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The Gurukul Trust,C/o Sh. Anup Sharma, Advocate,108, Lawyers Chamber,Delhi High Court,New Delhi-110003 vs ADIT(E), Trust Circle-IV,New Delhi.
September, 21st 2012
                                      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.
                                         2                        ITA No. 723/Del/2012
                                                                    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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