Judgment:
This is an appeal by the assessee against the order of learned Commissioner (Appeals), dated 24-1-2002.
First three grounds of this appeal relate to confirmation of addition of Rs. 11,000 and Rs. 1,392 on account of credit in the name of Anoop Gupta.
The assessing officer during the assessment proceedings found that the assessee received a sum of Rs. 41,000 by cheque from Anoop Gupta on 13-6-1996, and credited the interest of Rs. 5,190 on aforesaid amount.
The assessing officer asked the assessee to produce Shri Anoop Gupta for examination. The assessee produced Anoop Gupta on 18-6-1999, and his statement was recorded. In the statement, Anoop Gupta admitted to have advanced Rs. 41,000 to the assessee during the financial year 1996-97 but the date and month he could not tell. As regards to the source of Rs. 41,000 he stated that a sum of Rs. 30,000 was received from his mother, Smt. Swatantar Kumari and a sum of Rs. 12,010 was lying with him at home which he deposited in the bank and out of the same gave a cheque of Rs. 41,000 to the assessee. When he was asked to explain the source of Rs. 12,010 lying at home, he stated that Rs. 12,000 was lying with him as his earnings from tuition work but no'evidence to show the tuition work was furnished. According to the assessing officer the depositor was only a student and there was no capacity with him to advance the sum of Rs. 11,000. The assessing officer added this amount to the income of the assessee and also proportionate interest of Rs. 1,392 was added to the income of the assessee.
Before the learned Commissioner (Appeals), it was stated that the entire amount of Rs. 41,000 was genuine and the assessing officer was not justified in making the addition considering Rs. 11,000 as ingenuine. Reliance was placed on the following case lawsSarogi Credit Corpn. v. CIT As regards to the source of Rs. 11,000, it was stated that the depositor carried out the tuition work during vacation after completion of graduation and earned money.
Learned Commissioner (Appeals), after considering the submissions of the assessee, observed that the creditor had advanced Rs. 41,000 on 13-6-1996, while the final exams in the colleges used to take place in April and May. As such creditor was having utmost a month only for taking tuition. He, therefore, confirmed the action of the assessing officer by stating that the assessee had failed to establish capacity of the creditor of advancing Rs. 11,000. Now the assessee is in appeal.
Learned counsel for the assessee, reiterated the submissions made before the authorities below and vehemently argued that the assessing officer accepted part of the credit and refused to accept only Rs. 11,000 although total amount was given by the creditor by account payee cheque. It was further submitted that -the assessee had proved identity of the depositor and the genuineness of the transaction as well as the creditworthiness because the amount was received by cheque. The statement of the depositor was also recorded. He also produced copy of the bank account of Anoop Gupta and referred to the entry of deposit in his account dated 13-8-1996. It was stated that the entry of Rs. 30,000 and Rs. 11,510 both were transfer entries. Out of these cheque of Rs. 41,000 had been issued. It was submitted that Rs. 11,510 were received by Anoop Gupta from M/s Ved, Prakash Naresh Kumar with whom the depositor was maintaining account. In support of that claim a copy of account received from Ved Prakash Naresh Kumar had been furnished which.is placed at page No. 3 of the paper book. On the basis of above,, it was submitted that the depositor was having a balance of Rs. 41,510 in his bank account before issuing cheque of Rs. 41,000 and the assessing officer had accepted the genuineness of Rs. 30,000 while considered Rs. 11,000 as non-genuine. He accordingly submitted that there was no occasion for making addition. Reliance was placed on the following case laws: In his rival submissions, learned Departmental Representative supported the orders of authorities below.
After considering the rival submissions and the material available on record, it is noticed that the assessing officer in the assessment order mentioned that the assessee received cheque of Rs. 41,000 on 13-6-1996. However, a copy of the bank account produced before us is showing the date as 13-8-1996. It was also claimed by the learned counsel for the assessee that Rs. 11,510 had been received from M/s Ved Prakash Naresh Kumar, commission agent. We, therefore, considering the totality of the facts, are of the opinion that the full facts had not been discussed in right perspective. We, therefore, deem it proper to restore this issue back to the file of assessing officer and direct him to verify the facts and if the amount of Rs. 11,510 had been received by the depositor from Ved Prakash Naresh Kumar and that had been deposited in the bank account along with Rs. 30,000, out of which Rs. 41,000 had been given to the assessee, then no addition is called for.
Accordingly, this issue is restored back to the file of assessing officer.
The next issue vide ground No. 4 relates to addition of Rs. 9,030 added by the assessing officer as interest @ 18 per cent p.a. on Rs. 86,000.
The facts related to this issue in brief are that the assessee advanced a sum of Rs. 86,000 to Ram Sahai Sudershan Kumar, Kaithal, on 7-9-1996, and no interest was charged on that amount. The assessee claimed deduction of interest of Rs. 92,137 in the P&L a/c against the claim in last year at Rs. 20,553. The assessee was asked to explain the increase in interest expenses. In response to that, it was explained that the increase in the interest rate was due to the business requirement. As regards non-charging of interest from Ram Sahai Sudershan Kumar, it was stated that the assessee was having very good relation and the owners of that firm had helped the assessee in days of needs. Due to that reason no interest had been charged. The assessing officer did not accept the contention of the assessee and disallowed a sum of Rs. 9,030 as interest for 7 months @ 18 per cent on Rs. 86,000.
Before the learned Commissioner (Appeals), the assessee reiterated the submissions made before the assessing officer. Learned Commissioner (Appeals) observed that the assessee had not agitated that the interest bearing funds borrowed were not utilised for advancing the interest-free loans. He also stated that the assessee had not substantiated his claim that the interest-free advance was made since the said firm had helped him in his rainy days. Accordingly, the addition was confirmed. Now the assessee is in appeal.
Learned counsel for the assessee reiterated the submissions made before the authorities below and vehemently argued that the assessing officer disallowed the notional interest without establishing any nexus between the interest-free advances and interest-bearing borrowed funds. He submitted that the assessing officer made the addition only on the basis of assumptions and presumptions. It was also stated that the assessee was having interest-free loans from friends and relatives and simultaneously interest-free advance had been given to the firm M/s Ram Sahai Sudershan Kumar, the partners of whom helped the assessee in rainy days. Reliance was placed on the following case laws : (iii) Asstt. CIT v. Paharpur Cooling Towers (P) Ltd. (1993) 44 ITD 540 (Cal)Mrs. Maya J. Daryani v. IAC Decision of Tribunal, Chandigarh Bench 'A' in the case of Dy. CIT v.Shivalik Agro Poly Products Ltd. ITA No. 285/Chd/1994, assessment year 1991-92.
In his rival submissions, learned Departmental Representative for the revenue strongly supported the orders of authorities below and submitted that the assessee was having interest-bearing loans and had paid interest amounting to Rs. 92,137. Therefore, the learned Commissioner (Appeals) rightly confirmed the action of the assessing officer who disallowed proportionate interest of Rs. 9,030 @ 18 per cent at Rs. 86,000 for 7 months. He, therefore, prayed to confirm the order of learned Commissioner (Appeals).
We have considered the rival submissions at length and carefully gone through the material available on record. In the instant case, it is noticed that the assessing officer while making disallowance had not established any nexus between the borrowed funds and the advance free of interest. It is well settled that to make addition in such circumstances, there must be direct connection between the interest-bearing borrowed funds and the interest-free advances but in the instant case, no such effort had been made by the assessing officer. In such type of cases, where the assessee had common funds consisting of borrowings and retained earnings and it is not possible to segregate the same then to establish nexus between the interest-free advance and the interest-bearing funds is very difficult particularly when the assessee is having sufficient amount in the shape of retained earnings. In the instant case, from the details of balance sheet furnished by the learned counsel for the assessee which is available on record, it is seen that the assessee was having Rs. 2,91,379.27 in his capital account and the interest-free advances had been given to M/s Ram Sahai Sudershan Kumar for Rs. 86,000. It is also noticed that in the present case, the assessing officer had not established the nexus between borrowed funds and the amounts so advanced as interest-free.
Therefore, he was not justified in presuming that the assessee had diverted interest-bearing funds to interest-free advance. In that view of the matter, we are of the opinion that the learned Commissioner (Appeals) was not justified in confirming the addition made by the assessing officer. We, therefore, delete the same.
The last ground. of the appeal relates to sustenance of addition out of addition made by the assessing officer on account of household expenses.
The. facts related to this issue in brief are that assessee had withdrawn a sum of Rs. 22,202 on account of household expenses The assessing officer estimated the same to Rs. 4,000 p.m. i.e., Rs. 48,000 for the year and as such addition of Rs. 25,798 had been made on account of low household expenses.
When the matter was taken to the learned Commissioner (Appeals), it was stated that the family of the assessee comprised of four members only.
However, the learned Commissioner (Appeals) observed that in these days of high prices, a family of four members cannot meet even the basic needs in this amount.
Learned Commissioner (Appeals) noted that the assessing officer had.
made disallowance of Rs. 5,000 out of electricity expenses on account of personal use of electricity. He directed the assessing officer to allow that amount from the addition made on account of household. As such addition of Rs. 20,798 was sustained. Now the assessee is in appeal.
Learned counsel for the assessee reiterated the submissions made before the authorities below and submitted that the addition had been made purely on imagination by the assessing officer because the standard of living of the family of the assessee is lower middle. Alternatively, it was submitted that the addition sustained is on higher side.
In his rival submissions, learned Departmental Representative for the revenue supported the order of learned Commissioner (Appeals).
After considering the rival submissions and the material available on record, it is noticed that the assessing officer made the addition only on the basis of estimate. It is true that in such type of cases, there is no parameter to measure the amount required for household expenses particularly when sufficient material is not available on record. In the instant case, the assessing officer had not brought any material on record how and in what manner the amount of Rs. 4,000 p.m. were required to meet the needs of assessee's family. It seems that the addition made by the assessing officer is purely on estimate basis.
Learned Commissioner (Appeals) also had not given any cogent reason while sustaining the addition of Rs. 20,798 out of addition made by the assessing officer.
Considering the entire facts and to meet the ends of justice and the size of the family of the assessee it would be fair and reasonable if the expenses per month are estimated at Rs. 3,000 instead of 4,000 estimated by the assessing officer. Against these expenses, the assessee had shown withdrawal of Rs. 22,202 and a sum of Rs. 5,000 had been disallowed on account of electricity expenses. As such total amount shown by the assessee was at Rs. 27,202. Therefore, the addition of Rs. 8,798 is confirmed and thus the assessee will get a further relief of Rs. 12,000.