1 ITA No. 723/Del/2012
Asstt. Year: 2005-06
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `H' NEW DELHI
BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
AND
SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER
I.T.A.No.723/Del/2012
Assessment Year : 2005-06
The Gurukul Trust, vs ADIT(E),
C/o Sh. Anup Sharma, Advocate, Trust Circle-IV,
108, Lawyer's Chamber, New Delhi.
Delhi High Court,
New Delhi-110003
(PAN: AAATT3993R)
Appellant by: Shri Anoop Sharma, M. Giri
Respondent by : Mrs. Shumana Sen, Sr. DR
ORDER
PER CHANDRA MOHAN GARG, JUDICIAL MEMBER
This appeal has been preferred by the assessee against the order dated
13.12.2011 of the CIT(A)-XXI, New Delhi for AY 2005-06, passed u/s
143(3) of the Income Tax Act (hereinafter referred to as the Act).
2. The grounds of appeal read as under:-
"1. The ld. CIT(A) has erred in disallowing the
expenditure of Rs.1,70,000/-.
2. The CIT(A) has failed to appreciate the facts in the
case and submissions of the assessee and thus the order
is contrary to the facts of the case.
3. The disallowance of the expense is bad in law and the
order deserves to be corrected.
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Asstt. Year: 2005-06
4. The assessment order as well as the order of the
CIT(A) has been passed in contravention to the principle
of natural justice. The same is liable to be set aside and
the case deserves to be decided on the basis of facts."
3. Briefly stated, the facts of the case giving rise to this appeal are that
the assessee filed a return showing income as Nil and his case was selected
for scrutiny assessment and a notice u/s 143(2) of the Act was served on the
assessee. The assessee trust was registered u/s 12A of the Act w.e.f.
12.05.2010. The AO allowed the benefit of Section 11 and 12 of the Act to
the assessee with a noting that he has not found any violation of Section 13
of the Act. Further, on examination of balance sheet of the assessee trust,
the AO noted that the following loan creditors of the assessee trust were not
assessed to income tax:
Sl.No. Name Amount of loan taken by the assessee
1. Raj Rani Rs. 4,00,000/-
2. Charu Jain Rs. 1,20,000/-
3. Rakhi Rs. 50,000/-
Total Rs.5,70,000/-
4. The AO called the assessee to explain why the above claim of
unsecured loan from the above three persons shall be treated as unexplained
cash credit u/s 68 of the Act. In response to show cause notice, the assessee
3 ITA No. 723/Del/2012
Asstt. Year: 2005-06
submitted details of cheque nos. by which credits were received and also the
details of cheque nos. by which the assessee trust made the repayment to the
creditor. The assessee also submitted confirmation from Ms Rakhee
Agarwal and Ms Charu Jain but it could not submit confirmation from Ms
Rajrani Kainth as she was no more at the time of assessment. The AO held
that the explanation advanced by the assessee was found to be not
satisfactory and the claim of unsecured loan of Rs.5,70,000 was treated as
unexplained cash credit u/s 68 of the Act and the same was added to the total
income of the assessee.
5. The aggrieved assessee filed an appeal before the CIT(A) which was
allowed in regard to cash credit from Ms Rajrani Kainth but partly
disallowed with regard to cash credit provider Ms Rakhee Agarwal and
Charu Jain total amounting to Rs.1,70,000.
6. The operative part of the impugned order is being reproduced below:-
"3.2 I have gone through the finding of the AO in the
assessment order and written submission of the ld. AR.
In this regard AO has observed that all the three persons
who have given the loan are not assessed to tax. So, he
has held that provisions of section 68 are attracted and
he has relied on various case laws in this regard. During
the course of appellate proceedings it was submitted by
the ld. AR that out of three creditors Ms Charu Jain and
Ms Rakhee Agarwal are not assessed to tax but Rajrani
Kainth who has given loan of Rs. 4 lakh is assessed to tax
and he has also filed copy of income tax return for AY
2005-06. On further examination he has also explained
4 ITA No. 723/Del/2012
Asstt. Year: 2005-06
vide letter dated 18.11.2010 that Ms Rajrani Kainth has
since been deceased, so, her confirmation could not be
submitted. In this regard I have perused the detail filed
from time to time and it is that with regard to Ms Rajrani
Kainth ld. AR of the appellant has filed copy of the IT
return, details of cheque numbers, ledger account. The
only paper which could not be filed is the confirmation
because Ms Rajrani Kainth is no more. So, in my
considered opinion, identity and capacity of the creditor
has been established as far as Ms Rajrani Kainth is
concerned but similar case is not with Ms Rakhee
Agarwal for loan amounting to Rs.50,000/- and Ms
Charu Jain for loan amounting to Rs.1,20,000/-. Their
creditworthiness has not been established either before
the AO or during the appellate proceedings because they
have been found to be not assessed to income tax. How a
person can give a loan amounting to Rs.50,000 and
amounting to Rs.1,20,000 when his/her income is not to
the taxable limit. In view of the above discussion, I am of
the considered opinion that out of addition of
Rs.5,70,000, an addition of Rs.4,00,000/- pertaining to
Ms Rajrani Kainth has been found to be properly
explained, but, remaining addition of Rs.1,70,000/- has
not been explained properly. So, an addition of
Rs.1,70,000/- is sustained. Assessee gets relief of
Rs.4,00,000/-. In view of the above discussion grounds
No. 1 to 4 are partly allowed."
Now, aggrieved the assessee is before this Tribunal with this second appeal.
7. We have heard rival arguments of both the parties in the light of
material and documents on record before us. The assessee's representative
submitted that the cash credit from Ms Rajrani Kainth was confirmed with a
finding that the assessee could not submit her confirmation regarding the
cash credit because at the time of assessment she had expired. The CIT(A)
5 ITA No. 723/Del/2012
Asstt. Year: 2005-06
also noted that Ms Rajrani Kainth was an income tax assessee. Therefore,
her identity, creditworthiness and genuineness of the transaction was
accepted and the order of the AO in this regard was set aside deleting the
addition of Rs.4 lakh.
8. He further submitted that the assessee submitted details of cheques
pertaining to all three creditors by which the assessee Trust received the loan
and made repayment to the creditors and confirmation from Ms Rakhee
Agarwal and Ms Charu Jain were also submitted but the CIT(A) sustained
the addition in regard to these creditors with the only finding that they have
been found to be not assessed to income tax and how a person can give a
loan of Rs.50,000 and Rs.1,20,000 when her income is not to the taxable
limit. The AR concluded his argument with the submission that the
treatment which was given to the cash credit to Ms Rajrani Kainth was to be
given to the other creditors i.e. Ms Rakhee Agarwal and Ms Charu Jain. But
the ld. CIT(A) took a baseless stand for sustaining addition made by the AO
in this regard.
9. The DR submitted that the action of the AO as well as findings of the
CIT(A) in the impugned order in regard to addition of Rs.1,70,000 are based
on the facts and circumstances of the case which needs no interference. The
DR also submitted that the onus was on the assessee trust to establish
6 ITA No. 723/Del/2012
Asstt. Year: 2005-06
identity, creditworthiness and capability of the creditors with genuineness of
the transaction pertaining to the cash credits shown by it in the balance sheet
submitted before the AO but the assessee trust miserably failed to do so.
Therefore, addition made by the AO and partly confirmed by the CIT(A)
deserves to be confirmed.
10. On careful consideration of the submissions, relevant citations and
material on record before us, we observe that it is not in dispute that all three
cash credits were received through account payee cheques from the creditors
and repayment was also made through account payee cheques to the
creditors by the assessee trust. It is also not in dispute that the assessee trust
filed confirmations, identity and all relevant documents showing that the
loan advanced to the assessee trust and its repayment by the assessee trust
was routed through account payee cheques and the relevant written
confirmations containing full address of the creditors and their bank pass
books and bank statement of the assessee trust were also submitted before
the authorities below by the assessee trust. The assessee appellant has also
furnished a paper book before us with a certification that documents shown
at Sl.No. 1 to 6 i.e. confirmation from Ms Rakhee Agarwal, her ledger
account with the assessee, her bank pass book showing payment and receipt
of Rs.50,000 and also confirmation from Ms Charu Jain, her ledger account
7 ITA No. 723/Del/2012
Asstt. Year: 2005-06
with the assessee trust with bank statement of the assessee trust showing the
receipt and repayment of the cash credits of Rs.1,70,000 were submitted
before the AO and the CIT(A).
11. At this juncture, it is necessary and appropriate to rely on the
judgment of Hon'ble Guwahati High Court in the case of Nemi Chand
Kothari v.Commissioner of Income-tax [2003] 264 ITR 254 (GAU.)
wherein their lordships held that it cannot be said that a transaction, which
takes place by way of cheque, is invariably sacrosanct. Once the assessee
has proved the identity of his creditors, the genuineness of the transaction
which he had with his creditors and the creditworthiness of the creditors vis-
-vis the transactions which he had with the creditors, his burden stands
discharged and the burden then shifts to the revenue to show that though
covered by cheques, the amounts in question actually belonged to, or was
owned by the assessee himself. In the present case, since the assessee has
shown that the transaction was made through cheques and he also submitted
the confirmation with detailed address of the creditors, then the burden shifts
to the revenue to establish that the amount in question actually belonged to
or was owned by the assessee trust but neither the AO nor the CIT(A) has
brought any incriminating material or evidence against the assessee trust to
establish that the cash credits shown in the balance sheet actually belonged
8 ITA No. 723/Del/2012
Asstt. Year: 2005-06
to or owned by the assessee himself. We also observe that the AO and the
CIT(A) never went a step ahead to verify the identity and creditworthiness
of the creditors and the genuineness of the transaction which the assessee
Trust had with his creditors.
12. The Hon'ble High Court of Madhya Pradesh in the case of CIT vs
Metachem Industries (2008) 245 ITR 160 (MP) held that:-
"Assessee cannot be asked to explain whether
credit has suffered tax Where the assessee firm had
satisfactorily explained the creditors standing in the
name of its partners, the responsibility of the assessee
stands discharged. Once it is established that the amount
has been invested by a particular person, be he a partner
or an individual, then the responsibility of the assessee
firm is over. The assessee-firm cannot ask that person
who makes investment whether the money invested is
properly taxed or not. If that person owns the entry, then
the burden of the assessee-firm is discharged. It is open
to the Assessing Officer to undertake further
investigation with regard to that individual who has
deposited the amount CIT vs Metachem Industries
(2000) 245 ITR 160 (MP)."
13. In the present case, we are inclined to observe that the ld. CIT(A)
simply confirmed the addition of Rs.1,70,000 with a finding that the
creditors Ms Rakhee Agarwal and Ms Charu Jain have been found to be not
assessed to income tax. Therefore, their capability to advance loan is
doubtful and their income was not to the taxable limit. We are unable to
uphold this finding because this is not a test parameter for evaluating the
9 ITA No. 723/Del/2012
Asstt. Year: 2005-06
capability of a person for advancing loan that whether his income is assessed
to income tax or not. If this test standard is approved, then the
creditworthiness of all the persons out of the ambit of income tax assessment
would be doubtful.
14. In view of above, following the judgment of Hon'ble Guwahati High
Court in the case of Nemi Chand Kothari (supra) and the judgment of
Madhya Pradesh high Court in the case of Metachem Industries (supra), we
hold that the AO and the CIT(A) did not make any effort to verify the
confirmations, identity and creditworthiness of the creditors in question and
they also ignored the fact that the transaction of cash credits received and its
repayment were made through bank and we also hold that the authorities
below did not bring any incriminating material or evidence against the
assessee trust to establish that the amount shown in the balance sheet as cash
credits amounting to Rs.1,70,000 actually belonged or was owned by the
assessee trust itself.
15. Accordingly, we arrive to a conclusion that the addition of
Rs.1,70,000 u/s 68 of the Act confirmed by the CIT(A) is not sustainable in
the facts and circumstances of the case. We, therefore, allow the appeal of
the assessee trust, setting aside the orders of the authorities below in this
regard.
10 ITA No. 723/Del/2012
Asstt. Year: 2005-06
16. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 19.9.2012.
Sd/- Sd/-
(SHAMIM YAHYA) (CHANDRA MOHAN GARG)
ACCOUNTANT MEMBER JUDICIAL MEMBER
DT. 19th SEPTEMBER 2012
`GS'
Copy forwarded to:-
1. Appellant
2. Respondent
3. CIT(A)
4. CIT 5. DR By order
Asstt. Registrar
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