Sh. Timple Kumar, Dhuri vs Assessee

Sh.Timple Kumar Vs. The Income Tax Officer, S/o Sh.Brij Lal Gupta, IV(4), Malerkotla. 11-24, Pathshala Road, Dhuri. PAN No. ACJPK6727D (Appellant) (Respondent)

Appellant by : S/Shri Sudhir Sehgal & Shri Ashok Goyal Respondent by : Shri S.K.Mittal, DR

Date of hearing : 25.06.2015 Date of Pronouncement : 16.07.2015

PER H.L.KARWA, VP :

This appeal filed by the assessee is directed against

the order of the learned Commissioner of Income Tax

(Appeals)-II, Ludhiana dated 25.2.2013 relating to assessment

year 2007-08.

2. In this appeal, the assessee raised the following

grounds :

"1. That the impugned appellate order is bad 2

both on facts and law.

2. Because the Ld. Appellate Authority has erred in confirming the addition of Rs.10,85,734/- as income from other sources ignoring the pleadings, submission, and material on record and further erred in not considering that Rs.109182/- were given during previous year.

3. Because the Ld. Appellate authority erred in confirming the addition of Rs.70000/- u/s 68 being loan received from Smt.Laxmi Devi ignoring the pleadings and evidence on record.

4. Because the Ld. Appellate authority erred in confirming the addition of Rs.10000/- out of House Hold Expenses.

5. Because the Ld. Appellate authority erred in confirming the disallowance of 1/5th in car expenses ignoring that while computing total car expenses, Vat Expenses of Rs.24270/- is added."

3. It is observed that there is delay of seven days in

filing the appeal. The assessee has filed an application for

condonation of delay, wherein it is stated that he is residing

at Dhuri and the counsel to whom the documents were given

for preparing the memo of appeal is residing at Ludhiana and,

therefore, some delay has been occurred in reaching the

documents at Ludhiana and then to Chandigarh.

Accordingly, it was submitted that the delay of seven days

may be condoned.

4. After hearing the learned representatives of both the

parties, I am satisfied that the explanation for the delay was 3

satisfactory. It is true that ordinarily, a litigant does not

stand to benefit by lodging the appeal late. In fact, he runs a

serious risk. At the same time, it is also well settled law that

the jurisdiction to condone the delay should be exercised

liberally. The matter relating to condonation of delay should

be judged broadly and not in a pedantic manner.

Considering the above, I condone the delay in filing the

appeal.

5. Ground No.1 of the appeal is general in nature and,

hence, no comments are being given.

6. At the time of hearing of the appeal, S/Shri Sudhir

Sehgal and Ashok Goyal, learned counsel for the assessee did

not press for ground Nos. 3 to 5 of the appeal and, hence, I

dismiss these grounds of appeal as not pressed.

7. Ground No.2 of the appeal is directed against the

action of learned CIT (Appeals) in confirming the addition of

Rs.10,85,734/- as income from other sources. The assessee

is an individual and filed his return of income on 31.10.2007

declaring taxable income of Rs.1,16,680/-. The return was

processed under section 143(1) of the Income Tax Act, 1961

(in short 'the Act'). The assessee is engaged in the business

of electronic goods. Subsequently, the case was selected for

scrutiny and statutory notices under section 143(2) and

142(1) of the Act were issued to the assessee. On a perusal

of the capital account of the assessee submitted during the

assessment proceedings, deposits of Rs.6 lacs and 4

Rs.4,85,734/- were found credited in the said account on

30.6.2006 and 8.7.2006 respectively. As per the Assessing

Officer, subsequently, there were two debit entries of

Rs.5,01,315/- and Rs.4,78,220/- on 9.1.2007 and 24.1.2007.

When the Assessing Officer asked the assessee to explain the

above entries, the assessee submitted that the credit entries

in the capital account were on account of profit earned by him

in commodity transactions through M/s Pashupati Scripts and

the debit entries reflected the loss sustained by him in

commodity transactions. Further, it was also explained by

the assessee that there were some difference between him and

M/s Pashupati Scripts in respect of the speculative

transactions which resulted into profits as well as losses, and

the account was ultimately settled at zero. In order to verify

assessee's version, the Assessing Officer summoned Shri

Shagun Garg, the broker through whom the commodity

transactions were claimed to have been made. The Assessing

Officer asked Shri Shagun Garg to produce the books of

account in order to verify the genuineness of the transactions.

The Assessing Officer also required the assessee to produce

evidence in respect of commodity transactions. No books of

account and supporting evidence with regard to commodity

transactions were produced. In such circumstances, the

Assessing Officer concluded that the deposits of

Rs.10,85,734/- appearing in the capital account of the

assessee as also in his bank account represented assessee's

income from other sources. Consequently, the Assessing

Officer added the sum of Rs.10,85,734/- to the total income of 5

the assessee.

8. On appeal, the learned CIT (Appeals) confirmed the

addition holding that the claim of the assessee that two credit

entries in his capital account were on account of profits from

commodity transactions is not correct. He further observed

that the Assessing Officer has established beyond doubt from

the investigations carried out during the course of assessment

proceedings that this claim is a mere self-serving statement in

order to justify two credit entries. The learned CIT (Appeals)

also observed that Shri Shagun Garg did not produce the

books of account during the course of assessment proceedings

in order to prove the genuineness of the claim with regard to

commodity transactions. The learned CIT (Appeals) has

categorically stated that the transactions were not genuine

transactions and, therefore, provisions of section 68 of the

Act were attracted in this case. The learned CIT (Appeals)

has also relied upon the decision of I.T.A.T., Chandigarh

Bench in the case of M/s Ashok Trading Co. Vs. ITO, Kaithal

in ITA No.452/Chd/2003 and held that in view of the decision

of the Tribunal, the onus to establish the genuineness of the

credit in the books of account is upon the assessee. Mere

filing of confirmatory letters or particulars is not enough to

discharge the onus. Even a mere payment through cheques

is not sufficient to discharge the onus cast on the assessee.

9. The learned counsel for the assessee reiterated the

submissions made before the authorities below. He

vehemently argued that the authorities below have not 6

correctly appreciated the facts of the present case and the

evidence produced by the assessee in support of his case.

The learned counsel for the assessee submitted that the

transactions with M/s Pashupati Scripts, Firoz Gandhi

Market, Ludhiana are on account of speculative profit and

loss in the transactions entered through M/s Pashupati

Scripts. M/s Pashupati Scripts has done certain

transactions of speculative nature on behalf of the assessee

and paid sum of Rs.6 lacs and Rs.4,85,734/- in that account

to the assessee, however, later on M/s Pashupati Scripts

demanded the amount on account of the losses in the

speculative transactions entered on behalf of the assessee.

There were some differences between the assessee and M/s

Pashupati Scripts in respect of the speculative transactions,

which were resulted into profits as well as losses, the account

is ultimately settled with them at zero account i.e. the

amount received from them in excess of the advance of

Rs.1,09,182/- has been repaid to them. It is stated that Shri

Shagun Garg is proprietor of Manvi Confin Services. The

learned counsel for the assessee pointed out that the

Assessing Officer recorded the statement of Shri Shagun Garg

on 9.1.2009 when he appeared in response to summon issued

under section 131 of the Act and confirmed the speculative

transactions of profits as well losses in the account of the

assessee and further submitted a letter on 24.12.2009

confirming his statement dated 9.11.2009 and the speculative

transactions of profit and loss and the transaction of cheque.

The copy of statement of Shri Shagun Garg recorded on oath 7

on 9.11.2009 is available in assessee's Paper Book at pages 7

to 12. The relevant part of the statement of Shri Shagun

Garg reads as under :

"Q. W h a t i s y o u r s o u r c e o f i n c o me ?

Ans. I am running a franchising of SMC Global Securities, Drayea Ganj Near Golcha Cinema, Ne w Delhi. In these days, I get brokerage income from the transactions

d o n e wi t h c l i e n t i n s t o c k s a n d c o m mo d i t i e s exchange on sharing basis. E a r l i e r I wa s running a concern namely M/s Pashupati Scripts at SCO 123, B a s e me n t , Feroze Gandhi Market, Ludhiana. This concern was in operation f rom April 2006 to March 2008. This concern wa s doing the business of stocks and c o m mo d i t i e s broking.

Q. W h a t wa s wo r k i n g c a p i t a l o f t h i s f i r m?

Ans. A t p r e s e n t I a m n o t a wa r e o f t h e a m o u n t b u t wi l l t e l l l a t e r o n n e x t d a t e .

Q. Have you advanced any a mo u n t to Shri

T imple Kumar, Pro p. M/s Gupta Electronics, Old Grain Market, Dhuri during f inancial year 1.4.2006 to 31.3.2007.

Ans. No.

Q. I am s h o wi n g a s t a t e me n t according to wh i c h a n a m o u n t o f R s . 6 l a c s a n d . 4 l a c s 85 thousands 7 hundred 34 (total Rs.1085734) have been paid by you to Shri T imple Kumar vide D.D.No.191054 and

191055 dated on 26.6.2006. Please explain the nature of these D.Ds and source of 8

these D.Ds paid by you?

Ans. These D.Ds have been paid on account of business tr ans actions done by Shri T imple Kumar through us in stock and commodities. These are not loan entries.

I d id not g iven any lo an to Shri T imple Kumar.

Q. T h e p e r u s a l o f t h e s t a t e me n t r e v e a l s t h a t S h r i T i m p l e K u m a r h a s r e p a i d a n a mo u n t o f Rs.5 lacs on 10.1.2007 by D.D.No.005245 and an amount of Rs.4,76,552/- on 25.1.2007 by D.D.No.005527. Please explain the nature of these entries?

Ans. These D.Ds have been received by us on a c c o u n t o f s t o c k a n d c o m mo d i t i e s t r a d i n g done by Shri T imple Kumar of Dhuri through M/s Pashupati Scripts Dhuri.

Q. The f urther perusal of this statement reveals that there is opening credit balance of Rs.109182/- in the name of Shri T imple Kumar in your books of account. Please explain the nature of this credit balance ?

Ans. This may be an amount of Rs.109182/-

collected f rom Shri T imple Kumar of Dhuri as a margin/securities against trading in stocks and commodities.

Q. V i d e s u m mo n d a t e d 2 8 . 1 0 . 2 0 0 9 wh i c h wa s served upon you on 6.11.2009. You are asked to produce copies of balance sheet, prof it and loss account and copy of your b a n k s t a t e me n t f o r t h e r e l e v a n t p e r i o d a n d c o p y o f c a s h b o o k f o r t h e mo n t h o f J u n e 2006 and March 2007 but did not you produce these books of account?

9

Ans. As the notice wa s served to me on 6.11.2009 itself . M y a c c o u n t a n t wh o wa s looking the account of M/s Pashupati Scripts, has gone to attend his sister's

m a r r i a g e a t P a u r i i G a r h wa l ( U t t a r a k h a n d ) a n d wi l l b e b a c k o n l y af t e r 2 5 t h M a r . 2 0 0 9 .

I n h i s a b s e n c e I a m n o t a wa r e a b o u t t h e d o c u me n t s a s k e d b y y o u a n d wi l l b e a b l e t o p r o d u c e t h e s a m e af t e r 2 5 t h M a r . , 2 0 0 9 . "

10. From the above statement, it is clear that Shri

Shagun Garg was running a business concern, and was

engaged in stock and commodity broking business. Shri

Shagun Garg has confirmed the transaction of profit and loss

in the account of the assessee. He has categorically stated

and confirmed that the Demand Drafts of Rs.6 lacs and

Rs.4,85,734/- were given by him to the assessee and he has

also confirmed having received Demand Draft of Rs.5 lacs and

Rs.4,76,522/- from the assessee. He has also furnished the

copy of account. There is no dispute that the bank drafts

were prepared from the bank account of M/s Manavi Comfin

Services, which belonged to Shri Shagun Garg. It is also

apparent from record that Shri Shagun Garg submitted a copy

of income tax return, copy of ITR for the assessment years

2005-06 to 2007-08 with PAN number. Bank account

wherefrom the demand drafts have been issued, were procured

and placed on record by the Assessing Officer herself. It is

also relevant to state that the confirmed copy of account of

the assessee in the books of M/s Pashupati Scripts, Ludhiana

for the period 1.4.2006 to 31.3.2007 is available at page 5 of

assessee's Paper Book. From this account, it is clear that 10

M/s Pashupati Scripts paid a sum of Rs.6 lacs and

Rs.4,85,734/- to the assessee. The copy of statement of

account of the assessee in the books of M/s Pashupati

Scripts, Ludhiana alongwith statement of sauda (commodity

transaction) and different bills for the assessment year 2007-

08 produced and filed before the Assessing Officer during the

course of assessment proceedings and are available at pages

35 to 41 of assessee's Paper Book. The copy of reply dated

23.12.2009 filed to the Assessing Officer on 24.12.2009 by

Shri Shagun Garg in response to the summon under section

131 of the Act is available at page 42 of assessee's Paper

Book. In the said reply, Shri Shagun Garg has categorically

stated that he has already stated that the nature of entries

was of profit and loss in commodity transactions done Shri

Timple Kumar during the financial year 2006-07 relating to

assessment year 2007-08. Thus, he has again confirmed

giving of demand drafts of Rs.6 lacs and Rs.4,85,734/-.

11. It appears that the authorities below have not

correctly appreciated the facts of the present case. In para

4.9 of the impugned order, the learned CIT (Appeals) has

reproduced the statement of the assessee, which reads as

under :

Q. I am showing you a document filed by you during assessment proceedings according to which you have received Rs.6.00 lacs by DD No.191054 and Rs.4,85,734/- by DD No.191054 from Shri Shagun Garg Prop. M/s Pashupati Scripts Stock Exchange, Ludhiana on 28.06.2006 and further you have given back amount of Rs.5,01,315/- and Rs.4,78,220/- back to Shri Shagun Garg on 11

09.01.2007 & 24.01.2007 by DD No.005245 & DD No.005327, respectively. Please explain the nature of these entries ?

A. I do not remember anything about these entries.

Q. How it is possible that Rs.10,85,734/- (Rs.6,00,000/- + Rs.4,85,734/-) was deposited in your account without your knowledge?

A. I have not done any type of other transaction with any party. If the amount has been received and returned back it can be loan only. I have not much knowledge about these matters. My counsel can better explain these things.

12. On the basis of the above statement, the learned CIT

(Appeals) came to the conclusion that the assessee did not

make any claim in the statement regarding the fact that these

deposits were on account of profits received from commodity

transactions carried out through M/s Pashupati Scripts. It

is relevant to observe here that the statement of the assessee

was recorded on 23.11.2009 when he appeared before the

Assessing Officer to seek adjournment of the hearing of the

case because of non-availability of his counsel on the said

date. However, instead of granting the adjournment, the

Assessing Officer recorded the statement of the assessee.

The learned counsel for the assessee submitted that the

assessee had met with a very serious road accident on

25.8.2009 and he undergone the operation where nailing and

plating was done in his body. He had suffered a head injury

also. It is stated that he could only walk with the help of stick.

He was not mentally updated and was not in a position to reply the

questions particularly in respect of the past working as he

could not recollect the past activities quickly. There w a s l o s s 12

of memory also. The learned counsel for the assessee

submitted that when the assessee appeared before the

Assessing Officer, even that time he was walking with a stick

and categorically stated that he does not remember anything

about the entries. The assessee had stated before the

Assessing Officer that he does not know much about the

matter, which could be explained by his counsel in a better

way. Accordingly, the learned counsel for the assessee

submitted that the learned CIT (Appeals) has wrongly relied

upon the statement of the assessee recorded on 23.11.2009.

I have perused the copy of discharge slip of Shri Timple

Kumar issued by Dayanand Medical College & Hospital,

Ludhiana, and OPD slip of Shree Sanatan Dharam Charitable

Hospital, Dhuri. It is apparent from these documents that on

25.8.2009, the assessee was admitted in Dayanand Medical

College & Hospital, Ludhiana and was operated upon and

nailing of femur and K-wire fixation of radius was done on

26.8.2009. The assessee was discharged from the hospital on

his request on 2.9.2009 and a team of doctors of the said

hospital advised to follow up in Ortho OPD after seven days

for suture removal. As per OPD slip (No.12435) dated

10.12.2009 of Shree Sanatan Dharam Charitable Hospital,

Dhuri (Sangrur), the assessee's case was of loss of memory

and some altered behavior. The Assessing Officer recorded

the statement of the assessee on 23.11.2009 i.e. after few

days when the assessee had undergone surgery. Even

otherwise also, when there are documentary evidence

available on record relating to the transactions, therefore, the 13

CIT (Appeals) was not justified in drawing an adverse

inference against the assessee from the statement recorded

on 23.11.2009. The assessee has not made any admission,

rather he has categorically stated that he does not remember

anything about these entries. It was also stated that he has

not much knowledge about the matter which could be

explained by his counsel in a better way. In my opinion, the

authorities below were not justified in relying on the

statement of the assessee recorded on 23.11.2009, when he

was not mentally fit to explain the matter. There are

sufficient documentary evidence on record to explain the

deposits credited in assessee's capital account. The amounts

in question were received from Shri Shagun Garg through

banking channels and Shri Shagun Garg has confirmed the

payment of commodity profits to the assessee. There is no

dispute that Shri Shagun Garg is assessed to Income Tax. He

has also confirmed that he has received back an amount of

Rs.5 lacs on 10.1.2007 by D.D.No.005245 and an amount of

Rs.4,76,552/- on 25.1.2007 by D.D. No.005527. These

transactions were on account of stock and commodity

transactions done by the assessee through M/s Pashupati

Scripts Dhuri.

13. In para 4.5 of the impugned order, the learned CIT (Appeals)

has referred to the report dated 3.5.2011 submitted by the Assessing

Officer. It appears that the Assessing Officer has made certain

enquiries from Multi Commodity Exchange of India Ltd., Mumbai. In

this regard, MCX Ltd. vide its letter dated 7.3.2011 has stated that M/s

Pashupati Script, Proprietor Shri Shagun Garg is not registered as a 14

member of MCX. They also stated that the assessee is not

registered as a client with any member(s) of the Exchange.

Multi Commodity Exchange of India Ltd. also stated that in

the bills attached, the basic details like trade number, trade

time, client code, member code are not mentioned. Therefore,

they have stated that in the absence of even basic details,

they were unable to verify whether the trades were carried out

at MCX. Thus, it is clear that the Assessing Officer has not

conducted the proper enquiries without mentioning the basic

details like trade number, trade time, client code, etc. In my

opinion, this was a futile exercise on the part of the Assessing

Officer. The learned CIT (Appeals) vide his letter dated

1.2.2011 directed the Assessing Officer to check the

assessment status of these issues in the hands of the concern

brokers. In this regard, the Assessing Officer vide his report

dated 29.5.2012 submitted that these transactions were made

through principle to principle and not through MCX, whereas

it is necessary to make valid commodity transactions through

MCX, Mumbai as per their clause. Accordingly, it was stated

by the Assessing Officer that the impugned addition was

proper. Even otherwise, on the basis of reports of the

Assessing Officer dated 3.5.2011 and 29.5.2012, no adverse

inference can be drawn against the assessee because these

reports do not contain any substance to defeat the case of the

assessee.

14. Considering the entire facts and circumstances of

the present case, it is clear that Shri Shagun Garg confirmed 15

having given demand drafts of Rs.6 lacs and Rs.4,85,734/- to

the assessee and received demand drafts of Rs.5 lacs and

Rs.4,76,552/-. He has provided copy of account. There is

no denying fact that the bank drafts were prepared from the

bank account of M/s Manavi Confin Services, which belonged

to Shri Shagun Garg. Shri Shagun Garg appeared in person

before the Assessing Officer on 9.1.2009. There is no dispute

as regard the identity of Shri Shagun Garg. As regards the

genuineness of transactions, the amounts of Rs.6 lacs and

Rs.4,85,734/- were deposited in assessee's account by way of

demand drafts which were prepared from the bank account of

M/s Manavi Confin Services, which belonged to Shri Shagun

Garg. He has submitted copy of the income tax return , copy

of ITR for the assessment years 2005-06 to 2007-08 with PAN

number. He has also submitted bank account wherefrom the

demand drafts have been issued. The copy of statement of

account from the books of M/s Pashupati Scripts regarding

profit and loss was also produced before the lower authorities.

In my considered opinion, there was no justification in making

the addition of Rs.10,85,734/- in the hands of the assessee.

It is relevant to observe here that Shri Shagun Garg in his

statement recorded on 9.11.2009 has stated that the nature of

entries was of profit and loss in commodity transaction done

by Shri Timple Kumar during the financial year 2006-07

relevant to assessment year 2007-08. In view of the

statement dated 9.11.2009 given by Shri Shagun Garg and

also in view of the copy of reply dated 23.12.2009 filed to the

Assessing Officer on 24.12.2009 by Shri Shagun Garg in 16

response to the summons issued under section 131 of the Act,

it is clear that he was engaged in the business of commodity

transactions. In my opinion, if the Assessing Officer has

suspicion that the commodity profit was not genuine in the

hands of Shri Shagun Garg, the same could have been added

in his assessment by reopening of the same, but the same

cannot be assessed in the hands of the assessee because Shri

Shagun Garg has confirmed the payment of commodity profits

to the assessee by way of drafts and has filed the relevant

papers. He has also explained the nature of transactions and

the payments paid and received by him. He is assessed to

Income Tax. Shri Shagun Garg has clarified that he is also

proprietor of Manvi Confin Services. Thus, the assessee has

discharged onus of proving the nature and source of deposits

credited in his capital account. No body has doubted the

identity of Shri Shagun Garg. In view of the above, no

addition can be made in the hands of the assessee under

section 68 of the Act, and accordingly, I allow the ground No.2

of the appeal. The addition of Rs.10,85,734/- stands deleted.

13. In the result, the appeal of the assessee is allowed

partly.

Order pronounced in the open court on this 16th day of July, 2015.

Sd/-

(H.L.KARWA) VICE PRESIDENT Dated : 16 t h July, 2015 *Rati* Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.

Assistant Registrar, ITAT, Chandigarh 17