Income Tax Officer vs Ashok Suri.
1996 Latest Caselaw 889 Del

ORDER

B. M. KOTHARI, A.M. :

All these appeals relate to the same assessee and pertain to the same year. ITA No. 6809/Del/93, is the quantum appeal while the other three appeals relate to penalties levied under various provisions of IT Act for asst. yr. 1981-82.

2. I will first deal with the quantum appeal. The Revenue is aggrieved by the deletion of the addition of Rs. 46,000 made on account of non-genuine cash credits by the AO.

3. The learned counsel for the assessee submitted that assessment in this case was originally made under s. 144 on 6th Feb., 1984 which was reopened under s. 146. Again the assessment was made under s. 143(3) on 31st March, 1987. The AO while making the said assessment had, inter alia, disallowed the assessees claim for deduction in respect of interest expenditure amounting to Rs. 7,815. The assessee preferred appeal against the said assessment order in which the disallowance of interest expenditure was challenged apart from challenging various other additions and disallowances. The AAC, New Delhi, vide order dt. 16th Nov., 1987 restored back the issue relating to disallowance of interest on loan to tune of Rs. 7,815. The AAC observed in the said order that the ITO has disallowed interest on loan on the ground that details of borrowed capital for business purposes as also supporting evidence regarding payment of interest thereon were not available. The ITO was, therefore, directed to verify the genuineness of the business loans. The assessment on this point was set aside and restored back to the file of the ITO.

4. The ITO thereafter passed a fresh assessment order on 30th March, 1990, in which he not only once again disallowed the amounts of interest of Rs. 7,815 but also made an addition in respect of credits aggregating to Rs. 46,000 by holding the said credits as non-genuine.

5. The learned Dy. CIT(A) hold that the AO was not correct in making an addition of Rs. 46,000 as income from undisclosed sources as this was not the subject-matter of the original assessment completed on 31st March, 1987 nor it was the subject matter of appeal before the AAC. The AAC gave the directions to the AO to examine the genuineness of the loans in the context of allowing the payment of interest as a deduction by way of business expenditure and not otherwise. The genuineness of such loans was never the subject-matter of the dispute. He further observed that there is a mistake in the totals of the cash credits received during the year under consideration which in fact comes to Rs. 36,000 as against Rs. 46,000 added by the AO. The Dy. CIT deleted the addition of Rs. 46,000.

6. The learned Departmental Representative submitted that in view of the specific directions given by the AAC in the earlier order, the AO was entitled to examine the question of genuineness of the credits in question. The burden lies on the assessee to prove the genuineness of the cash credits, on the facts of the present case, the assessee has failed to discharge. The Dy. CIT(A) ought to have confirmed the addition of Rs. 46,000.

7. The learned counsel for the assessee supported the order of the Dy. CIT(A). Apart from this the learned counsel also submitted that confirmations of these creditors were duly furnished before the AO. Copies of such confirmations have also been submitted in the compilation presented before us. Some of the deposits(sic) are existing income-tax assessees. Most of these credits were received by cheques. Interest to few of them have also been paid by cheques. The genuineness of the cash credits in question was not disputed by the AO in the original assessment. He, therefore, strongly urged that view taken by the Dy. CIT(A) is perfectly justified.

8. I have carefully considered the submissions made by the learned representatives of the parties and have gone through the orders of the Departmental authorities.

9. A perusal of the assessment order passed under s. 143(3) dt. 31st March, 1987 reveals that the assessees claim for interest on borrowed capital was disallowed in view of the absence of details of money borrowed for business purposes and the evidence of payment of interest. The amount of cash credit was not added in that assessment. It is true that the AAC while passing his order on 16th Nov., 1987, directed the ITO to verify the genuineness of the business loan on which interest amounting to Rs. 7,815 was claimed as deduction. However, from para 5 of the said order passed by the AAC is read as a whole, it is apparently clear that he was dealing with the assessees ground relating to disallowance of interest on loan claimed to the tune of Rs. 7,815. There is no whisper in the order passed by the AAC that he intended to enhance the income of the assessee and wanted the ITO not only to examine the purpose for which the loans were borrowed but also to verify the genuineness of those loans. The AAC in fact restored back the issue relating to allowability or otherwise of the interest expenditure amounting to Rs. 7,815. The Dy. CIT(A) was, therefore, fully justified in holding that addition of Rs. 46,000 cannot be validly made in the second innings of the assessment proceedings particularly in view of the fact that this issue was not the subject-matter of the assessment order passed under s. 143(3) nor the subject matter of the appeal decided by the AAC.

10. Apart from this, I have also gone through the copies of confirmations of the various creditors as well as the letters given on behalf of the assessee to the ITO. The assessee was a partner in the firm M/s Photo Circuit (India) which was dissolved on 30th Sept., 1980. The assessee had 50 per cent share in the said firm. From 1st Oct., 1980, the assessee took over the running business of the said firm and continued the said business as its proprietor. The deduction of interest amounting to Rs. 7,815 claimed by the assessee represent interest paid to various depositors in respect of loan taken by the erstwhile firm as well as by the assessee after he became its sole proprietor. The details of such interest claim made by the assessee has been given in para 4 of the assessment order. The genuineness of the loans taken by the firm prior to its dissolution and take over by the assessee was not disputed in the assessment of the firm. The genuineness of the loan taken by the assessee after he became its proprietor were also not disputed in the original assessment made under s. 144 or 143(3). The assessee had submitted confirmation in respect of all the disputed items of cash credits before the AO, as would be apparent from the following facts :

(a) Confirmation of Smt. Sunita Gupta - Rs. 5,000 has been submitted at page 24 of the compilation. This confirmation shows that she was an existing income-tax assessee. Her GIR number was also stated in the said confirmation.

(b) Confirmation of Shri N. C. Gupta placed at p. 25 of the paper-book shows that the deposit of Rs. 5,000 was received by way of a cheque. Three payments were made to him by cheques of Rs. 375 each. He is also an existing assessee. GIR number has also been mentioned in the said confirmation.

(c) Confirmation of Smt. Sneh Lata place at p. 26 of the paper-book shows that the deposit of Rs. 4,000 was made by her by a cheque. Some payments towards interest has been made to her during the year by three different cheques and once Rs. 67 was paid in cash. Her full address was also mentioned in the confirmation. A perusal of the written submissions submitted before the Dy. CIT(A) at p. 32, inter alia, reveals that pass-book of Shri R. C. Gupta and Smt. Sneh Lata Gupta were also produced before the Dy. CIT(A).

(d) Smt. Madhu Gupta made a total deposit of Rs. 5,000 and Rs. 7,000 by two cheques Nos. 656601 and 656695. Several debits in her account reveal that payments towards interest was made to her in various instalments by cheques on different dates.

(e) Shri R. C. Gupta made a deposit of Rs. 5,000 by cheque No. 910287 on 26th Oct., 1980. He is an existing income-tax assessee. The permanent account number has also been mentioned in confirmation.

(f) Smt. Veena Gupta gave a loan of Rs. 5,000 on 16th Jan., 1981. Her confirmations was not found in the paper-book.

11. The assessment order dt. 31st March, 1990, passed under s. 143(3)/250 indicates that the assessee requested the ITO to issue summons under s. 131 to the various depositors but the AO did not issue such summons to any one of them. He has observed in the assessment that the assessee neither deposited diet money for this purpose nor he has furnished complete postal addresses of all the parties. The learned Departmental Representative could not tell us as to whether after receiving the request from the assessee to summon the depositors, the AO required the assessee to deposit diet money or not. The learned Departmental Representative was unable to state anything in relation to this aspect.

11.1 On a careful consideration of all the facts, I am of the view that the Dy. CIT(A) has rightly deleted the aforesaid addition on the ground that such an addition did not form part of the original assessment order as well as the earlier order passed by the AAC. The findings given by the AAC in his order dt. 16th Nov., 1987, directing the AO to verify the genuineness of the business loans have to be understood in the context in which such findings were given. Such findings were given by him while dealing with the disallowance of interest amounting to Rs. 7,815. There is no express indication for any enhancement of the income. Therefore, such findings given by the AAC were only in relation to disallowance of interest expenditure of Rs. 7,815 which was restored by that order. The AO, therefore, could not travel beyond that point and, therefore, no addition in respect of unexplained cash credit could be validly made by him. Apart from this, the facts discussed hereinbefore indicate that the credits in question relate to petty amounts. Some of those depositors are existing assessees. Interest payments have been made to most of them by cheques. Confirmations of all of them except one were found in the paper-book. Even on merits, the addition made by the AO was not justified. The view taken by the first appellate authority deleting the said addition of cash credit is, therefore, confirmed.

12. I will now consider the remaining three appeals filed by the Revenue against the orders of the first appellate authority cancelling the various penalties.

13. The Dy. CIT(A) cancelled the penalty levied under ss. 271(1)(a), 271(1)(b) and 271(1)(c) for asst. yr. 1981-82 on the ground that the quantum appeal against the assessment order under s. 143(3)/250 has been decided in favour of the assessee. After considering the relief given in the said quantum appeal and the carried forward losses as per record, there will be no tax due and thus the question relating to levy of any penalty under s. 271(1)(a) and 271(1)(b) and 271(1)(c) would not arise.

14. The learned Departmental Representative could not find any material to support the order passed by the first appellate authority in the penalty appeal.

15. The learned counsel for the assessee supported the order of the Dy. CIT(A).

16. I have considered the submissions made by the learned representatives. Since I have confirmed the order of the Dy. CIT(A) and the fact that after considering the aforesaid relief and carry forward losses as per records, there will be no tax due, has not been controverted by the learned Departmental Representative, I hold that the Dy. CIT(A) was right in cancelling the penalties levied under all the aforesaid sections for asst. yr. 1981-82.

17. In the result, all the appeals by the Revenue are dismissed.