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Income Tax Appellate Tribunal, C BENCH, MUMBAI
order : 24.01.2023 O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Revenue has challenged the order, dated 06.02.2019, passed by the Ld. Commissioner of Income Tax (Appeals)-60 Mumbai, [hereinafter referred to as „the CIT(A)‟] for the Assessment Year 2012-13 whereby the Ld. CIT(A) had partly allowed the appeal against the Assessment Order, dated 31.03.2015, passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟).
The Revenue has raised the following grounds of appeal: “1. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in deciding the appeal of the assessee by accepting the additional evidences filed during the course of appellate proceedings without remanding it back to the Assessment Year: 2012-13 assessing officer u/r 46A of the I.T Rule, 1962.?" 2. “Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the addition made on the account of Cash Deposits of Rs. 1,14,950/-." 3. "Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in partly allowing the 20% disallowance made by the AO on the account of Cash expenses claimed in chandresh Enterprises." 4. "Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the addition made on the account Notional Interest on advances of Rs. 1,20,00,000/." 5. "Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the addition made on the account fall in Gross Profit (Chandresh Enterprises) of Rs. 58,33,320/-." 6. "Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the addition made on the account non deduction of TDS on Commission of Rs. 56,675/-. 7. "Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in partly allowing the disallowance made by the AO on the account of expenses related to fixed assets of Rs. 50,500/-." 8. "Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the addition made on the account fall in Gross Profit (Infonet) of Rs. 2,49,643/-.?"
9. The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the AO be restored.”
3. The relevant facts, in brief are that the Assessee filed return of income on 27.09.2012 declaring total income of INR 9,36,978/-. The case of the Assessee was selected for scrutiny and vide order, dated 31.03.2015 assessment under Section 143(3) of the 2 Assessment Year: 2012-13 Act was framed on the Assessee at an income of INR 1,93,67,006/- as against returned income of INR 9,36,978/- after making following additions/disallowances - (a) addition of INR 1,14,950/-on account of cash deposits, (b) addition of INR 1,25,000/- on account of non-production of documents, (c) addition of INR 1,20,00,000/- being notional interest on loan advanced, (d) addition of INR 58,33,320/- on account of fall in gross profits (M/s Chandresh Enterprises), (e) disallowance of INR 56,675/- on account of non-deduction of tax at source on the commission, (f) disallowance of expenses relating to fixed assets of INR 50,500/-, and (g) addition of INR 2,49,643/- on account of fall in gross profit (Infonet).
Being aggrieved, the Assessee preferred appeal before CIT(A). The CIT(A) granted substantial relief to the Assessee while partly allowing the appeal. The CIT(A) restricted the addition of INR 1,25,000/- on account of non-production of proof/documents to INR 50,000/-, and confirmed the disallowance of INR 50,500/- holding the same to be capital expenditure while directing the Assessing Officer to allow depreciation on the same. All the other additions/disallowances made by the Assessing Officer were deleted by the CIT(A).
Being aggrieved, the Revenue is now in appeal before us.
The Ld. Departmental Representative appearing before us, at the outset, pressed into service Ground No. 1 raised in the appeal and submitted that the CIT(A) has granted relief to the Assessee by admitting additional evidence in gross violation of the provisions contained in Rule 46A of the Income Tax Rules, 1962 (hereinafter referred to as „the Rules‟). Taking us through Assessment Year: 2012-13 the assessment order, she submitted that the disallowance made by the Assessing Officer as the Assessee had failed to produce relevant proof and/or documentary evidences. Whereas the CIT(A) has deleted the various additions/disallowances by making reference to the document/evidence furnished by the Assessee. On perusal of the order passed by the CIT(A), it is clear that the additional evidence filed by the Assessee were not forwarded to the Assessing Officer for providing the Remand Report. Since there is a clear violation of Rule 46A of the Rules the issues raised in the present appeal be remanded back to the file of CIT(A) for fresh adjudication after making compliance with the provisions of Rule 46A of the Rules.
In response, the Ld. Authorised Representative for the Assessee submitted that necessary documents were filed during the assessment proceedings. She submitted that the CIT(A) has passed a well reasoned order after taking into consideration the relevant documents/evidences. The Revenue has failed to point out any infirmity in the order passed by CIT(A). In view of the aforesaid, she submitted that the order passed by CIT(A) be sustained. Without prejudice to the aforesaid, she submitted that even it is assumed that there is violations of the provisions contained in rule 46A of the Rules, the same will have no bearing on the order of the CIT(A) deleting of the addition of notional interest of INR 1,20,00,000/- on interest-free advances made by the Assessing Officer. She submitted that the CIT(A) granted relief to the Assessee without taking into consideration any additional documents/evidence. Placing reliance upon the judgment of the Hon‟ble Delhi High Court in the case of Shivnandan Buildcon Pvt. Ltd. vs. CIT : [2015] 233 Taxmann 297 (Delhi) and the judgment of the Hon‟ble Bombay High Court in 4 Assessment Year: 2012-13 the case of Principal Commissioner of Income-tax vs. Sesa Resources Ltd. : [2018] 404 ITR 707 (Bombay), she supported the order passed by the CIT(A) in this regard and submitted that no notional addition could be made in respect of interest free advances given in the absence of any specific provisions in the Income-tax Act.
In rejoinder, the Learned Departmental Representative submitted that issue relating to notional interest could also be remanded back to the CIT(A) for fresh adjudication along with the other issues.
We have considered the rival submissions and perused the material on record.
Ground No. 1 to 9 (except Ground No. 4) 10. As regards Ground No.1 and 9 read with Ground No. 2, 3 and 5 to 8 raised by the Revenue in the present appeal against the relief granted by the CIT(A) in relation to additions/disallowances (other than addition on account of notional interest of INR 1,20,00,000/-) made by the Assessing Officer, we find merit in the submission advanced by the Learned Departmental Representative. On perusal of order passed by the Assessing Officer and the CIT(A), we note that during the assessment proceedings the Assessee failed to furnish the relevant details/information relating to the additions/disallowances made by the Assessing Officer, whereas additional evidence/documents were filed before the CIT(A) in the appellate proceedings. The CIT(A) after taking into the additional evidence filed by the Assessee granted relief to the Assessee without calling for a remand report from the Assessing Officer. As there Assessment Year: 2012-13 was a clear violation of the provision contained in Rule 46A of the Rules, Ground No. 1 read raised by the Revenue is allowed and the order passed by the CIT(A) in relation to all additions/disallowances (other than addition on account notional interest of INR 1,20,00,000/- on interest-free advance) is set- aside. The issues raised in Ground No. 2, 3, and 5 to 8 are remanded back to the file of the CIT(A) for fresh adjudication after complying with the provisions of Rule 46A of the Rules, and by granting the Assessee a reasonable opportunity of being heard. Thus, Ground No. 2, 3, and 5 to 8 raised by the Revenue are allowed for statistical purposes, and in terms of the aforesaid, Ground No. 9 raised by the Revenue is allowed.
Ground No. 4 11. As regards submission advanced by the Learned Authorised Representative for the Assessee regarding addition of notional interest of INR 1,20,00,000/-, we note that during the assessment proceedings no details/information was filed before the Assessing Officer. The Assessing Officer noted that the Assessee had granted advance of INR 5,00,00,000/- each to M/s Blessing Mercantile Pvt. Ltd. and M/s Juhi Mercantile Idea Pvt. Ltd. However, no interest has been credited to the Profit & Loss Account and therefore, in absence of any further information/details, the Assessing Officer proceeded to make an addition of notional interest computed at the rate of 12% of the aggregate interest-free advance of INR 10,00,00,000/-. The CIT(A), after examining the ledger accounts filed by the Assessee in the appellate proceedings, concluded that the money was advanced by the Assessee for purchase of material during the relevant previous year which was received back by the Assessee in the next year. Perusal of the Assessing Officer 6 Assessment Year: 2012-13 shows that the aforesaid ledger accounts were not produced before the Assessing Officer and therefore, the CIT(A) could not have placed reliance on the same without complying with the provisions of Rule 46A of the Rules. The issue that arises for consideration is whether the decision of the CIT(A) would hold good in case the additional evidence produced by the Assessee in the form of ledger accounts are not taken into consideration. In this regard, we find that the CIT(A) had also noted that no interest expenses were charged to the Profit and Loss Account and therefore, conclude that the advances were given out of own funds. Before the CIT(A), as well as before us, the contention advanced on behalf of the Assessee was that there is no provision in the Act requiring charging of notional interest on interest-free advance granted in normal course of business. We find that in the case of Shivnandan Buildcon Pvt. Ltd. (supra), cited by the Assessee before CIT(A) and before us, the Hon‟ble Delhi High Court has held that in absence of any specific provision contained in the Act to the contrary, notional interest on loan granted by the Assessee in normal course of business could not be brought to tax. In the present case also the Assessee had not received any interest on interest-free advances of INR 10,00,00,000/- given by the Assessee. It is not the case of Revenue that interest income was earned but the same was not reflected by the Assessee in the Profit & Loss Account. Thus, the addition of INR 1,20,00,000/- is on account of notional interest. It is also not the case of the Revenue that M/s Blessing Mercantile Pvt. Ltd. and M/s Juhi Mercantile idea Pvt. were parties related to the Assessee. In view of the aforesaid, we hold that even if the ledger accounts produced by the Assessee before CIT(A) are not taken into consideration on account of violation of the provisions contained in Rule 46A, the 7 Assessment Year: 2012-13 decision of CIT(A) to delete the addition on account of notional interest of INR 1,20,00,000/- would hold good in view of the judgment of the Hon‟ble Delhi High Court. Accordingly, Ground No. 4 raised by the Revenue is dismissed.
In result, the present appeal is partly allowed.
Order pronounced on 24.01.2023.