IN INCOME TAX APPELLATE TRIBUNAL SMC BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER ITA No. 842/CHD/2016 Assessment Year: 2011-12 Shri Makhan Lal, Vs JCIT, Prop. M/s Shri Guru Nanak Harvestors Range IV, Near Kakkarwal Chowk, Ludhiana. Dhuri PAN: AAKPL8618F (Appellant) (Respondent) Appellant by : Shri Sudhir Sehgal Respondent by : Shri S.K.Mittal, DR Date of Hearing : 06.10.2016 Date of Pronouncement : 19.10.2016 O R D E R This appeal by assessee has been directed against order of ld. CIT(Appeals)-2 Ludhiana dated 22.04.2016 for assessment year 2011-12. 2. I have heard ld. Representatives of both parties and perused material available on record. 3. On ground No.1, assessee challenged addition of Rs. 30,000/- under section 68 of Act on account of loan of Rs. 2 lacs received from Smt. Asha Rani. During course of assessment proceedings, Assessing Officer observed that there is deposit of Rs. 2 lacs in 2 bank account of Smt. Asha Rani and on same date i.e. 21.02.2011, sum of Rs. 2 lacs was advanced as loan to assessee. assessee was directed to explain source of deposit of Rs. 2 lacs. assessee submitted that Smt. Asha Rani in her return of income had shown cash surrender of Rs. 1,70,000/- during assessment year 2011-12 and paid taxes thereon. This amount was source of deposit of cash but assessee failed to explain source of remaining amount of Rs. 30,000/- therefore, addition of Rs. 30,000/- was made under section 68 of Act. 4. assessee submitted before ld. CIT(Appeals) that assessee produced copy of Income Tax Return, computation chart and bank statement of Smt. Asha Rani before Assessing Officer which suggested that creditor was having credit worthiness and has given genuine loan to assessee. She is regularly assessed to tax therefore, addition is unjustified. ld. CIT(Appeals), however, did not accept contention of assessee with regard to Smt. Asha Rani having opening balance as well as having source from Istri Dhan and confirmed addition. 5. After considering rival submissions, I am of view addition is unjustified. PB-20 is account of Smt. Asha Rani in books of assessee showing opening debit balance on 01.04.2010 in sum of Rs. 21,17,208/-. There are various transactions ranging from Rs. 10 lacs to Rs. 7,000/- through banking channel on various dates and at 3 end of year there is debit balance of Rs. 15,17,058/-. It would also show assessee was receiving amounts against debit balance, which have not been doubted by Assessing Officer. Assessing Officer made addition in respect of entry of dated 21.02.2011 in which assessee received Rs. 2 lacs from Smt. Asha Rani through banking channel. Copy of her bank statement is filed at page 22-27 of Paper Book. Prior to deposit on 21.02.2011 of Rs. 2 lacs, there is credit entry of Rs. 3,95,410.82 on 19.02.2011. Therefore, Smt. Asha Rani was having sufficient bank balance in her account to give even entire amount in question as loan to assessee. Copy of her Income Tax Return is also filed in which assessee has surrendered cash amount of Rs. 1,70,000/-. These facts would show that Smt. Asha Rani was person of means and has source to give balance amount of Rs. 30,000/- also. assessee, therefore, has been able to explain that genuine loan was received from Smt. Asha Rani. Addition is, therefore, unwarranted. I, therefore, set aside orders of authorities below and delete addition of Rs. 30,000/-. This ground of appeal of assessee is allowed. 6. On ground No. 2, assessee challenged addition of Rs. 3,49,910/- under section 68 of Act on account of loan taken from Shri Makhan Lal, HUF. Perusal of documents show that on 02-03-2011 there was credit entry of Rs. 3,49,910/- in bank account of HUF and subsequently on 04.03.2011, sum of Rs. 3,75,000/- was advanced as loan to assessee. assessee submitted 4 that in return of income of Shri Makhan Lal, HUF of assessment year 2011-12, it has shown commodity profit of Rs. 3,49,910/- and paid taxes thereon and this commodity was earned through M/s Ludhiana Comfin Services. Assessing Officer asked assessee to produce broker of M/s Ludhiana Comfin Services and his bank statement alongwith books of account to verify genuineness of commodity profit, but assessee failed to do so, therefore, above addition was made under section 68 of Act. 7. addition was challenged before ld. CIT(Appeals) and it was submitted that assessee has submitted copy of Income Tax Return, computation chart and bank statement of Shri Makhan Lal, HUF alongwith copy of account of commodity profit earned by HUF, therefore, burden upon assessee to prove identity, credit worthiness of HUF have been proved. assessee relied upon certain decisions in support of his contention, however, ld. CIT(Appeals) did not accept contention of assessee and dismissed appeal of assessee. 8. After considering rival submissions, I am of view matter requires re-consideration at level of Assessing Officer. ld. counsel for assessee referred to PB-30 which is copy of account of Shri Makhan Lal, HUF in books of assessee to show there was debit balance of Rs. 21,83,060/- and there were other transactions which have not been doubted by Assessing 5 Officer. Copy of bank account of Shri Makhan Lal, HUF is filed to show that commodity profit is received in sum of Rs. 3,49,910/-. ld. counsel for assessee submitted that authorities below have relied upon order of ld. CIT(Appeals) in case of Jawahar Lal, Proprietor of M/s Shahi Ram Jawahar Lal in which Tribunal has set aside orders of authorities below and deleted addition. However, I find that in case of Shri Jawahar Lal, SMC Bench followed order of Division Bench in case of same assessee, Shri Jawahar Lal, in which concerned persons were produced before Assessing Officer in remand proceedings, therefore, this decision will not help assessee. ld. counsel for assessee in alternate contention submitted that assessee is willing to produce broker before Assessing Officer. In this view of matter, I am of view since entire matter is dependant upon verification of commodity profit received by creditor through M/s Ludhiana Comfin Services Ltd. therefore, production of broker is necessary for final adjudication of issue. 8(i) I, therefore, set aside orders of authorities below and restore this issue to file of Assessing Officer with direction to assessee to produce broker M/s Ludhiana Comfin Services Ltd. before Assessing Officer alongwith their bank account for examination by Assessing Officer. Assessing Officer, thereafter, shall pass order in accordance with law by giving reasonable sufficient opportunity of being heard to assessee. 6 9. In result, this ground of appeal of assessee is allowed for statistical purposes. 10. On ground No. 3, assessee challenged addition of Rs. 1,52,529/- under section 36(1)(iii) of Act. Brief facts are that Assessing Officer noted that assessee had advanced interest free advances to following two concerns for non business purpose : i) M/s Shiva Protein Products P.Ltd. = Rs.12 lacs on 01.04.2010 ii) Smt. Kanta Rani = Rs. 25 lacs on 28.03.2011 = Rs. 25 lacs on 29.03.2011 = Rs. 25 lacs on 30.03.2011 Total = Rs. 87 lacs 10(i). Assessing Officer relying upon judgement of Hon'ble Punjab & Haryana High Court in case of Abhishek Industries 286 ITR 1, disallowed proportionate interest amounting to Rs. 1,52,529/- under section 36(1)(iii) of Act. 11. assessee submitted before ld. CIT(Appeals) that assessee is engaged in business of trading in agricultural implements and has capital amounting to Rs. 1.04 Crores at beginning of year which clearly shows that assessee has his own interest free funds. Further, assessee has often transferred interest free loans for smooth running of business. assessee relied upon decision of Hon'ble Supreme Court in case of S.A.Builders 288 ITR 1. ld. CIT(Appeals), however, 7 did not find any commercial expediency or any nexus between interest free loan/advances and business activities of assessee, thus, confirmed addition and dismissed this ground of appeal of assessee. 12. After hearing rival contentions, I am of view addition is wholly unjustified. assessee has filed copy of account of Smt. Kanta Rani in Paper Book at page 46 which shows that on 01.04.2011, there is debit balance of Rs. 75 lacs and thereafter, there are three other transactions of payment and receipt and then on 31.03.2012 interest was received @ 12% at Rs. 6,53,245/- which was also debit closing balance as on 31.03.2012. It would mean that entire amount of loan was squared up in subsequent year on which assessee charged interest as well. loan was given to Smt. Kanta Rani at fag end of financial year on 28.03.2011, 29.03.2011 and 30.03.2011 therefore, no interest could be charged in assessment year under appeal. disallowance to that extent is, therefore, wholly unjustified. Further copy of capital account of assessee is filed at page 14 of Paper Book which shows that assessee has capital of Rs. 1,12,57,230/- and has also other unsecured loans which are sufficient to advance interest free loans to these persons. assessee charged more interest as against addition made by Assessing Officer. Therefore, this disallowance is unjustified. 8 12(i) Hon'ble Punjab & Haryana High Court in case of Kapson Associates 381 ITR 204 held that When assessee hav ing suff icient in terest f ree adv ances to cover interest free advances, no d i s l l o wa n c e under section 36(1)(iii) should be made . Same views taken by Hon'ble Supreme Court in case of Hero Cycles Pvt. Ltd. 379 ITR 347 in which judgement relied upon by Assessing Officer in case of Abhishek Industries (Supra) have been over- ruled. I am, therefore, of view that disallowance of interest is wholly unjustified. I set aside orders of authorities below and delete entire addition. This ground of appeal of assessee is allowed. 13. On ground Nos. 4 and 5, assessee challenged addition of Rs. 65,000/- on account of household expenses. assessee has withdrawals of Rs. 1,75,000/- for family of four persons including two children who were students during this period. assessee explained that he was residing in his own house which is upper portion of his shop. Assessing Officer, however, estimated household expenses at Rs. 2,40,000/- and giving benefit of Rs. 1,75,000/- made addition of Rs. 65,000/-. ld. CIT(Appeals), confirmed addition. 14. After considering rival submissions, I am of view addition is excessive in nature. ld. counsel for assessee filed chart of household withdrawals. In assessment year 2009-10, assessee has household withdrawals of Rs. 1,36,000/- in which no addition have 9 been made under section 143(3) of Act. In assessment year 2010-11, similar withdrawals of Rs. 1,36,000/- have been shown and return is processed under section 143(1) of Act. 15. Considering explanation of assessee that he is residing in his own house, upper shop and has simple living, therefore, Assessing Officer made excessive estimate of household expenses. Considering history of assessee in earlier years, it would be reasonable and proper to sustain addition of Rs. 25,000/- in all as against addition of Rs. 65,000/- made by authorities below. orders of authorities below are, therefore, modified to above extent and addition is restricted to Rs. 25,000/- in all. This ground is partly allowed. 16. On ground No. 6, assessee challanged addition of Rs. 43,031/- on account of disallowance of various expenses being 1/6th of total expenses of Rs. 2,58,187/-. Assessing Officer considered expenses debited under head telephone, car and observed that these facilities have been used by family members. He, therefore, disallowed 1/6th of expenses. assessee submitted before ld. CIT(Appeals) that assessee is living in upper portion of his house, therefore, has not used vehicle/telephone for personal use. ld. CIT(Appeals), however, confirmed addition. 10 17. After considering rival submissions, I am of view addition is excessive in nature. assessee has declared total income of Rs. 8,76,890/- and is residing in upper portion of shop. Therefore, car could not be used excessively for personal purpose. Therefore, addition is restricted to 1/10th of total amount claimed as expenses instead of 1/6th made by authorities below. orders of authorities below are, therefore, modified and addition is restricted to disallowance of 1/10th of expenses claimed by assessee on this head. This ground is partly allowed. 18. In result, appeal of assessee is partly allowed. Order pronounced in Open Court. Sd/- (BHAVNESH SAINI) JUDICIAL MEMBER Dated : 19 t h October,2016. Poonam Copy to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT,DR Assistant Registrar, I TAT Chandigarh Makhan Lal v. JCIT, Range IV, Ludhiana