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TMI Blog2012 (3) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... the subject, the ld. CIT(A) has erred in partly confirming addition of rs.50,91,930/- out of total addition of Rs.61,33,780/- made by the AO as unexplained credits u/s 68 of the Act. (4) On the facts and in circumstances of the case as well as law on the subject, the ld. CIT(A) has erred in confirming the action of the AO in making disallowance of Rs.82,515/- being 12% on Rs.6,87,622/- for interest expenses u/s 36(1)(iii) of the Act. ITA No.566/Ahd/2009 Asst. Year 2005-06 (Revenue's appeal): 3. The Revenue has raised following grounds in the appeal : (1) On the facts and in the circumstances of the case and in law, the learned CIT(A)-I, Surat has erred in deleting the addition of Rs.32,37,280/- made by A.O, on account of unexplained capital introduced in the accounts of the partners holding that - a. The sums introduced in the individual accounts of the partners were transferred by them through their bank pass books or from their personal cash book and thereby the sources of such introduction of credits were stand explained. b. If at all any addition was to be made, it could only be made in the hands of the 'individual partners' in the course of their assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be made as hold by the CIT(A) in his appellate order, 4. First we take up Revenue's appeal. The first ground of Revenue's appeal relates to deletion of addition of Rs.32,37,280/- made by AO on account of unexplained capital introduced in the accounts of the partners. The facts of the case are that the assessee is engaged in the business of trading of all types of scrap material in the name of M/s Dharam Barrel. The assessee filed its return of income on 19.10.2005 declaring total income of Rs.3,10,832/- along with audit report u/s 44AB of the Act in Form No.3CB & 3 CD and balance sheet, P & L a/c etc. The return was processed u/s 143(1) of the Act on 30.03.2007 thereby accepting the returned income. The case was selected for scrutiny and notice u/s 143(2) of the Act was issued on 20.10.2006 and duly served. Further a notice u/s 142(2) of the Act along with detailed questionnaire calling for various details was issued and served on the assessee. On perusal of the balance sheet filed with return of income, it was noted by the AO that during the year under consideration there were addition in partner's capital account as under :- Shilpaben P. Sanghani Rs.3,30,000/- Babubhai B. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered it necessary, he would have specifically asked the assessee to produce the partners. He never did so. He submitted that where capital is introduced by a partner in a firm and the same is duly confirmed by the partner, no addition could be made in the hands of the firm. He also relied on some case laws. 6. The ld. CIT(A) after considering the facts of the case and the submissions of the assessee deleted the addition by observing as under :- "6. I have carefully considered both the positions, the view taken by the AO and the written submissions of the AR. At the very outset, it must be said that the AO was not really focused on the issue. It is for this reason perhaps that he mentioned at the very beginning of para 4.1 that since the credit entries were made through the partners' capital accounts, "it is open to the firm to produce the partner during the assessment proceedings...." This observation of the AO clearly shows that he was not really sure of the line of action he was going to take. In any case, unless the AO had specifically summoned the partners, there was no requirement on the part of the assessee to produce the partners before the AO. It is also clear that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the accounts of the partners. The mere non-acceptance of that explanation does not, however, provide material for finding that the said sum represented income of the assessee firm,. As held by the Allahabad High Court in the case of Commissioner of Income Tax Allahabad vs. Jaiswal Motor Finance (supra), in the absence of any material to indicate that there were profits of the firm, the amount credited to the partners' accounts could not be assessed in the hands of the firm. Once the partners have owned that the monies deposited in their accounts are their own, the Income Tax Officer is entitled to and may proceed against the partners and assess the same in their hands, if their explanation is not found satisfactory." 14. In the facts and circumstances of the present case, both the Deputy CIT(Appeals) and the Tribunal have found that the assessee had discharged the primary onus which was on it by offering explanation, which has not been found to be incorrect or false in any manner. The interest of the revenue is also safeguarded as the Income-Tax Officer has been given the liberty to consider the said credits in the hands of the partners if he is not satisfied with the sources o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r under consideration. These sums had appeared as opening balances in the confirmation letters furnished by the creditors, as also from the audited balance sheet. As regards Smt. Hema Mistry Rs.3,50,000/-, Shri D.K. Mistry Rs.1,50,000/- and Shri Sudhir K. Gupta Rs.1,00,000/- these persons were all assessed to tax and complete details including the cheque nos. and the names of the banks etc. had been duly furnished and mentioned in the confirmation letters filed by such creditors. Loans from these parties had subsequently been repaid, and relevant details pertaining to such repayments had been furnished along with the written submissions. Therefore, such loans could not be treated as being not genuine, especially when the AO had failed to bring on record any material evidence in support of his treatment of such loans as unexplained. In support of his contentions, the AR had placed reliance on several case-laws. 10. The ld. CIT(A) confirmed the addition of Rs.3,00,000/- giving relief to the assessee of Rs.15,05,000/- by observing as under :- "10. I have carefully considered both the positions. After going through the submissions of the AR, I have come to believe that the AQ made th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r(s) and not during the year under consideration. This means that the provisions of section 68 of the Act cannot be invoked during the year in respect of the loans taken in the earlier years. The addition of Rs 1,90,000 and of Rs 4,15,000 (Rs 4,65,000 - Rs 50,000) will have to be deleted. Since, confirmations letters and pass-books were not furnished, the loans of Rs 50,000 taken during the year will stand confirmed. The next lot comprised of Shri Matthew (Rs 1,50,000), Shri Savjlbhai Patel (Rs 4,00,000) and Shri Sudhir Gupta (Rs 1,00,000). It has been explained by the AR that the sum of Rs 4 lakh from Shri Savjibhai Patet had been taken in the earlier year, therefore, the said sum could not be added u/s 68 during the year under consideration. As regards the loans from Shri Mathew and Shri Sudhir Gupta since neither any confirmation, nor pass-books nor PAN was furnished, these loans were justifiably treated by the AO as unexplained, even though the AR has claimed that they were individually assessed to tax and cheques nos. had been furnished. The findings of the AO with regard to these creditors is absolutely clear that no confirmation, nor PAN, nor the bank passbook, nor any addre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ottambhai (Rs.1,90,000/-) and M/s Parth Computerized Weigh Bridge (Rs.4,65,000/-) ld. CIT(A) found that except for Rs.50,000/-, the other sums were taken by the assessee in earlier years. Therefore, provisions of section 68 of the Act could not have been invoked during the year under appeal in respect of the loans taken in the earlier year. So he has rightly deleted this addition. In respect of Rs.50,000/- it was argued on behalf of the assessee before us that confirmation and other necessary details were available before the lower authorities. Therefore, we deem it proper to restore the issue relating to Rs.50,000/- back to the file of AO for fresh adjudication. 14.2 Similarly, the sum of Rs.4,00,000/- from Shri Savjibhai Patel was taken by the assessee in the earlier years, therefore, the same has rightly been deleted by the ld. CIT(A). 14.3. In respect of Rs.1,50,000/- from Shri Mathew, since no details whatsoever were filed by the assessee either before the lower authorities or even before us, we confirm the action of the lower authorities in treating this amount as unexplained. 14.4 As far as loan of Rs.1,00,000/- from Shri S. K. Gupta is concerned, we find that the ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Rs.4,66,093/-. Against this decision of ld. CIT(A), assessee is in appeal before the Tribunal. 18. Before us the ld. counsel of the assessee submitted that the addition has been made only on the basis of information provided by M/s Panwar Steel. No ledger account was given to assessee, nor any show cause notice issued to the assessee. 19. The ld. DR on the other hand relied on the orders of lower authorities. 20. After considering the rival submissions and going through the material on record, we are of the view that since the assessee was not confronted with adverse material by the Revenue, in the interest of justice, it will be just and proper, if the matter is restored to the AO for deciding the issue afresh, after providing reasonable opportunity of hearing to the assessee. We order accordingly. This ground is allowed for statistical purposes. 21. Ground No.3 of assessee's appeal relates to confirmation of addition of Rs.50,91,930/- out of total addition of Rs.61,33,780/- made by the AO as unexplained credits u/s 68 of the Act. This addition represents credit balances in the names of five different parties. During the course of assessment proceeding, the AO iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent order on one hand, and the written submissions of the AR on the other. From the assessment order, it is seen that the AO had issued the show cause notice on 26.11.2007 proposing to treat such credits as unexplained in the event of assessee's failure to submit an explanation along with evidence. This has been confirmed by the AR. The time given was upto 17.12.2007 a period of 21 days which according to me, was quite sufficient even though the AR has contended that it was not sufficient. The point to note is that if the AR's claim that these were the parties with whom the assessee had been dealing with on a regular basis then, there could be no reason why the requisite confirmation could not have been furnished by the assessee within the period of 21 days or even upto the date of completion of the assessment proceedings i.e. 27-12- 2007. It clearly appears therefore that, there was an element of deliberateness n the assessee's failure to furnish the requisite confirmations especially when seen in the background of the confirmation furnished of M/s Panwar Steel verying totally with the balance shown in the assessee's books in the name of the said party. Given such facts, the confi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly. 27. The last issue raised in the assessee's appeal relates to disallowance of interest of Rs.82,515/- made u/s 36 (1)(iii). During the assessment proceedings the AO found that the assessee had claimed bank interest expense of Rs.3,65,885/- while no interest had been charged on the advances given to Gitaben Kalathia of Rs.3,40,303/- and to Parth Sugar Candi Works of Rs.3,47,319/-. In response to a show cause notice, the assessee submitted that the interest free advances had been given out of the amounts received from creditors and the amounts received as advances from dbtors, which were non-interest bearing funds. According to the AO, the assessee failed to provide any documentary evidence to support such a claim. The AO therefore worked out the interest receivable @ 12% on such advances and disallowed the same out of the interest expenses claimed by the assessee, which resulted in the addition of Rs.82,515/-.. 28. Before ld. CIT(A) the assessee submitted that onus was on the AO and not on the assessee to prove that interest-bearing funds had been utilized for non-business purposes, on which no interest had been charged. Without prejudice, it had been further contended tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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