Shree Sainath Photochem, Navsari vs Assessee

IN THE INCOME TAX APPELLATE TRIBUNAL " D " BENCH, AHMEDABAD (BEFORE SHRI SHAILENDRA Kr. YADAV, J.M. & SHRI ANIL CHATURVEDI, A.M.)

C.O.NO. 63/AHD/2011 (in I.T. A. No.369/AHD/2011) (Assessment Year: 2007-08)

M/s. Shree Sainath V/S The I.T.O., Ward-4, Navsari Photochem Survey NO. 454/P, N.H. No. 8, Nr. Hotel Almass, at, Alipore, Dist. Navsari

(Appellant) (Respondent)

PAN: AAJFS9455Q

Appellant by : Shri Rajesh Upadhyay, A.R. Respondent by : Smt. Sonia Kumar, Sr. D.R.

(आदे श)/ORDER

Date of hearing : 01-06-2015 Date of Pronouncement : 05 -06-2015

PER ANIL CHATURVEDI, ACCOUNTANT MEMBER.

1. This C.O filed by the Assessee is against the order of CIT(A), Valsad, Gujarat dated 18.11.2010 for A.Y. 2007-08.

2. The relevant facts as culled out from the material on record are as under.

3. Assessee is a partnership firm stated to be engaged in the business of manufacturing of Photographic Chemicals. Assessee filed its return of 2 C.O No 63/AHD/2011 . A.Y. 2007-08 income for A.Y. 07-08 on 25.10.2007 declaring total income at Rs. 2,31,190/-. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 04.12.2009 and the total income was determined at Rs. 19,06,870/-. Aggrieved by the order of A.O., Assessee carried the matter before CIT(A) who vide order dated 18.11 2010 granted partial relief to the Assessee. Aggrieved by the aforesaid order of CIT(A), Revenue and Assessee preferred appeal before Tribunal. The grounds raised by the Assessee in the C.O reads as under:-

1. Ld. A.O has erred in law and on facts to add an amount of Rs. 5,69,000/- u/s. 68 of I.T. Act, 1961.

2. Ld. A..O has erred in law and on facts to disallow interest of Rs. 8,153/- paid to Shri Bhupendra A. Desai on amount borrowed from him and used in business.

4. Before us, ld. A.R. submitted that against the order of ld. CIT(A), Revenue had also preferred appeal before Tribunal and the same was dismissed by Tribunal in ITA NO. 369/A/2011 order dated 14.11.2014 but however the grounds raised by the Revenue are independent of the grounds raised by the Assessee in C.O.

5. The ld. A.R. submitted that the grounds raised in the present C.O are interconnected.

6. During the course of assessment proceedings, A.O noticed that Assessee had accepted cash loans from various parties aggregating to Rs. 5,69,000/-, (the parties are listed at page 4 of the assessment order) which included the amount received of Rs. 3 lacs from Bhupendra Desai. A.O has noted that Shri Bhupendra Desai was not able to explain the source of cash deposited in his bank account from which he has given the unsecured loan to the

3 C.O No 63/AHD/2011 . A.Y. 2007-08 Assessee. With respect to the other parties, he noticed that in some of the cases, the depositors had denied to have known the Assessee and in some cases, the depositors were not present at the addresses. He therefore concluded that Assessee had failed to discharge in all the cases, the onus cast upon it u/s. 68 of the Act by establishing the identity of the depositor, the genuineness of transaction and the creditworthiness of the depositors. He accordingly considered the aggregate amount of Rs. 5,69,000/- received by the Assessee as unexplained cash credit. The interest expense of Rs. 8,153/- which was given to Bhupendra Desai on the unsecured loan was also accordingly disallowed and added to the income. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who upheld the order of A.O by holding as under:-

6.Ground No.-2 :- This ground relates to the addition of Rs.5,69,000/- made by the AO u/s 68 of I.T. Act,1961. The AO made elaborate inquiry and come to the conclusions that the cash credits appearing in the books of a/c. to the extent of Rs.5,69,000/- does not satisfy the requirements as envisaged in the provisions u/s. 68 of the Act. The finding of the AO is found in pages 4-7 of the assessment order. On the other hand, the Id. AR submitted general defence raising some legal issues such as cross examination was not given etc. Factually, the AO made independent enquiry after- the appellant submitted confirmations from some of the creditors. The details of the finding of the independent enquiry was in the assessment order. After completing the independent enquiry the AO has confronted with the appellant by issuing show cause notice for proposed additions in this count. The appellant replied to the AO that the appellant discharged the onus by providing the confirmation letters. The appellant did not contest the result of the enquiry made by the AO nor asked for any cross examination of the creditors. Finally, the AO found that the appellant failed to justify the requirements in the provisions u/s. 68 of the Act for those cash credits and therefore made the additions.

7. DECISION : I have carefully considered the facts and circumstances of the case. The AO has strongly made out a case for making such additions. He made independent

4 C.O No 63/AHD/2011 . A.Y. 2007-08 inquiry on the basis of confirmations filed by the appellant and confronted with the appellant the finding of the enquiry. That means the AO afforded ample opportunity to the appellant to defend the case satisfactorily. On the other hand; the defence of the Id. AR is feeble and weak. Considering the entire gamut of facts and laws, I am inclined to concur the finding of the AO and don't think fit to interfere in the finding of the AO. Thus this ground of appeal is dismissed.

8. GROUND NO.-3 :- This ground is with regards to the disallowance of interest of Rs.8,153/- paid on borrowed loan of Rs.3,00,000/- from Bhupendra A. Desai. The AO disallowed payment of interest of Rs.8,153/- for the reason that he has not accepted borrowing ofRs.3,00,000/- made from Bhupendra A. 'Desai. The appellant submitted that when borrowing is acceptable as genuine, payment of interest of Rs.8,153/- on such borrowed amount should be allowed as business expenditure. 8.1 DECISION ; I have carefully considered the finding of the AO and the submissions made by the Id. AR. The issue of unsecured loan has been discussed in the para 7 of this order. It was held therein that the loan/cash credits are bogus and added to the income of the appellant by invoking provisions u/s.68 of the Act. When the principal amount was held was bogus, the interest cannot be allowed as genuine. Thus I confirm the addition made by the AO in this ground. Accordingly, the appeal in this ground is dismissed.

7. Aggrieved by the aforesaid order of ld. CIT(A), Assessee is now before us.

8. Before us, ld. A.R. reiterated the submissions made before A.O and ld. CIT(A) and further submitted that with respect to loan from Shri Bhupendra Bhai Desai, the deposit was accepted by account payee cheque and the same was also repaid through cheque on 07.11.2009, the Assessee had also deducted TDS on the interest payment. He further submitted that Shri Bhupendra Bhai Desai has confirmed giving of deposit in the statement made u/s. 131 before the A.O. He also placed on record the copy of the ledger account of Bhupendra Bhai Desai. With respect to the deposits 5 C.O No 63/AHD/2011 . A.Y. 2007-08 accepted from other depositors, he submitted that Assessee had filed confirmations from the depositors along with their complete address and the amount was raised to meet urgent business requirements for a short period and all the depositors were repaid in the year itself. He therefore submitted that the addition made by the A.O be deleted. The ld. D.R. on the other hand supported the order of A.O and ld. CIT(A).

9. We have heard the rival submissions and perused the material on record. In the present case, the addition of Rs. 5,69,000/- has been made u/s. 68 of the Act. Of the total addition, Rs. 3 lacs pertains to deposits received from Shri Bhupendra Bhai Desai. From the copy of the ledger account and the submissions made by the ld. A.R., it is seen that the deposits were received by account payee cheques and has also been repaid by account payee cheques , the interest has been paid account TDS has also been deducted. It is also the submission of the Assessee that Shri Bhupendra Bhai Desai has confirmed the deposits given to the Assessee in the statement made u/s. 131 of the Act. We further find that Assessee has also furnished the copy of the bank account of Bhupendra Bhai Desai which shows the amount given to the Assesee. We find that A.O has made the addition for the reason that the depositor had not been able to explain the source of cash deposit in his bank account. In the present case, we are of the view that since the amount has been received by account payee cheques, the Assessee has given the full address and bank account number of the depositor it has discharged the initial burden of proving the credit.

It is a settled law that Assessee can be asked to prove the source of credits in its books of accounts but not the source of source and for which we also find support by the decision of Hon'ble Gujarat High Court in the case of DCIT vs. Rohini Builders 256 6 C.O No 63/AHD/2011 . A.Y. 2007-08 ITR 360 (Guj) where the Hon'ble Gujarat High Court has held when identity of the creditor has been proved, the amount has been received by account payee cheque, the initial burden of proving credits is discharged by Assessee and source of credit need not be proved by Assessee. Before us, Revenue has not brought on record any binding decision in its support. With respect to the other depositors, we find that Assessee has raised small deposits below 20,000/- and has filed the confirmations along with their complete addresses and the depositors have also been paid during the year under review. Considering the totality of the aforesaid facts, we are of the view that no addition was called for in the other cases also. We thus direct its the deletion of addition made u/s. 68. Since the addition itself has been deleted the addition on account of interest on those deposits also does not survive.

Thus the grounds raised by Assessee in CO are allowed.

10. In the result, the C.O of Assessee is allowed.

Order pronounced in Open Court on 05 - 06 - 2015.

Sd/- Sd/- (SHAILENDRA Kr. YADAV) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad. TRUE COPY Rajesh

Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) - 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER

Deputy/Asstt.Registrar ITAT,Ahmedabad