IN INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH AHMEDABAD Before Shri S.S. Godara, JM, & Shri Manish Borad, AM. ITA No. 1895/Ahd/2013 Asst. Year: 2008-09 Maheboobali R. Asaria, Vs. DCIT, Circle-1, 42-B, Devbaug, Bhavnagar. Bhavnagar. Appellant Respondent PAN AESPA 0595A Appellant by Shri M. J. Shah, AR Respondent by Shri S. L. Chandel, Sr. DR Date of hearing: 8/9/2016 Date of pronouncement: 29/9/2016 ORDER PER Manish Borad, Accountant Member. This appeal of assessee is directed against order of ld. CIT(A)-XX, Ahmedabad, dated 1.5.2013 in appeal No.CIT(A)- XX/452/10-11, passed against order u/s 143(3) of IT Act, 1961 (in short Act) framed on 29.12.2010 by DCIT, Circle-Bhavnagar. Assessee has raised following grounds :- 1. ld. CIT(A) has erred in law and on facts in holding addition made by DCIT, towards disallowance of Rs.11,96,087/- u/s 40(a)(ia) on account of interest expenses. 2. ld. CIT(A) has erred in law and on facts in holding addition made by DCIT, towards disallowance of Rs.22,44,344/- on account of unclaimed cash credit. ITA No. 1895/Ahd/2013 2 Asst. Year 2008-09 3. It is, therefore, prayed that addition may be cancelled. 2. Briefly stated facts of case are that assessee is individual engaged in business of ship hiring activities and trading in shares/securities. E-return of income was filed on 30.09.2008 declaring total income of Rs.30,00,000/- and current year loss of Rs.2,50,80,293/-. case was selected for scrutiny assessment. Necessary details were filed by assessee. Income was assessed at Rs.30,00,000/- after making addition of Rs.2,25,56,687/- on account of disallowance u/s 40(a)(ia) of Rs.11,96,087/-, unsecured loans of Rs.2,01, 67,600/- and claim of depreciation of Rs.11,93,000/- Addition made in assessment order u/s 143(3) was set off out of current years loss of Rs.2,50,80, 293/-. 3. Aggrieved, assessee went in appeal before first appellate authority and ld. CIT(A) partly allowed appeal. 4. Aggrieved, assessee is now in appeal before Tribunal against two sustained addition (i) of Rs.11.96,087/- u/s 40(a)(ia) of Act on account of TDS on interest expenses and (ii) on account of addition sustained at Rs.22,44,344/- towards unexplained cash credit. 5. First we take up ground no.1 towards disallowance u/s 40(a)(ia) of Act. Ld. AR submitted that disallowance u/s 40(a)(ia) of Act is uncalled for as assessee being individual is covered under ITA No. 1895/Ahd/2013 3 Asst. Year 2008-09 provisions of sec.44AB of Act if gross turnover of immediately preceding financial year cross limit u/s 44AB of Act which was not case of assessee as assessment year 2008-09 was first year of Tax Audit. ld. AR further submitted that this disallowance is also uncalled for for very reason that there is insertion of second proviso to section 40(a)(ia) of Act which is declaratory and curative in nature and it is retrospective with effect from 1st April, 2005 being date from which such clause (ia) of section 40(a) was inserted by Finance (No.2) Act, 2004. Ld. AR placed reliance on decision of Tribunal in case of CIT vs. Ansal Landmark Townships Pvt. Ltd.(2015) 377 ITR 635 (Del) and submitted that issue may be remanded back to file of Assessing Officer in order to verify whether amount of interest of Rs.11,96,087/- has been shown same in their regular return of income and paid due taxes thereon. 6. Ld. DR supported orders of lower authorities. 7. We have heard rival contentions and gone through judgment and decision referred and relied on by ld. AR. Through this ground assessee has raised issue of disallowance of Rs.11,96,087/- u/s 40(a)(ia) of Act towards deduction of TDS on interest expenses. We observe that ld. AR has made two fold submissions. However, ld. AR could not substantiate much to prove that this is first year of audit u/s 44AB of Act of assessee. We therefore, strike done first contention. ITA No. 1895/Ahd/2013 4 Asst. Year 2008-09 Now going through second contention of ld. AR relying on judgment of Hon. Delhi High Court in case of CIT vs. Ansal Landmark Townships Pvt. Ltd. (supra) and decision of Tribunal in case of Rajeev Kumar Agarwal vs. ACIT (2014) 149 ITD 363 (Agra) we find substance in arguments of ld. AR that insertion of provisions of section 40(ia) is declaratory and curative in nature with retrospective effect from 1st April, 2005. We find that Hon. Delhi High Court in case of CIT vs. Ansal Landmark Townships Pvt. Ltd. (supra) has specifically approved stand taken by Co- ordinate Bench, Agra upholding action of Tribunal in case of Rajeev Kumar Agarwal vs. ACIT (supra) by observing as under :- 9. ............................ Now that legislature has been compassionate enough to cure these shortcomings of provision, and thus obviate unintended hardships, such amendment in law, in view of well settled legal position to effect that curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, insertion of second proviso must be given retrospective effect from point of time when related legal provision was introduced. In view of these discussions, as also for detailed reasons set out earlier, we cannot subscribe to view that it could have been "intended consequence" to punish assessees for non deduction of tax at source by declining deduction in respect of related payments, even when corresponding income is duly brought to tax. That will be going much beyond obvious intention of section. Accordingly, we hold that insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being date from which sub clause (ia) of section 40(a) was inserted by Finance (No. 2) Act, 2004. 10. In view of above discussions, we deem it fit and proper to remit matter to file of Assessing Officer for fresh adjudication in light of our above observations and after carrying out necessary verifications regarding related payments having been taken into account by recipients in computation of their income, regarding payment of taxes in respect of such income and regarding filing of related income tax returns by recipients. While giving effect to these directions, Assessing Officer shall give due and fair opportunity of hearing to assessee, decide matter in accordance with law and by way of speaking order. We order so. 8. Respectfully following judgment of Hon. Delhi High Court and decision of Co-ordinate Bench, as referred above in para 7 we set aside matter to file of Assessing Officer for fresh ITA No. 1895/Ahd/2013 5 Asst. Year 2008-09 adjudication in light of above observation. We further direct Assessing Officer to give proper opportunity of being heard to assessee so as to carry out necessary verification regarding payments and also to verify computation of income and income- tax return of respondent of impugned interest amount of Rs. 11,96,087/- and to satisfy himself that impugned amount has been offered to tax by way of including in total income. We further direct Assessing Officer to decide matter in accordance with law and by passing speaking order. This ground of assessee is allowed for statistical purposes. 9. Now we take up ground no.2 towards addition sustained by ld. CIT(A) on account of disallowance of Rs.22,44,344/- on account of unexplained cash credit u/s 68 of Act. 10. We find that ld. CIT(A) has sustained addition of Rs. 22,44,344/- towards unexplained cash credit from following 7 parties:- Sl.No. Name of creditor Amount 1 Jayeshbhai N. Shah Rs.2,13,200 2 Lataben Sankarbhai Kukreja Rs.2,12,867 3 Mohiniben G. Rohide Rs.2,12,867 4 Nitaben Sunil Shah Rs. 1,06,600 5 Padme Trading Co. Rs.2,13,600 6 Roopaben Kiritbhai Shah Rs.2,13,200 7 Shivangi Impex Rs.10,68,000 Total Rs.22,40,334 During course of hearing before us, ld. AR submitted that all necessary details were filed before Assessing Authority for purposes of preparation of remand report as per direction of ld. ITA No. 1895/Ahd/2013 6 Asst. Year 2008-09 CIT(A) and all details including confirmations letters, were provided in all those cases. Ld. AR further submitted that Hon. Jurisdictional High Court in case of CIT vs. Ranchhod Jivabhai Nakhava (2012) 21 taxmann.com 159(Guj) has decided similar issue wherein it has been held that if assessee provides PAN of lenders then it is duty of Assessing Officer to ascertain from Assessing Officer of those lenders whether in their respective returns they had shown existence of such amount of money and had further shown that those amount of money had been lent to assessee. 11. On other hand, ld. DR supported orders of lower authorities. 12. We have heard rival contentions and perused material on record and gone through judgment referred by ld. AR. We find that ld. CIT(A) has called for remand report to ascertain identity, creditworthiness and genuineness of cash creditors on various unsecured loans taken by assessee. However, in case of 7 unsecured loans copy of PAN cards were not available, neither bank statement was provided. We have gone through remand report placed at pages 41 of paper book along with abstract of remand report dated 4.11.2011 at pages 141 to 144 of paper book. From going through same we find that in case of three parties namely Lataben Shankarbhai Kukreja, Mohini A. Shah and Rupaben K. Shah from whom assessee has received unsecured loan of Rs.2,12,867/-, Rs. 2,12,867/- & Rs.2,13,200/- respectively totaling to Rs.6,38,934/- assessee has been unable to ITA No. 1895/Ahd/2013 7 Asst. Year 2008-09 provide PAN as well as bank statement. Even during course of hearing before us assessee could not place any information about PANs of these three cash creditors. 13. As far as unsecured loans from Jayesh N. Shah of Rs.2,13,200/- and Indumati C. Gandhi of Rs.1,06,800/-, Padma Trading Company at Rs.2,13,600/- and Shivangi Impex at Rs.10,68,000/- assessee has been able to provide confirmation letters which also have details of PANs in all these four letters. 14. We further observe that Hon. Jurisdictional High Court in case of CIT vs. Ranchhod J. Nakhava (supra) has adjudicated issue relating to unexplained cash credit and PAN has been provided by assessee and onus was casted on Assessing Officer by observing as under :- HELD Once assessee has established that he has taken money by way of account payee cheques from lenders who are all income tax assessees whose PAN have been disclosed, initial burden under section 68 was discharged. It further appears that assessee had also produced confirmation letters given by those lenders. [Para 15] Once Assessing Officer gets hold of PAN of lenders, it was his duty to ascertain from Assessing Officer of those lenders, whether in their respective returns they had shown existence of such amount of money and had further shown that those amount of money had been lent to assessee. If before verifying of such fact from Assessing Officer of lenders of assessee, Assessing Officer decides to examine lenders and asks assessee to further prove (he genuineness and creditworthiness of transaction, Assessing Officer does not follow principle laid down under section 68. [Para 16] If on verification, it was found that those lenders did not disclose in their income tax return transaction or that they had not disclosed aforesaid amount, Assessing Officer could call for further explanation from assessee to prove genuineness of ITA No. 1895/Ahd/2013 8 Asst. Year 2008-09 transaction or credits orlhiness of same. However, without verifying such fact from income tax return of creditors, action taken by Assessing Officer in examining lenders of assessee was wrong approach. Moreover, those lenders have made inconsistent statements as pointed out by Commissioner (Appeals) and in such circumstances, both Commissioner (Appeals) and Tribunal, were justified in setting aside addition as Assessing Officer, without taking step for verification of income tax return of creditors, took unnecessary steps of further examining those creditors. If Assessing Officers of those creditors are satisfied with explanation given by creditors as regards those transactions, Assessing Officer in question has no justification to disbelieve transactions reflected in account of creditors. In other words, Assessing Officer had no authority to dispute correctness of assessments of creditors of assessee when co-ordinate Assessing Officer is satisfied with transaction. [Para 17] Thus, Tribunal rightly set aside addition made by Assessing Officer, based on erroneous approach by wrongly shifting burden again upon assessee without verifying income tax returns of creditors. position, however, would have been different if those creditors were not income tax assessees or if they had not disclosed those transactions in their income tax returns or if such returns were not accepted by their Assessing Officer. [Para 18] There was no merit in appeal and same was to be dismissed. [Para 19] 15. Applying ratio of above decision to facts of present case, we are of view that as regards unsecured loans from three parties totaling to Rs. 6,38,934/- assessee has been unable to provide any detail of PAN etc. and therefore, we find no reason to interfere with order of ld. CIT(A) in relation to above three parties and confirmed addition of Rs. 6,38,934/-. 16. Further as regards balance unsecured loan of Rs.16,05,415/- from above four parties where assessee has given details of PAN in confirmations letters, we are of view that issue be remitted back to Assessing Officer for limited purposes of verifying PAN details of four parties in light of judgment of Hon. Jurisdictional High Court in case of CIT vs. ITA No. 1895/Ahd/2013 9 Asst. Year 2008-09 Ranchhod J. Nakhava (supra) and also to ascertain necessary details from Assessing Officer of unsecured cash creditors as to whether impugned amount of loans given to assessee have been shown in regular returns of income. After verifying same ld. Assessing Officer shall pass speaking order to this effect as per provisions of law. Accordingly, this ground of assessee is partly allowed for statistical purposes. 14. Ground No.3 is of general nature, which needs no adjudication. 15. In result, appeal of assessee is partly allowed for statistical purposes. Order pronounced in open Court on 29th September, 2016 Sd/- sd/- (S. S. Godara) (Manish Borad) Judicial Member Accountant Member Dated 29/9/2016 Mahata/- Copy of order forwarded to: 1. Appellant 2. Respondent 3. CIT concerned 4. CIT(A) concerned 5. DR, ITAT, Ahmedabad 6. Guard File BY ORDER Asst. Registrar, ITAT, Ahmedabad ITA No. 1895/Ahd/2013 10 Asst. Year 2008-09 1. Date of dictation: 20/09/2016 2. Date on which typed draft is placed before Dictating Member: 28/09/2016 other Member: 3. Date on which approved draft comes to Sr. P. S./P.S.: 4. Date on which fair order is placed before Dictating Member for pronouncement: 5. Date on which fair order comes back to Sr. P.S./P.S.: 6. Date on which file goes to Bench Clerk: 29/9/2016 7. Date on which file goes to Head Clerk: 8. date on which file goes to Assistant Registrar for signature on order: 9. Date of Despatch of Order: Maheboobali R. Asaria v. DCIT, Circle-1, Bhavnagar