IN INCOME TAX APPELLATE TRIBUNAL BENCH BANGALORE BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA No. 1189/Bang/2014 Assessment Year 2010-11 Shri Madhan Kumar J, Prop: Sri Chakravarthy Traders, Income Tax Sacred Heard Road, Officer, Behind St. Anthony s Church, Vs. Ward 8 (1), TC Palya, Bangalore. Bangalore 560 036. PAN: ADXPM3872C APPELLANT RESPONDENT Assessee by Shri S. Krishnaswamy, CA Revenue by Shri Vikas Suryavamshi, Addl. CIT (DR) Date of hearing 30.07.2019 Date of Pronouncement 27.09.2019 ORDER Per Shri A.K. Garodia, Accountant Member This appeal is filed by assessee and same is directed against order of ld. CIT(A)-V, Bangalore dated 17.02.2014 for Assessment Year 2010-11. 2. grounds raised by assessee are as under. 1. Rs.2,75,000/- (Difference in capital account)- Para 8.2 of order. learned CIT (A) erred in sustaining addition of Rs.2,75,008 in ground that .it represented unexplained credit in capital account; such addition had not been made in original assessment; said sum of Rs. 2,25,000 is not separate from and included in difference of Rs. 22,84,902/- taxed in earlier year. 2. 8,75,922 (cash loans) i) learned ITO and CIT (A) erred in taxing sum of Rs. 8,75,922/- which represented loans taken from individuals in respect of each loan details and confirmation letters had been filed, ii) learned CIT(A) erred in sustaining addition holding filed that details of creditors had not been filed in face of statement in assessment order that details have been furnished 3. 2,72,453 interest disallowed - para 7 of order learned CIT (A) erred in disallowing interest of Rs.2,72,453/- being loan on mortgage when such interest had been allowed in ITA No. 1189/Bang/2014 Page 2 of 5 original assessment, and no opportunity was given to appellant, to rebut disallowance. 3. appeal was filed by assessee after delay of 10 days. assessee has moved application for condonation of delay in which it is stated that assessee was indisposed at outstation and he could not reach Bangalore in time to sign and file appeal papers although necessary fee had been paid in time. assessee has filed affidavit also in support of this contentions and under these facts, we condone delay and admit appeal. 4. Brief facts are that it is noted by AO in assessment order that there is difference in statement of affairs as on 31.03.2010 filed in course of assessment proceedings and balance sheet filed along with return of income for Assessment Year 2010-11. AO has noted that there is variation in respect of capital account of assessee. AO has further stated that this might have been done by assessee probably to explain sources for investments made in properties held by him. AO has observed that in statement of affairs as on 31.03.2010 filed in course of assessment proceedings, assessee has shown sum of Rs. 55,80,367/- towards capital as on 31.03.2010 but in return of income filed by assessee for Assessment Year 2010-11, assessee has shown capital as on 31.03.2010 at Rs. 32,95,465/- only in Balance Sheet filed with return and thus there is difference of Rs. 22,84,902/- between above statement of affairs and balance sheet filed along with return of income. AO made addition of Rs. 22,84,902/-. Being aggrieved assessee carried matter in appeal before ld. CIT(A). 5. Before ld. CIT(A), it was submitted by assessee that capital account shown in Balance Sheet filed with return of income only shows capital investment of assessee in business whereas in statement of affairs, his investments in non-business assets such as land, vehicle etc. has also been shown. This is also submitted before ld. CIT(A) that addition on account of difference in capital account has already been taxed in Assessment Year 2009-10 and hence, addition was not called for in this year. In para 8 of its order, it is noted by ld. CIT(A) that in so far as difference in capital account as per Balance Sheet filed with return and that shown in statement of ITA No. 1189/Bang/2014 Page 3 of 5 affairs amounting to Rs. 22,84,902/-, same cannot be sustained as capital shown in statement of affairs includes credits (on account of cash gifts) which has been brought to tax as per appellate order of even date in assessee s case for Assessment Year 2009-10 to extent of addition related to cash loans. In para no. 8.2 of his order, it is noted by ld. CIT(A) that it was admitted that actual closing capital account as on 31.03.2010 was Rs. 35,70,465/- while AO has taken figure of Rs. 32,95,465/- instead of Rs. 35,70,465/- having difference of Rs. 2.75 Lakhs on account of some hand loan. 6. ld. AR of assessee reiterated same contentions which were raised before ld. CIT(A). bench wanted to see statement of affairs and balance sheet because this is allegation that in statement of affairs, capital was shown at Rs. 55,80,367/- whereas in balance sheet as on 31.03.2010 filed along with return of income, amount of capital was shown at Rs. 32,95,465/-. In reply, it was submitted by learned AR of assessee that balance Sheet is available on page 1 of paper book and balance in capital account as per this balance sheet is Rs. 35,70,465.37. Learned DR of revenue supported order of CIT (A). 7. We have considered rival submissions. We find that regarding this addition of Rs. 2.75 Lakhs confirmed by ld. CIT(A), this is argument made before us that AO has wrongly taken figure of Rs. 32,95,465/- as capital balance as per balance sheet instead of Rs. 35,70,465/- being difference of Rs. 2.75 Lakhs. As per Para 8.2 of order of CIT (A), it is stated by him that this was argument before him that actual closing capital balance as on 31.03.2010 was Rs. 35,70,465/- while AO has taken figure of Rs. 32,95,465/- instead of Rs. 35,70,465/-. This is not finding of CIT (A) that actual capital balance is Rs. 32,95,465/-. He has confirmed this addition on this basis that this difference of Rs. 2.75 Lacs is on account of some hand loans which were not explained but at page 2 of paper book is details of capital account and as per same, opening balance in capital account is Rs. 33,08,160.25 and Rs. 724,758.12 is added on account of Net Profit for present year and there is reduction of two amounts of Rs. 1.40 Lacs and Rs. 0.50 Lac being Drawings and Income Tax Advance respectively resulting into closing balance of Rs. 35,70,465.37 and there is no entry of any hand loan. ITA No. 1189/Bang/2014 Page 4 of 5 Under these facts, we delete this addition of Rs. 2.75 Lacs. Hence, we allow ground no. 1 raised by assessee. 8. Regarding ground no. 2, it was submitted that on page no. 8 of paper book is list of personal loans received from friends and relatives to extent of Rs. 8.76 Lakhs. Regarding this addition also, ld. AR of assessee reiterated same contentions which were raised before ld. CIT(A). ld. DR of revenue supported orders of authorities below. 9. We have considered rival submissions. First of all, we reproduce para no. 9 from order of ld. CIT(A). same is as under. 9. As seen from statement of affairs, assessee has shown fresh cash loans from friends and relatives amounting to Rs.875,922/-. However, apart from list of 47 persons with amounts mentioned (all below Rs. 20,000/-) against names, filed on 23.12.2011, no details of identity, and creditworthiness of such persons has been filed before Assessing Officer. Total loan amounted to Rs.876000/-. Even during course of appellate proceedings, no evidence regarding said loans have been filed. It is rather strange that while assessee is able to raise cash loans (all below Rs. 20,000/-) from 47 persons, he has no friend or relative to advance loans by cheque. In earlier years also similar cash loans has been claimed. It appears to me that merely to explain unaccounted investments, assessee creates this alibi of cash loans. addition of Rs.875922/- claimed to be on account of cash loans (all below Rs.20,000/-) from 47 persons, stated to be friend and relatives, is upheld. 10. From order of ld. CIT(A), it is seen that apart from giving name and amount of 47 persons in respect of this cash loan of Rs. 8,75,922/-, assessee has not brought any other material on record in support of this contention. This is by now settled position of law that in respect of cash credit addition u/s 68, assessee has to establish identity of creditor, his credit worthiness and genuineness of transactions and by merely giving name and amounts of various loans, these three ingredients cannot be satisfied. Hence on this issue, we find no reason to interfere in order of ld. CIT(A). Hence, we reject ground no.2 raised by assessee. 11. Regarding ground n. 3, it was submitted by ld. AR of assessee that para nos. 5 to 7 of order of ld. CIT(A) are relevant regarding this issue. It was submitted before us that no notice was issued by ld. CIT(A) u/s. 251 and therefore, enhancement made by ld. CIT(A) is bad in law. ld. DR of revenue supported order of CIT (A). ITA No. 1189/Bang/2014 Page 5 of 5 12. We have considered rival submissions. We find that in present case, as per assessment order, it is noted by AO that total income as per return of income is Rs. 4,05,060/- and he made two additions being Rs. 22,84,902/- on account of difference in capital and Rs. 8,75,922/- in respect of unsecured loan creditors and assessed income as per assessment order is Rs. 35,65,884/-. Hence it is seen that business income as per assessment order is only Rs. 4,05,060/- and as per para 7 of order of ld. CIT(A), ld. CIT(A) has directed AO to compute business income at Rs. 7,24,758/- and hence, enhancement is made by ld. CIT(A). As per provisions of section 251(2) of IT Act, ld. CIT(A) shall not enhance assessment unless assessee has been given reasonable opportunity of showing cause against such enhancement. Hence ld. CIT(A) was required to issue notice to assessee u/s. 251 of IT Act before making enhancement. Since this was not done by ld. CIT(A), we hold that enhancement made by ld. CIT(A) is bad in law and we delete same. Ground no. 3 is allowed. 13. In result, appeal filed by assessee is partly allowed. Order pronounced in open court on date mentioned on caption page. Sd/- Sd/- (PAVAN KUMAR GADALE) (ARUN KUMAR GARODIA) Judicial Member Accountant Member Bangalore, Dated, 27th September, 2019. Copy to 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order Assistant Registrar, Income Tax Appellate Tribunal, Bangalore. Madhan Kumar J v. Income-tax Officer, Ward8(1), Bangalore