T.R. Senthil Kumar, Judicial Member.
1. This appeal is preferred by the Revenue against the order dated 18.01.2018 of the LD.Commissioner of Income-tax (Appeals)- 3, Vadodara passed in appeal no.CIT(A)-Vadodara-3/10076/2017- 16 relating to the assessment year 2014-15.
2. The Grounds of Appeal raised by the Revenue read as under:
"1. On the fact and in the circumstances of the case and law, the Ld. CIT(A) erred in deleting the addition of Rs.1,31,26,457/- made on account of cash credits-u/s 68 of the Act.
1.1 The Ld. CIT(A) erred in relying on the Hon'ble Gujarat High Court's judgment in the case of DCIT vs Rohini Builders (2012) 256 ITR 360 (Guj) despite, the A.O. reliance on newly inserted proviso to section 68 of the Act, which contravene the pre-existed legal position of Rohini Builders.
1.2 The Ld. CIT(A) erred in admitting additional evidences, i.e. bank statement of Shri. Hemant Patel and sale of agricultural land, without according the -opportunity to the A.O. thereby violated Rule 46A of the Income-tax Rules, 1962 and principles of natural justice. The Ld. CIT(A) also erred holding that the bank account of lender second layer was called u/s 133(6) of the Act by the A.O., which is not part of the assessment record.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) erred in deleting the disallowance of Rs.87,54,000/- .being payment made for technology transfer without considering the fact that there was no / agreement for such technology transfer nor any material on record placed by the assessee that the technology claimed to have been received on transfer was any special/specific/patented/copyrighted technology within the exclusive knowledge of the transferor.
2.1 The Ld. CIT(A) erred in deleting the disallowance of Rs.87,54,000/-without appreciating the finding of the Assessing Officer in the assessment order especially that without having any machinery on hand, technology transfer was paid and technology has been understood by the assessee company, 2.2 The Ld, CIT(A) erred in deleting the addition on the sole ground of deduction of TDS which itself cannot impress the character of genuineness on the otherwise bogus expenditure, without appreciating the findings of Assessing Officer.
3. The appellant craves leave to add to, amend or alter the above grounds as may be deemed necessary."
3. Brief facts of the case are that the assessee is company engaged in the business of mechanical maintenance contractor. For the Asst.Year 2014-15, the assessee filed his return of income on 22.9.2014 disclosing total income of Rs.5,41,910/-. The Return of Income was selected for scrutiny and notice under section 143(2)/142(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") were issued from time to time, and the assessment was completed on three counts viz;
i) addition made on account of unpaid/delayed payment of employees' provident fund of Rs.6,32,725/-,
ii) addition made on account of unexplained cash credit u/s.68 of Rs.1,31,26,457/-, and
iii) disallowance on account of technology transfer as bogus expenditure of Rs.87,54,200/-.
4. Aggrieved against the assessment order, the assessee preferred an appeal before the Commisisoner of Income Tax (Appeals)-3, Vadodara. The Ld.CIT(A) by his detailed order deleted all the additions and allowed the appeal in favour of the assessee as follows:
"........3.3.2 I have pursued the audit report and Statement of Income placed on record during the appeal for ready reference by the assessee. The contention of the appellant is found tenable and it is evident that the A.O. had made addition on the basis of totally incorrect data. The assessee had also in its computation of income added the amount of Rs. 2,520/- as late payment of P.F. Therefore the addition made by the AO of Rs. 6,32,725/- is incorrect. This ground of appeal is allowed in favour of assessee."
".......4.3.5 In respect of amount received by the appellant from Sri Kush D. Patel the A.O. had added Rs. 3,17,457/- being the difference between amount of loan received of Rs. 11,90,000/- and explained amount of Rs. 8,72,543/-, as unexplained credit. The Appellant had submitted that on 25.12.2017 the appellant had furnished the detailed explanation for each and every entry. On verification of the record, the contention of the appellant was found correct. On the other hand the A.O. had failed to verify the entries and had relied on summary of date wise details furnished by the appellant in response to show cause notice. It is evident that he had failed to verify the details brought on record by the assessee and had added the amount mechanically. It is not proper for A.O. to nurture any doubt about the veracity of these documents, unless he has some cogent reasons and material. He has failed to bring on record any such material to negate the explanation of the assessee. Therefore, this ground of appeal is granted in favour of the assessee and addition of Rs.1,31,26,457/- is deleted."
".......5.3.4 In light of above arguments, it can be said that there are merits in the arguments put up by the A.O. in rejecting the claim of capital expenditure. It is also observed that the appellant had equally put forth the valid arguments to substantiate it's claim. The A.O. had mentioned that he is not satisfied with the documents put forth before him and appellant had argued that facts override the documents. On taking the balanced view, I am of the opinion that arguments put forth by the appellant has more force than the arguments of the A.O. The facts do suggest that the transaction had taken place. The asset has indeed been purchased and it is proved beyond doubt with the support of customs documents. On taking holistic view of A.O.'s arguments; it is apparent that he had relied more on conjectures than facts. Although his arguments have some merits but they are equally rebuttable with other arguments put up by appellant. The mere fact that the appellant had paid more than 22.38 lakhs as TDS to incur the expenditure of Rs.87,54,000/- cannot be overlooked. It is also a fact that the amount paid is more than what is required to be on the safer side of law. So this overwhelming evidence cannot be overlooked. No rational person will pay more than 20% tax to incur bogus expenditure. Although circumstantial evidences may be weak, but factual evidences are more powerful to overlook. Therefore, I agree to the view of the appellant and direct the disallowance of Rs.87,54,200/- to be deleted."
5. As against the impugned order, the Revenue is in appeal on two issues rising the grounds of appeal which is reproduced in earlier paragraph.
6. The ld.DR contended that the Ld.CIT(A) has erred in deleting addition of Rs.1,31,26,457/- made on account of cash credit under section 68 of the Act. The assessee could obtain unsecured loan of Rs.2,93,63,000/- during the assessment year from three persons who are happened to be the Directors of the company; but their individual Return of Income showed a meager income of less than Rs.5.00 lakhs, and their credit-worthiness of having lent such a huge unsecured loan of Rs.2.93 crores. Further, the ld.CIT(A) has erred in following judgment of jurisdictional High Court in the case of DCIT Vs. Rohini Builders, (2012) 256 ITR 360 (Guj) which case clearly distinguishable with newly inserted provision to section 68 of the Act, therefore pleaded, addition is to be sustained under the law.
7. On the second issue, the Ld.CIT(A) has erred in deleting disallowance of Rs.87,54,200/- being the payment made for technology transfer without considering the facts and that there was no agreement for such technology transfer or not any material from the transferor. Therefore, the Ld.DR pleaded that the order of the AO is to be sustained and allow the Revenue's appeal.
8. In reply thereto, the Ld.representative of the assessee submitted that Shri Dhaval Patel had given loan to the assessee- company out of his personal savings, agriculture loans and unsecured loans taken from different parties. Shri Luv Patel had given loan out of FD maturity, LIC maturity and agriculture loan. Shri Kush Patel has given loan out of LIC loan, FDR maturity and agriculture loan. Out of the above loan transactions an amount of Rs.2,64,24,543/- taken from Dhaval Patel and Kush Patel, their sources were being properly explained before the AO. The assessee had also furnished bank statements of Dhaval Patel and also given detailed explanation for each and every transaction that has taken place. However, the AO has not made any further inquiry in respect of these transactions. Therefore, the ld.CIT(A) has rightly deleted the addition of Rs.1,31,26,457/-. Further ld.counsel for the assessee has drawn our attention towards section 68 of the Act and new proviso introduced w.e.f. 1-4-2013. This provision is made in relation to share application money, share capital, share premium or any such amount by whatever name called, whereas in the assessee's case it is an unsecured loan obtained by the assessee for its business purposes. Thus, the ld.AO erred in applying new proviso for unsecured loans obtained by the assessee-company, whereas in the case of Rohini Builders and that of Hon'ble Gauhati High Court in the case of Nemi Chand Kothari Vs. CIT, 264 ITR 0254 wherein the Hon'ble high Court held that once the assessee has disclosed the sources from which he has received the loans, his burden stands discharged. It is not the burden of the assessee to show the source of his creditor or to prove the creditworthiness of source of sub-creditors. Further, the AO failed to appreciate distinction between the 'investor' and the 'lender' and applying new provisio inserted to section 68, which is no-way relevant to the present case. Therefore, additions made by the AO are liable to deleted as held by the Ld.CIT(A).
9. On the second issue, the Ld.AR took us through page no.44 of the paper book filed before us, wherein depreciation chart for fixed assets relating to the assessment year 2014-15 is annexed, wherein Delta Pressure and Dust blow system was purchased for a consideration of Rs.1,50,52,793.80. Though the same was claimed as fixed assets, but no depreciation has been claimed against the said capital asset, since the asset was not put to use during the assessment year 2014-15. Asset being a capital expenditure incurred for purchase of machinery, which is forming part of the balance sheet, cannot be added to the income of the assessee by disallowing it. Hence, addition made on this count is also liable to be deleted.
10. We have given our thoughtful consideration on the facts and materials placed before us. For adjudication of the issue, we are guided by the following judgments on section 68 of the Act by Hon'ble Supreme Court:
"A. In Daulat Ram Rawatmull, 87 ITR 360:
"The onus to prove that the apparent is not the real is on the party who claims it to be so. As it was the department which claimed that the amount of fixed deposit receipt belonged to the respondent firm even though the receipt had been issued in the name of Biswanath, the burden lay on the department to prove that the respondent was the owner of the amount despite the fact that the receipt was in the name of Biswanath. A simple way of discharging the onus and resolving the controversy was to trace the source and origin of the amount and find out its ultimate destination."
B. CIT v. Orissa Corpn. (P.) Ltd.  25 Taxman 80F/159 ITR 78(SC):
"To what extent the assessee has an obligation to discharge the burden of proving that these were genuine incomes has been considered by this court in Lalchand Bhagat Ambica Ram v. CIT  37 ITR 288 (SC). This court was concerned there with the encashment of high denomination notes. In that case, some unexplained high denomination notes were treated as the undisclosed income of the assessee. This court held that when a court of fact arrives at its decision by considering material which is irrelevant to the enquiry, or acts on material, partly relevant and partly irrelevant, and it is impossible to say to what extent the mind of the court was affected by the irrelevant material used by it in arriving at its decision, a question of law arises, whether the finding of the court is not vitiated by reason of its having relied upon conjectures, surmises and suspicions not supported by any evidence on record or partly upon evidence and partly upon inadmissible material. On no account whatever should the Tribunal base its findings on suspicions, conjectures or surmises, nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures and surmises. In that case, the so-called hundi racket in which the assessee was alleged to have been involved was not proved. That was only a suspicion of the Revenue."
"In Sreelekha Banerjee v. CIT  49 ITR (S.C.) 112, this court held that if there was an entry in the account books of the assessee which showed the receipt of a sum on conversion of high denomination notes tendered for conversion by the assessee himself, it is necessary for the assessee to establish, if asked, what the source of that money was and to prove that it was not income. The Department was not at that stage required to prove anything. It could ask the assessee to produce any books of account or other documents or evidence pertinent to the explanation if one was furnished and examine the evidence and the explanation. If the explanation showed that the receipt was not of an income nature, the Department could not act unreasonably and reject that explanation to hold that it was income. If, however, the evidence was unconvincing, then such rejection could be made. The Department cannot by merely rejecting a good explanation unreasonably, convert good proof into no proof."
C. In the case of Sumati Dayal v. CIT  214 ITR 801/80 Taxman 89 (SC), at page 805, the Supreme Court has clearly explained the point of approach to be followed both by the assessee and the Department, in the context of section 68 of the Act, in the following words (page 805) :"It is no doubt true that in all cases in which a receipt is sought to be taxed as income, the burden lies upon the Department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within an exemption provided by the Act lies upon the assessee (Parimisetti Seetharamamma v. CIT  57 ITR 532 (SC) at page 536). But, in view of section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year, the same may be charged to Income-tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such a case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut it, the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee, the Department cannot, however, act unreasonably/"
11. In the present case on hand, the assessee has discharged his onus by providing details relating to the loan amount availed from the three cre
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ditors by producing their bank accounts, Income-Tax Returns, confirmation letters, etc. The AO has doubted source of the creditors thereby the AO is inquiring source of source which is not permitted as held in various judgments cited (supra). Wherever explanation has been provided by the assessee, the ld.CIT(A) has deleted such credits, and also confirmed the amount of loans which were not explained by the assessee. Therefore, this findings of the Ld.CIT(A) does not require any interference. 12. Another limb of arguments of the ld.DR is that as per the new proviso to section 68 of the Act introduced w.e.f. 1-4-2003 is related to the investment made on share application money, share capital, share premium or any such amount by whatever name called. Here in this case, the AO has doubted about the loans received by the assessee from three creditors who are not the 'investors'. When the assessee has established with necessary documents, bank statements, IT return, confirmation letters, bank entries, etc. the AO ought not to have invoked proviso to section 68 which is not applicable to loan transactions. Thus, the grounds raised by the Revenue is rejected. 13. As far as second issue is concerned, as rightly pleaded by the ld.AR addition made by the AO is on disallowance of capital expenditure incurred for purchase of machinery, which is capital in nature, the same cannot be treated as revenue expenditure as per the Accounting Standard. Hence, addition made by the AO is unsustainable in law and liable to be deleted. 14. For the above reasons, grounds raised by the Revenue are hereby rejected, and the appeal is dismissed. 15. In the result, appeal of the Revenue is dismissed.