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Facts
The assessee, a non-resident, filed a return of income. During assessment, the Assessing Officer (AO) made additions for capital introduction, unexplained credit, and cessation of trading liability. The CIT(A) partially granted relief but confirmed some additions and interest.
Held
The Tribunal noted the assessee's submission of additional documents and varying stances. Due to the need for verification and examination of these new evidences, the Tribunal decided to remit the matter back to the Assessing Officer.
Key Issues
Whether additions made by the AO on account of capital introduction, unexplained credit, and cessation of trading liability are justified, and whether the Tribunal should remit the matter for fresh examination of evidence.
Sections Cited
28(iv), 68, 41(1), 115BEE, 234A, 234B, 234C, 271(1)(C), 133(6), 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “I” BENCH MUMBAI
Before: SHRI SAKTIJIT DEY, HONBLE & SHRI GIRISH AGRAWAL
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the order of Ld. CIT(A)- 55, Mumbai, vide order no. ITBA/APL/S/250/2023- 24/1062814866(1), dated 18.03.2024 passed against the assessment order by Income-tax Officer (International Taxation)-1(2)(1), Mumbai, u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 29.12.2016 for Assessment Year 2014-15.
Grounds taken by the assessee are reproduced as under:
“Ground No. 1: Addition on account of Capital Introduction u/s 28(iv) worth Rs 1,07,26,536/- and unexplained credit u/s 68 worth Rs 16,15,062/-. The Ld. CIT(A) not justified in making addition of Rs 1,07,26,536/- being liability taken over by assessee in his individual capacity. The Ld. CIT(A) not justified in making addition of Rs 16,15,062/- being the differential amount of capital introduction in books and estimated value of remittance transferred from NRE account. Hence the addition u/s 28(iv) and 68 is unjustified and unwarranted. Ground No 2: Cessation of trading liability u/s 41(1) worth Rs. 1,07,53,853/- The assessee has transferred unpaid credit amount of creditors which was in dispute due to inferior quality in his personal Balance Sheet from the Balance of the Proprietary Firm. Creditors has not forgone the said claim. So the liability remains the same in nature and it does not mean that liability is no more payable. When the liability is live there is no cessation of the liability. The cessation of the liability comes in account on the day of passing a book entry in regular books of account. In the present case there is no such entry entered by the assessee. The creditors have filed a civil suit against the assessee for non payment of the balance. Hence the addition u/s 41(1) considered the amount as not payable is unjustified and unwarranted. Ground No 3: The Ld CIT(A) not justified in confirming the calculation of tax u/s 115BEE being the highest tax bracket. Ground No. 4: The Ld CIT(A) not justified in confirming levy interest u/s 234A, u/s234B & u/s234C Ground No. 5: The Ld CIT(A) not justified in confirming initiation of penalty u/s 271 (1) (C) or any other section. Ground No. 6: We reserve our rights to add, amend & alter anything as stated here in above or may be stated here in after.”
Brief facts of the case are that assessee is a non-resident, who filed his return of income on 07.03.2015 reporting his total income at Rs.5,47,159/-. Assessee has a proprietary concern in the name and style of M/s. Curtain Creations, which is set up in India. Assessee is also a partner with 49% share in its profit in the name and style of M/s. East Crown General Trading LLC, which is set up in Dubai. In the course of assessment proceedings, ld. Assessing Officer noted that assessee has introduced capital of Rs.2,68,85,450/- for which explanations were called for to establish source of introduction of the said capital. In this respect assessee furnished the details as tabulated below: Amount (Rs.) Particulars 15,90,000 Introduced through Bank A/c of the Assessee 1,45,41,598 Goods received from M/s. East Crown General Trading LIC, Dubai, a partnership firm wherein assessee is a partner with 49% share. 1,07,53,852 Outstanding S/cr. of Yashraj Enterprises transferred to Capital A/c 2,68,85,450 Total 3.1. From the above table, ld. Assessing Officer accepted the explanation relating to amount of Rs.15,90,000/-. For the other two items, ld. Assessing Officer did not find favour with the assessee and made the addition to complete the assessment. In respect of amount of Rs.1,45,41,598/- which relates to goods received from M/s. East Crown General Trading LLC, Dubai, part of this was added u/s.28(iv) for an amount of Rs.1,07,26,536/-, since submission of the assessee was that he had received advance for shipments from the said partnership firm. This amount was initially paid in the Assessment Year 2011-12 as advance for shipments and was later re-categorised as capital contribution in the proprietary concern. Assessee in this respect submitted that due to adverse market conditions and recessionary situation in Dubai, the order was withheld and thus, no question of export shipment arose because of which the amount continued as advance for shipment in the books of accounts. Subsequently, since no export shipment could take place, this amount was agreed to be treated as capital contribution from the partnership firm into the proprietary concern. For the remaining amount of Rs.38,15,062/-, ld. Assessing Officer made the addition by applying section 68 treating it as unexplained cash credit, as the amounts were transferred from NRO account to the Overdraft account. In the first appeal, ld. CIT(A) gave relief of Rs.22 lakhs, out of this amount as it was transferred from the NRE account to the current account. Thus, what remained as addition for which assessee is in appeal before the Tribunal is Rs.16,15,062/- u/s.68.
3.2. In respect of addition of Rs.1,07,53,852/- relating to outstanding sundry creditor of Yashraj Enterprises, assessee had furnished certain invoices from which ld. Assessing Officer observed that transaction of this amount took place during the period from 01.04.2011 to 31.03.2012, i.e., almost five years before. Assessee claimed that owing to quality of goods supplied by Yashraj Enterprises, there is a verbal dispute going on between the assessee and the said party, which has not been resolved. According to the assessee, the liability has not been discharged and the amount is payable to the said party. Ld. Assessing Officer in the course of assessment deputed an Inspector to enquire whereabouts of the said party and also issued notice u/s.133(6). Based on the inspection by the Inspector, ld. Assessing Officer concluded that Yashraj Enterprises does not exist on the address available. Ld. Assessing Officer thus, made the addition by applying section 41(1).
In the appeal before us, ld. Counsel for the assessee has made multiple written submissions including one dated 21.04.2025, another one dated 28.06.2025 and also dated 07.01.2025 along with certain corroborative documentary evidences for each of the addition made and contested in the grounds of appeal. In respect of addition made u/s. 28(iv) of Rs.1,07,26,536/-, assessee has furnished certain documentary evidences to demonstrate transfer of funds from the account of the partnership firm to the proprietary concern of the assessee, to establish genuineness of the transaction. A letter from the partnership firm is placed on record. Assessee has also placed certain other documents explaining his case vide submission dated 26.06.2025 in this respect which include bank statement of the partnership firm as well as of the assessee. In respect of the addition relating to the outstanding credit balance of Yash Enterprises, assessee has placed on record the following documents vide his submission dated 21.04.2025.
i. Bank statements of A/c No913030030313646 in the name of Prakash Malji Bhanushali. ii. Bank statement of A/c No.1000742104 in the name of M/s East Crown General Trading LLC and remittance note. iii. Bank Statement of A/c No. 9100200310398987 in the name of Curtain Creation reflecting payments made to M/s Yashraj Enterprises during F.Y 2011-12. iv. Nature of transactions in relation to exports of goods purchased from Yashraj Enterprises. v. Inspector's Report under the jurisdiction of Learned ITO (International Taxation) Ward 1(2)(1), Mumbai. vi. Written Undertaking of Mr. Harshad Mehta
From the perusal of the order of the ld. CIT(A), it is noted that assessee had furnished additional evidences for which remand report was called from the ld. Assessing Officer. Remand report was submitted by the ld. Assessing Officer and the same was furnished to the assessee for rejoinder/comments. However, assessee did not submit any rejoinder or comments on the said remand report on the addition which were confirmed.
Before us, ld. Counsel has also submitted certain more documents vide his submission dated 07.01.2025, which includes Memorandum of Association of the partnership firm, inward remittance transaction advices issued by the Axis Bank Ltd. for remittance done by the partnership firm to the account of proprietary concern of the assessee, bank statements of the assessee in his own name with Axis Bank as well as in the name of his proprietary concern and copy of no objection letter issued by the partnership firm to treat the amount initially paid as advance for shipment towards capital contribution dated 27.12.2016. Having considered all these submissions with plethora of documents, now placed on record by multiple submissions by the assessee before us and also taking note of the fact about no rejoinder/comment made by the assessee to the remand report called by the ld. CIT(A) and there being varying stance taken by the assessee to explain his case, we find it appropriate to remit the matter back to the file of ld. Assessing Officer for verification and examination of these documentary evidence furnished by the assessee in respect of the additions for which he is in appeal before us. Ld. Assessing Officer is directed to ascertain correct factual position from the documentary evidences furnished by the assessee and consider the same for the claim made by the assessee. Needless to say, assessee may be given reasonable opportunity of being heard and to make any further submission, if he desires so. Accordingly, grounds raised by the assessee are allowed for statistical purposes.
In the result, appeal of the assessee allowed for statistical purposes.
Order is pronounced in the open court on 10 November, 2025