AROON TRAVELS,MUMBAI MAHARASTRA vs. INCOME TAX OFFICER, WARD 22(1)(2), MUMBAI, MUMBAI MAHARASTRA

The brief facts of the case are that the assessee, M/s Aroon Travels, is a partnership firm engaged in the business of plying school buses. The assessee filed its return of income for A.Y. 2008-09 declaring Nil income after adjustment of brought forward losses. The Assessing Officer initially completed the assessment under section 144 of the Act by making various additions. The matter travelled in appeal before the CIT(A) and thereafter before the Tribunal. The Tribunal restored certain issues to the file of the Assessing Officer for fresh examination, being addition on account of unsecured loans, disallowance of interest on such loans and disallowance out of expenses. While restoring the loan issue, the Tribunal clarified that the opening balance of unsecured loans could not be assessed during the year and only the fresh loans received during the year could be examined. The Tribunal also directed that road tax paid to the Government should be excluded before making ad hoc disallowance of the remaining expenses and such disallowance should be restricted to 10%.

In the set-aside proceedings, the Assessing Officer asked the assessee to furnish supporting evidence regarding the fresh loans, repayment of loans, interest payments and road tax of ₹17,07,628/-. The assessee submitted that against the opening unsecured loans of ₹40,65,269/-, it had received fresh loans of ₹8,41,000/- during the year and had repaid ₹5,42,000/-. The assessee furnished confirmations from the lenders. The assessment order itself takes note of the fact that these confirmations contained the names and addresses of the lenders, PANs and details of the loan transactions. The assessee also stated that three of the lenders were old lenders continuing from earlier years.

The Assessing Officer, however, observed that the assessee had not produced the bank statements of the lenders and, therefore, according to him, the genuineness of the transactions and creditworthiness of the lenders could not be verified. The Assessing Officer, accordingly added the fresh loans of ₹8,41,000/-. The Assessing Officer also disallowed interest of ₹9,79,666/- on the ground that the assessee had not produced sufficient supporting evidence regarding the payments. As regards road tax, the assessee claimed payment of ₹17,07,628/- to the Government. The assessee produced road tax receipts aggregating to ₹7,78,557/-, which the Assessing Officer accepted. Since the assessee could not produce receipts for the remaining amount, the Assessing Officer disallowed the balance road tax of ₹9,29,071/-. In respect of the other expenses debited to the Profit and Loss Account, the Assessing Officer followed the earlier direction of the Tribunal and restricted the ad hoc disallowance to 10% of the expenses after excluding road tax.

The assessee carried the matter in appeal before the CIT(A). The CIT(A) held that the assessee had not produced sufficient evidence to rebut the findings of the Assessing Officer. The CIT(A) accordingly confirmed the addition of unsecured loans of ₹8,41,000/-, disallowance of interest of ₹9,79,666/- and disallowance of road tax of ₹9,29,071/-, aggregating to ₹27,49,737/-, and dismissed the appeal.

The assessee is in appeal before us against the order passed by the CIT(Appeals) dismissing the appeal of the assessee.

We have heard the rival submissions and considered the material available on record. So far as the unsecured loans of ₹8,41,000/- are concerned, the assessment order itself records that the assessee had furnished confirmations containing the names, addresses, PANs and details of the transactions of the lenders. The assessee has also stated that three of the lenders were old lenders from earlier years. However, the Assessing Officer made the addition mainly because the assessee could not produce the bank statements of the lenders.

Considering that the matter relates to A.Y. 2008-09 and the assessee had already furnished basic particulars of the lenders, we are of the view that the assessee deserves one opportunity of hearing in the interest of justice. We accordingly restore the issue of fresh unsecured loans of ₹8,41,000/- to the file of the Assessing Officer. The assessee shall furnish the confirmations, PANs, addresses, cheque details and such other evidence as may be available. The Assessing Officer shall also verify the assessee's contention that three lenders were continuing lenders from earlier years. If required, the Assessing Officer may make direct enquiries from the lenders. We make it clear that, in view of the earlier directions of the Tribunal, the opening balances shall not be examined for addition in the year under consideration and the Assessing Officer shall confine the enquiry to the fresh loans received during the year.

We further clarify that the scope of remand on the issue of expenses is limited only to verification of the balance road tax claim of ₹9,29,071/-. The rate of ad hoc disallowance of 10% on the remaining expenses, as already directed by the Tribunal in the earlier round, has attained finality and shall not be reopened. The Assessing Officer shall only recompute the amount of expenses liable to 10% disallowance after excluding the road tax which has been actually paid to the Government on verification. Thus, if any further amount of road tax out of ₹9,29,071/- is accepted, the same shall be excluded from the base on which the 10% disallowance is to be worked out. Except for this consequential recomputation, no fresh examination of the other expenses is called for.

In view of the above, we restore the issues relating to the unsecured loans of ₹8,41,000/-, interest of ₹9,79,666/- and balance road tax of ₹9,29,071/- to the file of the Assessing Officer for de-novo consideration within the scope stated above. The Assessing Officer shall consider the evidence already on record as well as any further evidence furnished by the assessee and shall decide these issues afresh in accordance with law after granting reasonable opportunity of hearing to the assessee. Accordingly, the grounds raised by the assessee are partly allowed for statistical purposes in the above terms.

In the result, the appeal of the assessee is partly allowed for statistical purposes.