TMI Blog2016 (12) TMI 292X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of ₹ 25,000/-. Addition u/s 68 - Held that:- So far the sum of ₹ 10,000/- received from Shri Rajiv Maheswari is concerned the said loan has not been received by the assessee during the year. The amount has been received in the earlier year therefore, delete the said addition as the cash credit does not arise in the impugned assessment year. So far the sum of ₹ 10,000/- received from Ms. Vandana noted that the assessee received a sum of ₹ 16,000/- vide Cheque No. 70335 of Central Bank of India during the impugned assessment year. From the copy of the bank statement of Ms. Vandana Lalwani, found that she has deposited a sum of ₹ 20,000/- cash as on 01.03.2004 when it was having bank balance at ₹ 8815.49 and out of that accumulate balance she had issued cheque of ₹ 16,000/- to the assessee. At the most since the lender before depositing a sum of ₹ 20,000/- in cash was having bank balance of ₹ 8,815/-. Only a sum of ₹ 8,000/- out of the ₹ 16,000/-can be proved to be a genuine one. In respect of which we can say assessee has proved the creditworthiness of the lender. Therefore, sustain the addition at ₹ 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. CIT(A), Ld. CIT(A) confirmed the order of the Assessing Officer. In view of the decision of Hon ble Punjab Haryana High Court in the case of Soda Silicate and Chemicals Works Vs. CIT 179 ITR 588. 5. I have heard the rival submissions and carefully considered the same along with the orders of the tax authorities below. No doubt, a chit fund incidentally partake of the nature of saving scheme. Chit fund is primarily intended to operate as a scheme for advancing loans from the common fund to this subscribers, their turns for getting such loans being determined either by auction or by drawing lots. 6. There is no dispute that the assessee incurred the chitty loss of ₹ 2,15,090/- and claimed the same as deduction. The Assessing Officer disallowed it holding as a capital expenditure relying on the decision of the Punjab and Haryana High Court in the case of Soda Silicate Chemical Works 179 ITR 588. The assessee subscribed to various chitties and the chits were bid for raising funds, for business purposes of the firm. The chit instalments were being paid on the due dates and when the chitty was terminated, the balance represented interest was treated as chitty loss and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts a sum determined by a chit fund company during the tenure of the chit or at the time of completion of chit. The subscriber who receives the money in the earlier period receives a lesser amount as compared to the subscribers who receive the amounts in later periods. The scheme of the chit fund companies is covered by the Chit Fund Act, 1982 which enacted to have a control on the operation of Chit Fund Companies and to protect the interests of the subscribers to a chit fund company. 9. It was contended that there is a concept of mutuality in subscribing to the chit fund. The nature of chit fund companies suggests that all the members participate together and make contributions to the chit fund and the company distributes the prize money amongst the members in a prescribed manner. The identity of all the contributors of the Chit Fund is established and it can be presumed that the chit fund concept is based on the concept of mutuality. These principles derive support from the judgment of the Andhra Pradesh High Court in the case of (i) CIT v. Merchant Navy Club [1974] 96 ITR 261; (ii) CIT v. Royal Western India Turf Club Ltd. [1953] 24 ITR 551 (SC), (iii) Sports Club of Gujarat L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Andhra Pradesh High Court and the third is the decision of the Tribunal Delhi Bench, on the point of allowing the loss incurred in subscribing to the chit fund and utilising the funds raised from such chit for the purpose of business is an allowable expenditure. 12. The Central Board of Direct Taxes also issued instructions in this connection. However, in all the above mentioned judgments, Instruction No. 1175 issued by the CBDT under order F. No. 169/21/78-IT (80) dated May 16, 1978 was not taken into account. The gist of the instructions is reproduced below :- (a) If any person organises Chit Funds and for this purposes brings the members together, administers the Chit Funds and thereby earns commission, etc., profits made by such a person is income from business and if for any special reason there is loss then it is business loss. Normally there should be no loss to the organiser unless he takes over the liability of some of the members. In such a case the unrecovered amount due from such members will have to be treated as bad debts and the test to be adopted in usual business assessment for the allowance of bad debts would be applicable in such cases also. (b) In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of the expenses claimed by the assessee under the head conveyance and entertainment by assume that there are disproportionate increase section 37 nowhere empower the Assessing Officer to disallow the expenditure in the manner the disallowance has been made by the Assessing Officer. There is no allegation that the expenses have not been incurred wholly and exclusively for the purpose of business even it is not a case of the revenue that the expenses are personal expenses or capital expenditure. I, therefore, delete the disallowance of ₹ 25,000/-. 16. Ground No. 5 and 6 relate to the sustenance of the addition of ₹ 8,30,000/- u/s 68 of the Income-tax Act. The facts relating to this ground are that the Assessing Officer made the addition in the case of the assessee in respect of the following loans received by the assessee:- 1. Ms. Sapna Lalwani ₹ 1,10,000/- 2. Sh. Rajiv Maheswari ₹ 10,000/- 3. Ms. Vandana ₹ 10,000/- 4. M/s. Mahadev Enterprises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year. The assessee has received a sum of ₹ 1,10,000/- vide Cheque No. 52240 on Central Bank of India Shastri Nagar, Kanpur. The assessee has proved the identity, creditworthiness and genuineness in respect of the sum of ₹ 1,10,000/-. The assessee has submitted the photo copy of the cheque as well as the bank statement of Smt. Sapna Lalwani. From the copy of the bank account filed which is available at page no. 7, it is apparent that Smt. Sapna Lalwani was having a sufficient balance in her bank account amounting to ₹ 1,21,910/- when a cheque of ₹ 1,10,000/- was issued in favour of the assessee. The identity has already been proved, this proves the genuineness of the transaction as well as creditworthiness of Smt. Sapna Lalwani. In view of this fact, I delete the addition of ₹ 1,10,000/- as in my opinion, the assessee has duly discharged his onus. 22. Now coming to the addition of ₹ 7,00,000/-. I noted that this amount has been received by the assessee from M/s. Mahadev Enterprises. In this regard, the assessee has drawn our attention towards page no 16 to 23 of the paper book. From page no. 16, it is apparent that the assessee has received ..... X X X X Extracts X X X X X X X X Extracts X X X X
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