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TMI Blog2019 (4) TMI 1647X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Usha Sharma M/s S.J. Traders ii) Vinod Kumar Sharma Daughters of the partners: M/s Balaji Traders iii) Neerja Sharma M/s Ginni Enterprises iv) Heena Sharma M/s Heena Traders v) Preeti Sharma M/s Geetanjali Feeds 2.1 The return of income was filed declaring an income of Rs. 8,49,646/- . The case was selected for scrutiny and the assessment was completed at an income of Rs. 5,43,83,410/- u/s 143(3) of the Income Tax Act, 1961 (hereinafter called 'the Act') after making the following additions/disallowances:- 1. Financial charges and interest on loan - Rs. 12,97,479/-; 2. Interest charged on debit balance in capital account of the partner Shri Vinod Sharma - Rs. 9,00,000/-; 3. Alleged unexplained cash deposit in bank accounts of the firm - Rs. 2,45,40,167/-; 4. Disallowance out of car and telephone expenses @ 10% - Rs. 24,655/- 5. Disallowance out of other expenses @ 10% - Rs. 56,544/-; 6. Notional interest on interest free loans given - Rs. 33,000/-; 7. Addition on account of loans given to the partners and their daughters which were allegedly not genuine - Rs. 2,66,81,915/-. 2.2 Aggrieved, the assessee approached the Ld. CIT (A) who partly a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red both in law and on facts in upholding the disallowance of Rs. 56,544/- being 10% of the expenses claimed by the appellant. 5 That the learned Commissioner of Income Tax (Appeals) has further erred both in law and on facts in upholding the disallowance of Rs. 24,655/- being 10% of the expenses claimed by the appellant on account of alleged personal use." 2.4 The revenue in ITA No. 6203/D/2014 has raised the following grounds of appeal: "1 On the facts and circumstances of the case the ld. CIT (A) was not justified in deleting the interest of Rs. 9,00,000/- on the debit balance of the capital account of the partner Sh. Vinod Sharma". 2 On the facts and circumstances of the case the ld. CIT(A) has erred in deleting the interest of Rs. 9,00,000/- ignoring the fact that as per the partnership deed interest @ 12% was to be charged. 3 On the facts and circumstances of the case the ld. CIT(A) has erred in deleting the interest of Rs. 9,00,000/- on the ground that the assessee was having interest free loans without the assessee establishing the cash flow of the funds given to Sh. Vinod Sharma. 4 On the facts and circumstances of the case the ld. CIT(A) was not justified in d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Ld. DR) relied on the findings in the order of assessment. 4.0.2 The learned counsel, on the other hand, submitted that the assessee had claimed expenditure on interest of Rs. 12,50,229/- which had been separately disallowed and sustained by the Ld. CIT (A) and that such sustenance was not being pressed. It was further submitted that apart from this, another disallowance made of Rs. 47,250/- u/s 40A (2)(b) of the Act had also been sustained in appeal and is not being challenged by the assessee. It was submitted that in such circumstances these notional additions were uncalled for. 4.1.0 Ground no 5 relates to the contention of the Department that the Ld. CIT (A) violated the provisions of Rule 46A of the Income Tax Rules, 1962 (hereinafter called 'the Rules') by entertaining the affidavit and the paper book without confronting the Assessing officer with them. 4.1.1 The learned DR contended that the Ld. CIT (A) had not confronted the AO with the paper book filed by the assessee and the affidavit filed during the course of first appellate proceedings and, therefore, there was a violation of Rule 46A. 4.1.2 The learned Authorised Representative (Ld. AR), on the other hand, su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndependent source/s of income and that they all had introduced the firm's cash first in their books through the so called sales of their so called businesses and then the money was transferred back to them. It was also submitted that the sales in all the cases were below Rs. 40,00,000/-. It was submitted that this had been so done so 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 submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not interest payable to her as wrongly understood by the AO. As a result of such a mistake in reading the P&L account of the appellant an incorrect inference that the appellant firm ought to have charged interest on the debit balance of Vinod Sharma leading to the addition of Rs. 9,00,000/- in the hands of the firm on account of debit balance of Rs. 75,00,000/- in the books of the appellant firm which was calculated @ 12% on Rs. 75,00,000/- was drawn." 5.0.1 Likewise, the Ld. CIT (A) deleted the addition of Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of the assessment order that the appellant 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k 6 06.03.13 33-34 * Sanction Letter of Unsecured Loan. * Sanction Letter of Secured Loan from Punjab National Bank. * Details of Bank Account. The relevant pages of the paper book which bear testimony to the fact that the appellant was able to produce various details before the AO only in response to several opportunities are pages 22 to 34. From the details the following other facts were also clear:- i) That the appellant firm complete books of account which were duly produced in the course of assessment proceedings but the appellant as a result of opportunities granted to it. ii) That the ld. AO neither rejected the books of account nor recorded any adverse findings in respect of such books of account. iii) Thus once complete details in respect of books of account as above were produced and accepted, there remained no valid justification for the AO to allege that books of account were not produced by the appellant firm. iv) The affidavit of Sh. Kapil Aggarwal, CA for the appellant, attested the fact that the appellant, who maintained books of account which had duly been audited and from which all the ledger accounts were furnished and accepted by the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions. In such circumstances, the Ld. CIT (A) had concluded and held as under: "The above statements recorded by the AO in the course of assessment proceedings were carefully considered. All the deponents who had given loans and advances or had running transactions to the appellant firm confirmed through their statements the facts of independently running their businesses as discernible from answers 2 to 8 & 17, giving loans and advances to the appellant as evident from answers 11 & 12, their creditworthiness vis-à-vis the cash deposits in their banks' account with the help of statements of affairs of banks, cash, ledger accounts of the respective proprietorship concerns as appearing in the books of the appellant, copy of ITR-IV & computation of income therewith vide answer no. 13 and having declared their incomes in their returns of income as manifest from answer no. 16 of their statements. None of the above replies of the deponents purportedly extending the loans and advances to the appellant firm by account payee cheques over a period of time in the FY were found by the AO to be false or incorrect. In other words the appellant's claim that Rs. 2,66,81,915/- was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r) 72,55,950 i) Copy of ledger account of Preeti Sharma in the books of appellant ii) Copy of bank statement of M/s Geetanjali Feeds iii) Copy of statement of affairs of PNB as on 31.3.2010 iv) Copy of statement of cash v) Copy of confirmation dated 27.2.2013 from Punjab National Bank vi) Copy of ledger account of Geetanjali Feeds in the books of appellant vii) Copy of statement recorded dated 1.3.2013 viii) Copy of acknowledgement of return of income alongwith computation of income for AY 2010-11 v) Ms. Heena Sharma (daughter) 56,85,450 i) Copy of bank statement of M/s Heena Traders ii) Copy of statement of affairs of PNB as on 31.3.2010 iii) Copy of statement of cash iv) Copy of ledger account of Heena Traders in the books of appellant v) Copy of confirmation dated 27.2.2013 from Punjab National Bank vi) Copy of statement recorded dated 4.3.2013 vii) Copy of acknowledgement of return of income 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 appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O also failed to point out any defect in the books of account produced before him by the appellant in the course of assessment proceedings; g) That there was no reason for the AO to make the addition as above without rejecting the books of account which only shows that there were inherent contradictions in the order of the AO. h) The inferences drawn by the AO from the statements of the lenders were only arguments based on logical reasoning but bereft of supporting evidence. i) If at all any action was warranted in this respect, it was in the case of the source of the source. Therefore in the aforesaid premises the addition of Rs. 2,66,81,913/- is deleted 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove, the addition made of Rs. 2,66,81,915/- is held to be validly deleted and, therefore, ground no 6 raised by the revenue is rejected. 5.3.0 Ground No. 7 agitates the action of the Ld. CIT (A) in accepting the assessee's contention that the impugned amount of Rs. 2,38,56,526/- deposited in the two bank accounts was out of the cash withdrawals made by the assessee firm. On this issue, the learned CIT (A), while deleting the addition, has held as under: "Having considered the submissions, the relevant 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 Rs. 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 Rs. 2,45,40,167/- (Rs. 2,56,90,000/- - Rs. 11,49,833/-) will be added as income of the assessee u/s 68 of the I. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales Evidence: i) Copy of ledger account of sales RS. 31,86,359/- (figure of Rs. 31,90,359/- incorrectly adopted) c) Total Rs. 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 10,00,000 Add: Amount received from Geetanjali Feeds 2,15,300 Add: Amount received from Ginni Enterprises 2.14.600 Add: Amount received from Heena Traders 4,35,100 Add: Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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