ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-1, LUCKNOW, LUCKNOW vs. RAKESH GUPTA HUF, LUCKNOW

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW ‘A’ BENCH, LUCKNOW BEFORE SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA No.335/LKW/2024 A.Y. 2018-19 Assistant Commissioner of Income vs. Rakesh Gupta HUF, Tax, Circle-1, Lucknow, Lucknow Lucknow PAN: AALHR7070L (Appellant) (Respondent) Assessee by: Sh. Rakesh Garg, Advocate Revenue by: Sh. R.K. Agarwal, CIT DR Date of hearing: 28.01.2026 Date of pronouncement: 27.04.2026 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the Revenue against the orders of the ld. CIT(A), NFAC under section 250 of the Income Tax Act dated 24.02.2024, wherein the ld. CIT(A) has partly allowed the appeals of the assessee against the orders of the Assessing Officer, passed under section 143(3) for the assessment year 2018-19 on 15.04.2021. The grounds of appeal are as under:- “1. The Ld. CIT(A) erred by deleting the addition of Rs. 16,69,47,753/- made pertaining to the issue of unsecured loan During the course of assessment proceedings assessee failed to explain the issue of Unsecured loan. There was increase of unsecured loan during the F.Y. 2017-18 relevant to A.Y. 2018-19 to the tune of Rs. 16,69,47,753/-. 2. The Ld. CIT(A) erred by not considering the facts that the assessee failed to provide the identity of lender of unsecured loan and their creditworthiness during the course of the assessment proceedings. Accordingly the amount to the tune of Rs 16,69,47,753/-has been determined as unexplained credit u/s 68 of the 1.T. Act. 3. The Ld. CIT(A) erred in deleting the addition of 1,16,92,894/- made u/s 57 of the 1.T. Act, 1961. The assessee failed to substantiate that expenses inade to the tune of Rs. 1,97,76,088/- were made wholly and exclusively for the purpose of 1 earning interest of Rs. 80,83,194/- which the assessee accounted in its total income. The Ld. CIT(A)failed to appreciate above findings.” 2. The appeal of the Revenue is late by 19 days. A condonation petition has been filed by the Assessing Officer through the Pr. CIT, Lucknow pointing out that the order of the ld. CIT(A) dated 24.02.2024, was received in the office of the PCIT-1, Lucknow and appeal was required to be filed by 24.04.2024. However, due to time barring cases such as 148A proceedings, assessment work and penalty cases, it could not be filed on time. It was submitted that the authorization to file the appeal before the ITAT had been granted by the Pr. CIT on 14.05.2024 and accordingly it was prayed that the delay in filing the appeal may kindly be condoned. A petition has also been received from the ld. AR, Sh. Rakesh Garg, Advocate opposing the condonation of delay. It has been submitted that the consent to file the appeal was granted by the PCIT-1, Luckow on 15.05.2025 while the grounds of appeal had been submitted to the PCIT on 2.05.2024. Since there was no explanation from the PCIT on account of the reasons for delay in the office of the PCIT, on account of the fact that the time barring date was 31st March, and the appeal was due after 31st March, so it could not explain the delay in the office of the AO. The ld. AR prayed that the delay may not be condoned and the appeal should be dismissed at the outset. He placed reliance on the decision of the Coordinate Bench in the case of Carmel Ventures Pvt. Ltd. vs. DCIT in ITA No. 143, 144 and 145/2023, order dated 10.08.2023 where a delay of 14 days was not condoned. 3. We have duly considered the submissions made by both parties. We noticed that the AO has submitted that the main reason for the delay in the filing of the appeal was preoccupation of the Department in matters relating to assessment, penalty and notices under section 148A. On going through the 2 provisions of section 148A, we noticed that the AO is obliged to issue a notice to the assessee to furnish a response as to why a notice under section 148 should not be issued in his case and on going through the provisions of section 149, it is seen that the time barring date of 31st March is applicable to the notices to be issued by the AO under the provisions of section 148A(1). However, it is also observed that subsequent to this, the assessee is given time to furnish a reply to the said notice within such period as is specified in the notice and upon receipt of reply, the AO has to obtain the approval of the specified authority for issuing a notice under section 148. We further note that at the time in question, the specified authority for the purposes of section 148A was the Pr. Commissioner, if three years or less than had elapsed from the end of the relevant assessment year and the Pr. Chief Commissioner, if more than three years had elapsed from the end of the relevant assessment year. Thus, it was quite clear that the work of issuance of notices under section 148, after passing orders under section 148A(3) would continue well beyond the period of 31st March and also involved the PCIT and, in fact, the PCCIT in appropriate cases. In the circumstances, the pre-occupation of the income tax authorities in time barring matters cannot be disregarded as not being a sufficient cause to explain a delay of 19 days in the filing of the appeal. The objections raised by the ld. AR are therefore, without basis and are accordingly rejected. Furthermore, it is noticed that the Hon’ble Supreme Court in the case of Collector of Land Acquisition vs. MST Katiji (1987) 167 ITR 471 (SC) has pointed out that a litigant does not stand to benefit in any way by delay. In fact, he runs a serious risk and that there is no presumption that a delay is caused willfully or due to neglect. It has further held that when the cause of substantive justice is pitted against technical considerations, the cause of substantive justice must always prevail, as otherwise a meritorious ground may get thrown out at the outset and for this reason appellate authorities should be liberal in condoning delays. Accordingly, after considering the explanation offered and the aforesaid judgment of the Hon’ble Supreme Court, the delay of 19 days in the filing of the appeal is hereby condoned and the same is admitted for adjudication. 4. The facts of the case are that the case of the assessee was selected for scrutiny for the assessment year 2018-19 for verification of; i. Investments / Advances / Loans ii. Business Losses The ld. AO observed that during the year, the assessee had obtained unsecured loan of Rs. 16,69,47,753/- and accordingly he asked the assessee to furnish the details thereof, vide a notice under section 142(1) dated 11.12.2020. When the same did not meet with a response to the satisfaction of the AO, the assessee was provided with another opportunity through another notice under section 142(1) dated 5.03.2021. The ld. AO records that the assessee did not furnish a response to the second notice. From the same, the AO concluded that the assessee did not have the information in his possession to establish the identity and creditworthiness of the lender or the genuineness of the transactions. He, therefore, treated the amount of Rs. 16,69,47,753/- as unexplained credit under section 68 of the Act and added the same back to income of the assessee. He initiated penalty proceedings for misreporting of income under section 270A of the Act. Looking into the investments, the ld. AO found that the investments as on 31.03.2018 were only Rs.5,98,285/-, while the investments as on 31.03.2017 were Rs. 33,44,365/-. He noticed that the assessee had not made any sale during the year and therefore, had not incurred any loss. Therefore, vide the notice 4 under section 142(1) dated 5.03.2021, he asked the assessee to show how the reduction in investment during the assessment year had been offered for taxation. Since, the assessee did not furnish a reply for the reduction in investment of 27,36,078/- during the year, the ld. AO estimated the assessee’s profits in respect of the deduction in investment @ 25% of the total reduction and made an addition of Rs. 6,84,020/- on this account. He initiated penalty proceedings under section 270A for under reporting of income on this account. The ld. AO also noted that as per the profit and loss account filed by the assessee, the assessee had earned interest income of Rs. 80,83,194/- and incurred interest expenses of Rs. 1,97,76,088/-. He, therefore, asked the assessee to furnish the details in respect of interest income and interest expenses and justification to show that interest expenses were made wholly and exclusively for the purpose of earning such interest income, as per the provisions of section 67 of the Act. The assessee failed to submit the details, the ld. AO held that he had failed to prove the allowability of the such interest expenses and therefore, after allowing for set off to the extent of interest income of Rs. 80,83,194/-, the ld. AO made an addition of Rs. 1,16,92,894/-. 5. Aggrieved with the said assessment order, the assessee went in appeal before the ld. CIT(A). Before the ld. CIT(A), it was submitted that the addition of Rs. 16,69,47,753/- as unexplained unsecured loan, had been made without understanding the facts of the case. It was submitted that the total of unsecured loans as per balance-sheet on 31.03.2018 was Rs. 20,02,14,650/- as against total unsecured loans of Rs. 17,48,95,790/- as on 31.03.2017. In the preceding year, loans amounting to Rs. 3,32,66,897/- were declared under the head, “unsecured loans” and the loan of Rs. 14,15,28,893/- appearing in the name of Commercial Motors Limited was declared under the head, “outstanding liability”. While filing the return of income for the A.Y. 2018-19, 5 the entire amount consisting of unsecured loans with interest and the amount outstanding in the name of Commercial Motors Limited, was clubbed together and declared under the head, “unsecured loan”. Outstanding liabilities were declared at NIL. The ld. AO, while comparing the figures of both the years, did not appreciate this and treated the difference of Rs. 16,69,47,753/- as unexplained unsecured loan and added the same to income. It was submitted that the actual difference between the two figures was only Rs. 2,53,18,860/- which consisted of interest of Rs. 1,95,00,252/- and Rs. 58,18,608/- as received from different persons, the details of which have been filed before the AO. The loan that was appearing in the name of Commercial Motors was an old balance brought forward from earlier years. The opening balance as on 1.04.2017 was Rs. 14,15,28,893/-, a sum of Rs. 1,51,33,072/- was credited as interest and Rs. 96,40,400/- represented inter banking transactions. The total balance as on 31.03.2018 on this account, was Rs. 16,63,02,365/- It was submitted that M/s Commercial Motors Limited were assessed to tax by PAN No. AACCT7382H. No part of the unsecured loans was unexplained. The addition had been made on the wrong premise holding that no proper explanation was furnished by the assessee and without giving a show cause as to why the difference in unsecured loans should not be treated as unexplained. With regard to the issue of reduced assets, it was submitted that in the previous year’s returns, the investments were shown at Rs. 33,34,363/- [(Rs. 5,98,258/-) (shares) plus Rs. 27,36,078/- (Jewellery)] which stood reduced to Rs. 5,98,258/-. However, the total investment as per balance-sheet as on 31.03.2018 were actually Rs. 39,52,663/- [(Rs. 5,98,285/-) (shares) plus (Rs. 33,54,078/-) (jewellery)]. Thus, there was in fact no reduction in investments but an increase in investments of Rs. 5,18,002/-. Accordingly, the addition made was totally unwarranted and mis-placed as there being no reduction in investment, the question of addition to income on notional basis on account of STCG did not arise. A detailed reply had been filed before the AO which had been overlooked by him. With regard to the interest paid on loans and advances that had been disallowed, the assessee submitted that it had earned interest income on loans and advances amounting to Rs. 80,83,194/- and it had paid interest on funds borrowed for the purposes of earning income of Rs. 1,97,76,088/-. The complete details of the same had been furnished. No specific reason had been given for restricting the allowance to Rs. 80,83,194/- and no show cause notice had been issued to the assessee. There was no change in the nature of the activity being carried out by the assessee, in comparison to previous assessment years and no change in the method of accounting regularly followed by the assessee. Previous assessments had been made under section 143(3). It was submitted that this being the first year of faceless assessment, it is possible that the assessee may not have been able to understand the technicalities of notices and procedures and also committed certain mistakes while filling up multiple columns in the return of income, but it was submitted that none of the figures submitted by it were incorrect. It was argued that the questionnaire itself that was submitted was incomplete and no notice was issued to show cause or explain the so-called difference in figures. Accordingly, it was prayed that the additions may kindly be deleted. A chart was submitted by the assessee before the ld. CIT(A) to explain the so called discrepancies noticed by the AO with regard to the increase in unsecured loans. Copy of bank account with IDBI Marg, Lucknow was also filed in proof of the submissions made. 6. The ld. CIT(A) forwarded the copies of the information filed before him to the AO for a remand report on 14.11.2023. When no response was received, a reminder was sent to the AO on 1.12.2023. However, this too was 7 not met with a response. Thereafter, the ld. CIT(A) decided to proceed on the basis of the material available before him. He noted the submissions filed by the assessee bore out its’ explanation with regard to the unsecured loans. The assessee had provided the confirmations letters and bank statement to substantiate the transactions. In view of the same, he directed the AO to delete the addition and allow this ground. On the issue of addition of Rs. 6,34,020/- on account of estimation of profit on reduction of investment, the ld. CIT(A) considered the submissions made by the assessee and went through the accounts of the assessee. Since the submissions were found to be correct, the addition was deleted and the ground of appeal accordingly allowed. With regard to grounds relating to disallowance of interest expenses under section 57 of the Act, the ld. CIT(A) observed that the business of the assessee was of lending and borrowing of money. The ld. AO restricted the interest expense to the extent of interest income earned on the ground that the assessee did not discharge its onus of proving that all these interest payments were made with the purpose of earning interest income. Considering that this was the business of the assessee and that all the details had been provided during the appellate proceedings, the ld. CIT(A) allowed the ground. Accordingly, after dismissing the technical raised by the assessee against the procedure adopted by the AO, he partly allowed the appeal of the assessee. 7. The Revenue is aggrieved by this decision of the ld. CIT(A) and has accordingly come in appeal before us. Sh. R. K. Agarwal, CIT DR arguing on behalf of the Revenue submitted that the order of the ld. CIT(A) was bad in law because during the course of assessment proceedings, the assessee had failed to explain the issue of unsecured loans and the ld. CIT(A) had accepted the submissions of the assessee without affording adequate opportunity to the AO to examine these submissions and offer a rebuttal. It was further 8 submitted that the assessee had failed to provide details of the identity of the lender of the unsecured loan and their creditworthiness during the course of assessment and therefore, the addition to the tune of Rs. 16,69,47,753/- had been correctly made by the AO under section 68 of the Act. The ld. CIT DR submitted that before deleting the addition, the ld. CIT(A) should have allowed the AO to examine the submissions of the assessee, considering the non-compliance of the assessee before the AO, and therefore, he prayed that the matter may be restored back to the file of the AO for verification of the submission. With regard to the addition of Rs.1,16,92,894/- made under section 57 of the Act, the ld. CIT DR submitted that the assessee had failed to substantiate that the expenses of Rs. 1,97,786,088/- had been made wholly and exclusively for the purposes of earning interest which the assessee had accounted for in its total income. He had not provided the details who he lent the money to and who he got the interest from. Therefore, the ld. CIT DR submitted that the matter should be restored back to the file of the AO for submission of complete details before granting any relief to the assessee on this account. 8. On the other hand, Sh. Rakesh Garg, Advocate (hereinafter referred to as the ld. AR) submitted that the entire addition had been made by the AO on the basis of incorrect assumptions. As already explained to the ld. CIT(A), there was no increase of Rs. Rs. 16,69,47,753/- in the unsecured loans of the assessee, but in fact the amounts standing in the name of Commercial Motors Limited, which had earlier been shown as outstanding liabilities, had been merged under the head, “unsecured loans” in this year and outstanding liabilities had been treated as NIL. It was submitted that the addition to the balance of Commercial Motors was on account of interest of Rs. 1,51,33,072/- which have been credited to their account and further loans of Rs. 9 96,40,400/- from them. This was evidenced by the copy of account filed before the ld. CIT(A) and the bank accounts that were filed before him. It was submitted that a complete list of unsecured creditors had been filed before the ld. CIT(A) and it had been requested that summons under section 131 and a notice under section 133(6) could be issued to them in order to verify the genuineness of the loans and advances involved. The ld. CIT(A) had remanded the matter back to the ld. AO to call for his comments and upon failure of the ld. AO to submit any response, he had sent a reminder to the AO. However, the ld. AO had not submitted a response and the assessee could not be faulted on this account. Accordingly, it was prayed that since the submissions of the assessee was self-evident from an examination of its account and since the addition was made on the wrong premise, it should be deleted. Similarly, with regard to the addition made under section 57 of the Act, it was submitted that the AO had failed to appreciate the fact that the assessee was in the business of lending money and therefore, all the loans that have been taken by it, were essentially for this purpose. Thus, the expenses made to the tune of Rs. 1,97,76,088/- were made wholly and exclusively for the purposes of earning the income of Rs. 80,83,194/- and was accordingly allowable. Before the ld. CIT(A), it had been pointed out that complete details in this regard had already been furnished before the AO but the AO had not taken the same into account. The ld. CIT(A) appreciating the nature of the business of the assessee had allowed the said expenditure. Accordingly, it was prayed that the order of the ld. CIT(A) may kindly be upheld. 8.1 We have duly considered the facts of the case and the arguments of both parties. It is seen that the addition of Rs. 16,69,47,753/- has been made by the AO on the assumption that this was the increase in unsecured loans that had not been explained by the assessee. It appears from the assessment 10 order that the assessee filed an electronic submission on 29.12.2020. However, the details of this submission has not been elaborated in the assessment order. Be that as it may, before the ld. CIT(A), the assessee explained that the increase on account of unsecured loans was only Rs. 2,53,18,860/- of which Rs.1,95,02,252/- consisted of interest and only Rs. 58,18,608/- were received from different persons, in respect of whom the details had been filed. The mistake in appreciation of facts had occurred because the loan from Commercial Motors Limited had been reflected under a different head of the balance-sheet in A.Y. 2017-18 as compared to the subsequent year. The ld. CIT(A) had verified this matter with relation to the accounts of the assessee and all details had been submitted before him including the ledger of Commercial Motors limited and other creditors. The ld. CIT(A) had also given opportunity to the AO to examine the material submitted before him and offer his comments, but it appears that the AO did not respond to the same, nor sought anytime to respond to the same. In in the circumstances, we do not believe that the addition of Rs. Rs. 16,69,47,753/- has any basis and accordingly, we do not find any infirmity in the order of the ld. CIT(A) to delete the same. Ground no. 1 and 2 of the Department’s ground of appeal are dismissed. With regard to the addition of Rs. 1,16,92,894/- made under section 57 of the Income Tax Act, the ld. CIT(A) had noted from a perusal of the assessee’s accounts that the assessee is exclusively engaged in the business of money lending. Thus, all interest paid on borrowed capital has been paid with relation to his money lending business and is relatable to the earning of interest income of Rs. Rs. 80,83,194/-. We cannot agree with the ld. CIT DR, that in the absence of details of who the assessee lent the money to and what interest it got from them, the interest that it paid on borrowed capital should be re-examined to see whether it met the conditions of section