TMI Blog2019 (4) TMI 1647X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of debit balance in the books of the appellant firm which was calculated @ 12% Notional interest on interest free advances to the suppliers - CIT (A) deleted the addition - HELD THAT:- Addition so made has no leg to stand on as the facts pointed out by the appellant accorded with the claim pressed by it in the appellate proceedings that it was not liable to receive any interest on advances given to suppliers as it did not pay any such interest to its suppliers. Also it is well settled law that notional additions are not tenable in law as held by the Hon ble Apex Court in the case of CIT vs. Excel Industries Ltd [ 2013 (10) TMI 324 - SUPREME COURT] as held no real income but only hypothetical income had accrued to the assessee and section 28(iv) of the Act would be inapplicable to the facts and circumstances of the case. Essentially, the Assessing Officer is required to be pragmatic and not pedantic CIT (A) violated the provisions of Rule 46A of the Rules - production of books of accounts - HELD THAT:- No specific error or mistake has been highlighted by the Ld. DR in the aforesaid factual inference other than to suggest that the books of accounts were not produced on 6.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 014 And ITA No. 6203/Del/2014 - - - Dated:- 19-3-2019 - SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER For The Assessee : Shri Gautam Jain, Adv. For The Department : Ms Rinku Singh Sr. DR ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER : ITA No. 6203/Del/2014 has been preferred by the Department against the order dated 29.8.2014 passed by the Learned CIT (Appeals)-XXV, New Delhi {Ld. CIT (A)} for Assessement Year (AY) 2010-11, whereas ITA No. 5593/Del/2014 is the cross appeal filed by the assessee for the same year. 2.0 The brief facts of the case are that are that assessee is a partnership firm. The partners of the assessee firm are two viz. Shri Vinod Kumar Sharma and Smt. Usha Sharma, (spouse of Shri Vinod Sharma). The assessee firm is stated to be engaged in the business of trading of poultry feed, grains. The two partners and three other independent family members also carried on identical business under their independent proprietorship concerns namely; i) Usha Sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n money on which interest was paid by the appellant was not for the purposes of business as the appellant could not demonstrate with evidence the use of such loan for business purposes of the appellant firm is factually incorrect, contrary to record and thus unsustainable. 2 That the learned Commissioner of Income Tax (Appeals) has further erred both in law and on facts in upholding disallowance of sum of ₹ 47,250/- representing alleged excessive interest paid to Ms. Priyanka Gupta by the appellant firm. 3 That the learned Commissioner of Income Tax (Appeals) has also erred both in making an arbitrary, ad hoc, notional and hypothetical addition by concluding that however the use of such withdrawn cash for earning income cannot be absolutely ruled out. Accordingly I hold upon consideration interest chargeable @ 12.5% per annum on the amount of such withdrawn cash claimed to have been re-deposited in cash in the bank accounts of which no proofs or finding to the contrary could be brought on record by the AO, for the interregnum period as income from other sources i.e. from the date of withdrawal of cash till its redeposit in cash. The AO sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not justified in deleting the amount of cash of ₹ 2,66,81,915/- deposited in the bank by the close relative of the assessee. 7 On the facts and circumstances of the case the ld. CIT(A) was not justified in accepting the theory of the assessee that the amount of ₹ 2,38,56,526/- deposited in banks is out of cash withdrawals made by the assessee. 8 On the facts and circumstances of the case the order of ld. CIT (A) be modified and the order of the Assessing officer be restored. 9 The appellant s craves for leave reserving the right to amend, modify, alter add or forego any ground(s) of appeal at any time before or during the hearing of this special . 3.0 At the outset the learned Counsel for the assessee submitted that the assessee s cross appeal filed is not being pressed. Accordingly, the same is dismissed as withdrawn. 4.0 We now take up the Department s appeal in ITA No. 5593/Del/2014. Grounds 1 to 4 relate to addition of ₹ 9,00,000/- and ₹ 33,000/- by way of interest on the debit balance of the capital account of one of the partners namely Shri Vinod Sharma and on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground was rejected by the Ld. CIT (A) by observing that the enclosures and annexure consisting of letters of various dates addressed to the AO, with the paper book by the assessee during the appellate proceeding, make it amply clear that the assessee was able to produce various details before the AO in response to several opportunities/notices issued in the course of assessment proceedings. It was, therefore, submitted by the Ld. AR that all documents forming part of paper book were filed along with the replies and no additional/fresh evidence/s had been relied upon by the Ld. CIT (A) to grant relief to the assessee which could be termed as additional evidence. 4.2.0 Ground No. 6 relates to addition of ₹ 2,66,81,915/- being cash deposited in the bank by close relative of the assessee. The relevant facts are that during the course of assessment proceedings the AO noted that the partners of the assessee firm and their daughters had cash deposits in their independent bank accounts used for carrying on their businesses which sums were, thereafter, transferred to the assessee firm and, therefore, it was held that the sums transferred represented income from undisc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o that the books may not be required to get audited. It was stated that the purchases were from the assessee firm while the sales had been made in cash for which no vouchers/bills/cash memos had been produced. It was submitted that as regards the partners, they have, although, claimed to have done business of poultry feeds but the facts of business have not been shown in their returns on the ground that they did not have any income. It was further submitted that it was surprising that the partners who were in this line did not earn any profits from their so called businesses whereas the daughters have earned the profits from the so called business. It was pointed out that the daughters have purchased the goods and sold in cash and then the amount was transferred to the assessee firm. 4.2.4 The ld. AR relied on the findings of the Ld. CIT (A) and submitted that the addition was validly deleted. 4.3.0 Ground No. 7 relates to the deletion of addition of ₹ 2,38,56,526/- being the addition deleted on account of cash deposited by accepting the assessee s explanation that the same were out of cash withdrawals. In this regard the facts in brief are tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charged interest on the debit balance of Vinod Sharma leading to the addition of ₹ 9,00,000/- in the hands of the firm on account of debit balance of ₹ 75,00,000/- in the books of the appellant firm which was calculated @ 12% on ₹ 75,00,000/- was drawn. 5.0.1 Likewise, the Ld. CIT (A) deleted the addition of ₹ 33,000/- being notional interest on interest free advances to the suppliers by holding as under: Contrary to the above version of the AO the appellant contended that it was not its trade practice to recover interest from advances given to its suppliers. Similarly it did not pay any interest on advances received from its customers or suppliers. Ergo it was vehemently argued that the addition made by the AO on the basis of its and buts was unsustainable in eye of law. The above facts were given a careful consideration by me. Having weighed the pros and cons, I am of the considered view that the addition so made has no leg to stand on as the facts pointed out by the appellant accorded with the claim pressed by it in the appellate proceedings that it was not liable to receive any interest on adva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant was considered to be guilty by the AO of not producing the books of account specifically asked for by him vide order sheet note dated 6.3.2013 during the hearing. In the appellate proceedings it was argued per contra by the appellant that the books of account were produced before the AO which stood corroborated on the strength of the table consisting inter alia the details/information admittedly produced before the AO during the assessment proceedings as reproduced below. On an analogous consideration of the arguments, I am of the considered view that the impugned assessment order was not framed without granting adequate opportunities by the AO as agitated by the appellant. On a reference to the submissions and the evidence with relevant enclosures and annexures filed primarily consisting of letters of various dates addressed to the AO, with the paper book by the appellant during the appellate proceedings it was amply clear that the latter was in a position to file the following documents as pointed out by the counsel in his submission only as a result of various opportunities afforded to him by the AO. The table below proves this fact to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the following Parties: i) Vinod Sharma (Unsecured Loans) ii) Pankaj Dua (Unsecured Loans) iii) Preeti Sharma (Unsecured Loans) iv) Priyanka Gupta (Unsecured Loans) v) Nishta Infotech (Advances to Suppliers) vi) Sumit Mahajan (Advances to Suppliers) 5 28.01.2013 31 32 i) Copy of Loan Account from Reliance Capital and from M/s. Bajaj Finance (81-91) ii) Copy of Account with Mohan Traders (194-195) iii) Copy of Accounts of the following Parties: M/s Ginni Enterprises M/s S.J Traders M/s Balaji Overseas M/s. Kumar Poultry M/s. Mukesh Kumar Sons M/s. Ganga Associates M/s. Ashtha Poultry Feeds M/s. Shyamjee Traders iv) Cash Flow Statement along with Cash Reconciliation of Punjab National Bank 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e remained no valid justification for the AO to allege that books of account were not produced by the assessee firm, particularly when the trading results as declared have been accepted as such. Accordingly, we are unable to take a view different from that of the Ld. CIT (A) and dismiss ground no. 5. 5.2.0 Ground No. 6 challenges the action of the Ld. CIT (A) in deleting an amount of ₹ 2,66,81,915/- being cash deposited in bank accounts by the relatives of the assessee which had been added to the income of the assessee firm on the ground that it represented unaccounted money of the assessee firm. In this regard, it is noted that the sum brought to tax comprises of sum/s transferred from the bank accounts of the partners of the assessee firm or their daughters. It is not in dispute that all the aforesaid persons, during the course of assessment proceedings, had filed their confirmations, copies of account, statement of affairs of the banks, returns of income and cash flow statements duly supported by the certificates from the banks. It is also not in dispute that the assessee firm had made sales to the proprietary concerns being operated and managed by the memb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are depicted below:- S. No. Name of the partners and their daughters Amount added as income Evidence on record (pages of Paper Book) i) Shri Vinod Kumar Sharma (Partner 47,69,500 i) Copy of statements of affairs of PNB as on 31.03.2010 ii) Copy of statement of cash iii) Copy of ledger account of Balaji Traders in the books of appellant iv) Copy of confirmation dated 27.02.2013 from Punjab National Bank v) Copy of statement recorded dated 26.2.2013 vi) Copy of acknowledgement of return of income alongwith computation of income for AY 2010-11 ii) Smt. Usha Sharma (Partner) 49,75,000 i) Copy of statement of affairs of PNB as on 31.03.2010 ii) Copy of statement of cash iii) Copy of ledger account of S. J. Tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come alongwith computation of income for the AY 2007-08 to AY 2010-11 iv) That the AO did not have any basis or concrete, sound and clinching evidence to rebut the claim of the lenders from whose accounts the money was received by account payee cheques by the appellant firm. Thus, the allegation of the AO that cash deposited in the proprietorship concerns of partners and their daughters was the cash of the appellant firm was merely a strong suspicion, emanating from conjectures, surmises, assumptions and extra-polations. v) That the AO could not establish conclusively that the three daughters of the partners and the partners of the appellant firm were not engaged in the business of poultry seeds. Rather contrary to such an allegation the respective lenders in their statements u/s 131 of the Act convincingly deposed in support of their claim of running their own businesses. The returns furnished by them before the AO not only for the instant assessment year but for the preceding assessment years could not be assailed by the AO in the least. vi) That business transactions under taken by the appellant firm with all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted and the ground no. 7(i) to (iv) are allowed. 5.2.1 The Ld. Sr. DR has been unable to persuade us to form a different opinion. Once the assessee firm has received money through banking channels from its partners/their daughters who have duly deposed and confirmed the transaction/s and have also supported the same with documentary evidence/s then the addition, without any evidence/s to the contrary, is absolutely without any force of law and unsustainable. It is well settled law that surmises, conjecture and suspicion can never be resorted to make addition u/s 68 of the Act. The AO has proceeded to make the addition on an assumption that the cash deposited in the proprietorship concern of the partners and their daughter is the cash of the assessee. No basis whatsoever has been stated in the order of assessment for such a farfetched assumption. In fact, it is pertinent to note that the Ld. CIT (A) has also observed as under: It was noticed that the AO took inconsistent stands in as much as he admitted as well as disputed at the same time that the lenders, all members of the family i.e. Vinod Sharma, Usha Sharma, Neerja Sharma, Heena Sharm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt material evidence on record and various aspects of the matter on this issue, it was noticed that the Ld. AO made the additions merely on the ground:- However, the assesse has denied to have made any purchases in cash. The assessee has filed the cash flow statement submitted vide their letter dated 28.01.2013 where in the assessee has claimed benefit of certain expenses amounting to ₹ 11,49,833/- debited to P L a/c which have been claimed in cash. The claimed put forth by the assessee is accepted and the assessee will be given the benefit of the balance amount of ₹ 2,45,40,167/- (Rs. 2,56,90,000/- - ₹ 11,49,833/-) will be added as income of the assessee u/s 68 of the I.T. Act, 1961 as the assessee has failed to explain the source of cash deposits made their bank accounts. Regard was had to submission of the appellant in the above connection. The sole ground behind the addition was the alleged failure of the appellant to prove the sources of cash deposits in the above disclosed regular banks accounts of the appellant. The appellant refuted the above allegation of the AO during the appellate proceedings stating that S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopted) c) Total ₹ 2,50,06,359/- .. .. .. .. . Moreover, it is submitted that all the cash deposits in the bank account are explained through the cash books which is part of the books of account maintained by the appellant firm. The books of account of the appellant firm have not been rejected under section 145(3) of the Act. In any case, no defect has been found in the cash book maintained by the appellant. In fact, the profit declared on the basis of such books of account has been accepted as such. 9) Furthermore, the appellant during the case of assessment proceedings had furnished a cash flow statement explaining the deposits in the bank account of the appellant. A copy of the cash flow statement for convenience extracted hereunder: Amount (in Rs.) Opening Balance of cash as on 31.03.2009 3,00,451 Add: Capital Introduced by Shri Vinod Sharma 10,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, being a case of incorrect appreciation of facts. Regarding the remaining ₹ 38,70,000/- out of ₹ 2,56,90,000/- deposits in cash in the said bank account the AO vide page no. 4 para-3 of the assessment order mentioned that there were cash sales of ₹ 31,86,359/-. Having given such a finding of fact in the body of the order the AO was precluded from adding this amount as unexplained cash deposits. The appellant therefore upon due consideration as allowed the benefit of telescoping. Under the circumstances, I am of the considered view that ₹ 31,86,359/- deposited in cash were cash sales as admitted by the AO himself are deleted. Regarding the balance cash deposits of ₹ 6,83,641/-, the appellant s explanation was not found to be sustainable hence confirmed. Thus, grounds 6 to 6.3 are partly allowed. However, the use of such withdrawn cash for earning income cannot be absolutely ruled out. Accordingly, I hold upon consideration interest chargeable @ 2.5 % per annum on the amount of such withdrawn cash claimed to have been redeposited in cash in the bank accounts of which no proofs or findings to the contrary could be br ..... X X X X Extracts X X X X X X X X Extracts X X X X
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