T.A.No.2928/Del/2008 is allowed.

19. Order pronounced in the open court on 29th July, 2015.

Sd./- Sd./- ( I. C. SUDHIR) (J. S. REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER Date: 29th July, 2015

Sp Copy forwarded to:- 1. The appellant 2. The respondent 3. The CIT 4. The CIT (A)-, New Delhi.

5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi. True copy.

By Order

(ITAT, New Delhi).

S.No. Details Date Initials Designation 1 Draft dictated on 27/7 Sr. PS/PS 2 Draft placed before author 27/7,28 Sr. PS/PS Draft proposed & placed before the 3 JM/AM Second Member Draft discussed/approved by Second 4 AM/AM Member 5 Approved Draft comes to the Sr. PS/PS 29/7/15 Sr. PS/PS 6 Kept for pronouncement 29/7 Sr. PS/PS 7 File sent to Bench Clerk 29/7 Sr. PS/PS Date on which the file goes to Head 8 Clerk 9 Date on which file goes to A.R. 10 Date of Dispatch of order