Learning from reported case Unrepresented case - S.68 - cash deposited in account of loan creditor before issue of demand draft (dd), no documents about identity and credit worthiness of loan creditor filed. Addition confirmed.

[DEV KUMAR KOTHARI]

2022 (6) TMI 1147 - ITAT VARANASI

M/S U TOLL CORPORATION LTD. VERSUS THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-2, VARANASI, U.P.

Facts  about procedure.

Notice was sent by REGD Post and email both by Tribunal.

On  date of hearing Assessee was not  present himself or through Authorized  Representative (AR)  before the Tribunal.

Therefore  assessee was given one more opportunity and the hearing was postponed from 23.5.2022 to 25.5.2022.

 Despite this opportunity was given by the Bench, no one appeared on behalf of the assessee.  Therefore,  Tribunal heard and dispose of the appeal ex parte, appellant after hearing the D.R.

         (Per author:  There is no mention about AD card or delivery report of REGD Post letter and bounce back of email. Though an adjournment was allowed  but  again time allowed of two days was not sufficient, particularly when assessee was not  present / represented therefore, it is likely that assessee/ appellant has not received communication about first hearing as well as adjourned date of hearing). It seems that the appeal was fixed for first time on 23.05.22 therefore, Tribunal could have allowed another opportunity giving adequate time to be fair and reasonable.) Therefore, it is likely that the assessee / appellant will apply for recalling of the order and rehearing of appeal. This will, as usual cause multiplicity of proceedings by way of filing of MA, hearing of MA, order on MA. If MA is allowed, again hearing of appeal. May be the matter can give rise to restoration of issue before AO for fresh examination)

Quality of representation and documents:

On reading of the order of Tribunal , in which relevant part of assessment order and order of CIT(A) have been reproduced, it seems that there was no proper representation and documentation before lower authorities and Tribunal..

We can see grounds before ITAT to sense this. The ground no. 1 and 2 read as follows:

“1. Because, learned Commissioner of Income Tax (Appeals) has erred on facts and in law in making addition u/s 68 of the I.T. Act, 1961 under the head of unsecured loan of Rs. 40,00.000.00 in the name of Kumar Nagendra merely on the basis of presumption and surmises although no defect / discrepancies were found with respect to the details furnished in this respect.

2. Because, the learned Commissioner of Income Tax (Appeals) has erred on facts and in law in making addition u/s 68 of the I.T. Act, 1961 under the head of unsecured loan of Rs. 30,00.000.00 in the name of Munna Kumar merely on the basis of presumption and surmises although no defect / discrepancies were found with respect to the details furnished in this respect.

On reading of these ground it appears as if CIT(A) has made addition in appeal by way of enhancement of assessment. Whereas fact reveals that addition was made by the Ld. AO and a part of it was confirmed by CIT(A) for which appeal was preferred by assessee. There is nothing about adequate opportunity allowed by AO / CIT(A) to the assessee and the loan creditor.

Before the AO and CIT(A):

Documentation have been poor.

Assessee himself  filed copy of account of loan creditor and his bank statement, in which there were cash deposits. Against such cash deposits , demand draft was issued by bank of loan creditor in favor of assessee. There is no mention about KYC of loan creditor by bank.

Although based on bank statement of loan creditor  his identity can be presumed, but it seems that the statement was not filed by loan creditor but by the debtor/ assessee himself.  Account copy was given but creditors confirmation was not recorded on it. This  might have caused doubt in mind of lower authorities.

Thus, we find peculiar features, giving rise of some doubts. Therefore, it was necessary  for the assessee to produces other details and documents about loan creditor like his identity proof,  PAN crad,nature of business, balance sheet, ITR, books of account etc. and loan creditor could be produced before the AO and /or CIT(A) to show that in his books of account , cash deposits have been recorded and can be explained.

At one place it is mentioned  from submissions  of assessee  that the loan creditor    “Nagendra also engaged in the business of Toll collection and cash deposited in his bank account was out of Toll collection itself”.

 Therefore, cash collection and deposits in bank account could be explained easily. A Toll contractor has to provide satisfactory documents to authorities beforr empanelment as Toll Collector to prove his identity and credit worthiness. So it was not difficult to satisfy the AO, if some efforts were made by assessee. However, that was not done by assesee before the AO and CIT(A) then there was no representation before ITAT. All these lead to confirmation of addition.

Assessee  himself also did a blunder by receiving a DD from loan creditor instead of cheques or e-cheques issued  by the loan creditor. It is better option to receive payments by e-cheques/ digital modes like NEFT/ RTGS.

When a cheque is received it is evident that the issuer has issued cheque in favor of the holder of cheque and credit in  his bank has  been made  on realization of cheque.

He made blunder by filing bank statement of loan creditor. If confirmation, bank statement , balance sheet, ITR etc. could be filed by loan creditor on his letter head, and under his signature , it would have  been normal course  and made case of assessee better and would not have caused suspicion to develop.

Loan debtor filing bank statement of loan creditor before AO is not a normal course of process in such transaction.

 Although Assessing officers ask assessee to produce loan creditor or other persons from whom money is received and  credited in books of account of assessee. However, it is not proper on pat of AO and also on part of assessee to do what a loan creditor is supposed to do.  Normally as a borrower, assessee cannot ask his creditors to appear before his AO. Therefore, as per normal behavior, assessee should request his AO to issue notice to the loan creditor.

Although it is not and cannot be a concern of borrower to find out from where loan creditor has arranged  fund in his account to issue cheque or obtain DD. However, once it has come to notice of the AO that before issue of DD there were cash deposits in account of loan creditor, and that also has been informed by loan debtor and not creditor it  was duty of the AO to find out sources of loan creditor. If loan creditor has shown his books of account and cash deposits were recorded in his books of account, then the matter was to be further explained by loan creditor for his assessment   and addition could not be made in hands of borrower.

 If Sources of loan creditor about cash deposits are not explained at all,  as is found in this case, the AO has taken stand to make addition in hands of loan debtor / borrower.   

If it was not possible for assessee to produce loan creditor and his documents etc. it was better to request the AO to issue notice to the loan creditor for verification.

Addition is still not correct:

Assessee as a borrower can request the moneylender to pay by A/c payee cheque/ e-cheque or bankers cheque or demand draft. This is because loan in cash is not acceptable as per law .When the borrower receives cheque/ e-cheque pr demand draft, he cannot as a borrower, ask anything more from loan creditor.  

There is a loan creditor who maintains bank account. In his bank account cash was deposited before issue of DD by bank.

As a borrower, the source of money deposited in his bank account is DD.  The DD has been issued by banker of loan creditor and the amount has been debited by bank in account of loan creditor.

 There is no evidence or even doubt that cash deposits were made in bank account of loan creditor by the assessee / loan borrower.

Therefore, addition if at all can be made and should be made in hands of loan creditor if he has not disclosed sources of his deposits in his bank account.

Readers may read earlier articles on this website  which can be found in search with S.68,  Cash credit, name of author etc. for example:

• Read S. 68 of IT Act with NI Act: Provisions relating to cheque in the Negotiable Instruments Act, 1881 need to be considered in context of S.68 of Income-tax Act, 1961 – a reading again and reconsideration of some judgments allowing invocation of S. 68 for receipts by cheque is desirable.
• S.68- not applicable in case of banking transactions done digitally with names appearing in bank statement – illustrative submission before the AO.