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Facts
The assessee, a partnership firm, faced additions of Rs. 3 crores for unsecured loans and Rs. 7,71,437/- for partner's capital introduction under Section 68 of the Income Tax Act, as the Assessing Officer deemed the sources unexplained. The Ld. CIT(A) upheld these additions, rejecting additional evidence submitted by the assessee under Rule 46A of the Income Tax Rules, citing lack of sufficient reasons for not furnishing these documents earlier.
Held
The Tribunal found that the assessee had sufficient cause for not producing the evidence before the AO due to the departure of their accountant and AR, which falls under Rule 46A(1)(c). Consequently, the Tribunal set aside the CIT(A)'s order and remanded the matter back to the CIT(A) with directions to admit the additional evidence and pass a fresh reasoned order on the merits of the additions. Grounds related to consequential interest and penalty proceedings were dismissed as premature.
Key Issues
1. Whether the CIT(A) erred in rejecting additional evidence under Rule 46A despite the assessee having sufficient cause. 2. Whether the additions under Section 68 for unsecured loans and partner's capital introduction were justified. 3. Whether the Assessing Officer exceeded the scope of limited scrutiny by making additions related to partner's capital.
Sections Cited
68, 143(1), 143(2), 142(1), 143(3), 234B, 234D, 271(1)(b), 271(1)(c)
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Income Tax Appellate Tribunal, MUMBAI BENCH “C” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI ANIKESH BANERJEE
Assessee by : Shri. Dipesh Ruparelia (Virtually appear) Revenue by : Shri Virabhadra Mahajan, Sr. DR : Date of Hearing 16/10/2025 : Date of 03/11/2025 pronouncement ORDER
PER OM PRAKASH KANT, AM
This appeal by the assessee is directed against order dated 17.02.2025 passed by the Ld. Commissioner of Income-tax Appeals/ National Faceless Appeal Centre (NFAC), Delhi [in short ‘the Ld. CIT(A)’] for AY 2016-17, raising following grounds:
1. Erred in making an addition under Section 68 of the Act of INR 3,00,00,000 with respect to unsecured loan obtained by the Appellant from its partner; 2. Erred in rejecting the additional evidences submitted by the Appellant; 2 Pravin Prakash Magar 3. Erred in not appreciating the fact that the Hon'ble CIT(A) in order to render justice can admit additional evidences; 4. Erred in not appreciating the fact that the rejection of additional evidence would be a grave violation of natural justice; 5. Erred in not granting relief to the Appellant merely on technical grounds without considering the merits of the case; 6. Erred in not appreciating the fact that the source and genuineness of unsecured loan was duly explained by the Appellant; 7. Erred in not appreciating the fact that the scope of Limited Scrutiny was limited to checking unsecured loan and not extended to Partner's Capital; 8. Erred in making an addition under Section 68 of the Act of INR 7,71,437 with respect to capital introduced by the partner; 9. Erred in making an addition under Section 68 of the Act for INR 7,71,437 whereas the source of the funds were duly explained by the Appellant; 10. Erred in levying interest under Section 234B and Section 234D of the Act; and 11. Erred in initiating penalty proceedings under Section 271(1)(b) and Section 271(1)(c) of the Act. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Hon'ble Income-tax Appellate Tribunal to decide this appeal according to the law.
Briefly stated facts of the case are that the assessee is a partnership firm, dealing in Auto mobile two wheelers of “Yamaha” brand and having service workshop of the two wheelers. For the year under consideration, the assessee filed its return of income electronically on 17.10.2016 declaring total loss of Rs. 51,45,861/-. The return of income filed by the assessee was processed u/s. 143(1) of the Income Tax Act, 1961 (in short 3 Pravin Prakash Magar of the ‘Act’) at same total income. Thereafter, the return of income was selected for limited scrutiny for verification of the two issues (i) large increase in unsecured loan during the year (ii) unsecured loan from the persons who have not filed their return of income.
A notice u/s. 143(2) issued on 03.07.2017 was duly served upon the assessee. Thereafter, a notice u/s. 142(1) of the Act was issued. In response, Authorized Representative (AR) of the assessee firm filed a letter of authority along with other general details like tax audit report, financial statement and details of unsecured loans. Thereafter, the ld Assessing Officer (AO) issued further notice asking the assessee to justify the genuineness of unsecured loan of Rs. 3,00,00,000/- received from Rushi C Mali/ Rushi Hospitality Services Pvt. Ltd. & others and to discharge its onus u/s. 68 of the Act, however, the said notice remain non- complied. Further, the ld AO also asked the assessee to explain capital introduction of Rs. 7,71,437/- by partner, but the assessee failed to discharge its onus of explaining the source of the said capital introduction by the partner. In view of failure on the part of the assessee, the ld. AO made the addition for the sum of Rs. 3,07,71,437/- in the assessment order passed u/s. 143(3) of the Act on 14.12.2018.
4. On further appeal, the assessee filed following additional evidence before the Ld. CIT(A) and requested for admitting the same invoking rule 46A of the Income Tax Rules, 1962 (in short ‘the Rules’)
4 Pravin Prakash Magar “1. Signed Matrix Automative loan account in the books of Rushi C Mali for period from 01.04.2015 to 31.03.2016.
2. Account statement of Rushi Hospitality Services Pvt. Ltd. for period from 31.10.2015 to 16.03.2016 in order to prove creditworthiness of Shri Rishi C Mali.
3. Acknowledgement of ITR filed by Rushi C Mali (PAN: AFLPM6825R) for A.Y 2016-17 in order to prove creditworthiness.
Loan sanction letter from Religare Finvest Ltd account statement from 31.10.2015 to 16.03.2016 in order to prove creditworthiness of Shri Rishi C Mali.”
Regarding admissibility of the additional evidence, the assessee submitted that during the course of the assessment proceedings Shri. Rishi C. Mali filed confirmation letter suo-motu, but by mistake he failed to signe confirmation letter. Further it was submitted that the accountant of the assessee firm had left the job and so also AR of the assessee who was supposed to appear before the Income-tax Authorities, had discontinued his services to the assesse firm.
The Ld. CIT(A) forwarded those additional evidences to the ld AO calling for a remand report. The ld AO objected to the admission of the additional evidence, however, gave his comment on the merit also. But the Ld. CIT(A) referred to the provisions of rule 46A that assessee is not entitled for the benefit of rule 46A being none of the conditions of said rules were fulfilled by the assessee for admitting of the additional evidence. The relevant findings of the Ld. CIT(A) is reproduced as under:
“8.7 It can be seen from the rule reproduced above, that only in those cases where assessee is prevented by sufficient cause from producing the documents relevant for assessment or where AO has refused to admit a particular document or where. AO has not provided sufficient 5 Pravin Prakash Magar time to furnish particular document, additional evidence can be admitted by CIT(A). In the present case, though, appellant has furnished documents mentioned at para No.8.4 of this order as additional evidence, failed to provide any reason for non-submission of above documents before AO. Therefore, as per different clauses of Rule 46A, additional evidence filed by appellant is not admissable. It is noticed that in the re-joinder to the remand report submitted by appellant, also, the appellant failed to give any specific reason for non- submission of documents before AO inspite of noticing comments of AO in the remand report regarding non-admission of additional evidence which shows that appellant has no explanation to offer regarding non submission of above documents before AO.
8.8 It is noticed that appellant has not submitted any reasons for non submission of documents filed as additional evidence now before AO leave alone reason stated for non-submission of documents earlier being a reasonable cause. The appellant is aware of the fact that it has to file evidences in support of unsecured loans received to prove identity, creditworthiness and genuineness of transaction before AO Further, it is aware that it has not filed such evidence before the AO All the documents that are filed now during the appeal proceedings were already available with appellant, especially loan sanction letter of Religare at the time of assessment proceedings. But for some strange reason appellant chose not to file those documents before AO in spite of AO specifically issuing the notice u/s 133(6) to Rishi C Mali to file evidence to prove genuineness of unsecured loan. During assessment proceedings, after getting to know about inquiries of AO u/s 133(6), appellant firm chose to file only unsigned confirmation letter of Sri Rishi C Mali There is no evidence on record to show that it sought time to file documents to prove creditworthiness of Sri Rishi C Mali during assessment proceedings. During appeal proceedings, though the documents are filed for the first time, no specific reason for not filing these documents before AO has been specified. Therefore, I concur with the view of the AO that none of the clauses of Rule 46A are attracted in the present case. Therefore, the additional evidence is not admissible in the present case. As no additional evidence is admitted, conclusion of AO that appellant failed to prove genuineness of unsecured loan of Rs 1,60,00,000/- in case of Shri Rishi C Mali is upheld. Similarly, it is noticed that in case of capital introduction of Rs.7,71,437/- by Shri Vishal Ramesh Chandra Doshi, the appellant has not filed documents to prove 1. Creditworthiness 2. Identity and 3. Genuineness of the transaction both during assessment as well as during appeal proceedings. Therefore, the conclusion of AO that source for capital Rs. 1,67,71,437/- introduced in books of appellant firm is unexplained is upheld. Hence, total addition of Rs 3,07,71,437/- is upheld.”
6 Pravin Prakash Magar 7. Before us, Ld. Counsel for the assessee filed an application for admitting additional evidence having details as under: Sr. No. Particulars Page No.
Bank Statement of Matrix 55 - 58 12. Axis Bank Statement of Rushi Hospitality 59 - 69 13. New India Bank Statement of Rushi Hospitality 70 - 80 14. Sanction letter of loan obtained from Religare finvest limited 81 - 83 15. Request letter sent to Religare finvest limited 84 - 85 16. Ledger copy of Vishal Doshi (Partner of Matrix Automotives) 86 - 87 17. Ledger copy of Rushabh Motors (Customer of Matrix Automotives) 88 - 91 18. Photocopy of cheque received from Religare Finvest 92
Ld. Counsel for the assessee also filed a paper book containing pages 1 to 54.
We have heard rival submissions of the parties and perused the material available on record. In the grounds raised by the assessee two additions made by the AO are in dispute, firstly, addition of RS. 3 crores in relation to unsecured loan(s) obtained by the assessee during the year under consideration, secondly addition of Rs. 7,71,437/- is in relation to the capital introduced by the once of the partner into the firm. Thus, in other words both the additions relate to invoking of Section 68 by the AO. The main reason for sustaining the disallowance by the Ld. CIT(A) is rejecting of additional evidence filed by the assessee invoking the rule 46A of the Rules. For ready reference said rule is reproduced as under:
“46A (1) The appellant shall not be entitled to produce before the [Deputy Commissioner (Appeals)) (or, as the case may be, the Commissioner (Appeals)), any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the (Assessing Officer), except in the following circumstances, namely 7 Pravin Prakash Magar
(a) where the [Assessing Officer] has refused to admit evidence which ought to have been admitted; or (b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the (Assessing Officer): or (c) where the appellant was prevented by sufficient cause from producing before the [Assessing Officer] any evidence which is relevant to any ground of appeal
, or (d) where the [Assessing Officer] has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal.”
8. Before Ld. CIT(A) assessee submitted that due to discontinuation of the services by the accountant as well as the AR, the assessee could not file submissions before the AO. In our opinion this is a valid reason for allowing the assessee for filing additional evidences because the assessee fulfills the sub clause (c) of rule 46A (1) as the assessee was prevented by sufficient cause from producing the said evidences before the ld AO, which were relevant to the addition made by the ld AO. We are of opinion that in absence of accountant and AR it might not have been possible for the assessee to keep track of the assessment proceedings, which resulted into ex-parte order against the assessee. In such circumstances, it is sufficient cause by which the assessee was prevented and deserves for admission of additional evidences. Accordingly, we set aside the order of the Ld. CIT(A) on the issue in dispute and restore the matter back to him with the direction to admit the additional evidence, which the assessee wish to file and pass a reasoned and speaking order after taking into consideration additional evidences and other 8 Pravin Prakash Magar submission of the assessee on the both issues i.e. addition of unsecured loan of Rs. 3 crores as well as addition of capital introduction of Rs. 7,71,437/-
9. Before us, Ld. Counsel for the assessee also referred to a legal gourd that case was selected for only limited scrutiny for checking of the unsecured loan whereas the ld AO extended the scrutiny to the addition of partner’s capital also, therefore, the addition made for the partner’s capital deserve to be deleted on the account of beyond scope of limited scrutiny without converting into complete scrutiny. However, the Ld. Counsel for the assessee failed to explain before us whether the case was converted into complete scrutiny or not and therefore addition cannot be deleted merely on this ground. However the assessee is at liberty to raise this ground before the AO. In view of the aforesaid discussion, the grounds of the appeal of the assessee from 1 to 9 are allowed for statistical purposes. The ground no. 10 being consequential and ground no. 11 being premature at this stage, we are not required to adjudicated upon and accordingly, same are dismissed.
In the result, appeal of the assessee is allowed for the statistical purposes.
Order is pronounced in the open court on 03.11.2025 /-/- ANIKESH BANERJEE OM PRAKASH KANT (JUDICIAL MEMBER) (ACCOUNTANT MEMBER)