MOHAMMED MUJAHID PASHA,BANGALORE vs. INCOME TAX OFFICER, WARD-4(3)(3), BANGALORE

In this appeal, the assessee has raised the following grounds: - 1. General ground: 1.1. The Assessment Unit, Income Tax Department, National Faceless Assessment Centre (hereinafter referred to as AU for brevity) has erred in passing the assessment order under section 147 read with section 144B of the Income-tax Act, 1961 (hereinafter referred to as the Act for brevity) in the manner passed by it. The order passed being bad in law is liable to be quashed. 1.2. The Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (hereinafter referred to as CIT(A), NFAC for brevity) has erred in passing the order under section 250 of the Act in the manner passed by it. The order passed being bad in law is liable to be quashed. 2. Ground relating to non-admission of additional grounds of appeal 2.1. The CIT(A), NFAC has erred in stating that there is no bonafide intention for admission of additional grounds of appeal and has therefore erred in rejecting the appellant's plea for admission of additional grounds of appeal. 3. Ground relating to issue of notice u/s 148A(b), passing of order under section 148A(d) and notice under section 148 by the ITO, Ward 4(3)(3), Bangalore 3.1. The learned ITO, Ward 4(3)(3), Bangalore has erred in issuing the show cause notice for proceedings under section 148A dated 15.02.2023, order under section 148A dated. 28.03.2023 and notice under section 148 dated 29.03.2023. 3.2. The learned ITO, Ward 4(3)(3), Bangalore has erred in not appreciating the fact that as per Section 151A and the notification dated 29th March, 2022, the power for issuance of notice under section 148 is given only to the Faceless Assessing Officer (FAO). 3.3. Based on the facts and circumstance of the case, the assessment order passed under section 147 read with section 144B dated 21.03.2024 is bad in law and liable to he act aside. 4. Ground relating to addition of Rs. 50,56,000 on account of unexplained investments - Section 69 4.1. The learned AU has erred in treating the advance paid for purchase of property of Rs. 50,56,000 as unexplained investment and making an addition under section 69 of the Act. 4.2. The learned AU has erred in not appreciating that section 69 of the Act is not attracted in case of investments which are recorded in books of accounts. 4.3. The learned AU has erred in not appreciating that advance for purchase of property was made vide banking channels, out of tax suffered funds of the appellant. Thus, addition under section 69 is not attracted. 4.4. The learned AU has erred in not appreciating the bank statements submitted as proof of source of funds, without providing any cogent reasoning. 4.5. The learned AU has erred in making the addition under section 69 of the Act based on mere surmises and conjecture.

Grounds No. 2 and 3 were not pressed during the hearing. Accordingly, the same are dismissed as not pressed.

Ground No. 4, raised in assessee’s appeal, pertains to addition on account of unexplained investment.

The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is an individual and is primarily engaged in works contractor services in relation to electrical, civil and interior services. For the year under consideration, the assessee did not file his original return of income. On the basis of the information regarding non-filers on the Insight Module of the Department, proceedings under section 148A of the Act were initiated. After considering the response of the assessee, an order under section 148A(d) of the Act was passed, considering it to be a fit case for issuing notice under section 148 of the Act. Accordingly, notice under section 148 of the Act was issued on 28.03.2023. In response to the said notice, the assessee filed its return of income on 25.04.2023 declaring a total income of Rs. 22,63,570/-. During the assessment proceedings, statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. In response, the assessee furnished the balance sheet, ledger account and his bank statements. From perusal of the details furnished by the assessee, it was observed that the assessee has made an investment in fixed assets amounting to Rs. 50,56,000/-. Since the assessee could not furnish a satisfactory response, the Assessing Officer (“AO”), vide order dated 21.03.2024, passed under section 147 r.w.s. 144B of the Act, treated the investment as unexplained investment in the hands of the assessee as per the provisions of section 69 of the Act and made an addition of Rs. 50,56,000/-.

The learned CIT(A), vide impugned order, held that the assessee was able to provide the identity and genuineness of the transaction. However, the assessee has not satisfactorily explained the source of the transaction. On the basis that the source for making the investment in the immovable property has not been properly explained by the assessee, learned CIT(A), vide impugned order, dismissed the ground raised by the assessee on this issue.

During the hearing, the learned Authorised Representative (“learned AR”) submitted that the investment in an immovable property has been duly recorded in the books of accounts for the year under consideration, and therefore, no addition can be made under section 69 of the Act. As regards the source of investment, the learned AR, by referring to the bank statement of the assessee, submitted that the amount of Rs. 50,56,000/- was paid from the assessee’s bank accounts.

On the other hand, the learned Department Representative (“learned DR”) vehemently relied upon the order passed by the lower authorities on this issue.

We have considered the submissions of both sides and perused the materials available on record. As per the assessee, during the year under consideration he paid an advance of Rs. 50,56,000/- for purchase of an immovable property, which was acquired in the subsequent year. As per the assessee, the transaction of purchase of property has been duly recorded in his books. In this regard, during the hearing, our attention was drawn to the fixed asset scheduled to the balance sheet of the assessee for the year ending 31.03.2019. From the perusal of the same, we find that the assessee has duly recorded the investment of Rs. 50,56,000/- in his books of account in respect of the immovable property. As regards the source of payment of Rs. 50,56,000/-, our attention was drawn to the bank account statement of the assessee’s proprietary concern, i.e., Zain Electric Company, maintained with SBI. On perusal of the said bank statement, we find that on 18.02.2019, the assessee received Rs. 97,18,881.81/- from Wipro Limited, and on the same date the assessee made a payment by cheque of Rs. 50,06,000/-. As regards the balance payment of Rs. 50,000/- , we find that the same was made from the assessee’s personal bank account maintained with HDFC Bank on 06.02.2019. In this regard, the relevant bank statement has been placed in the paper book at Page 102.

Therefore, having perused the bank statements furnished by the assessee, we are of the considered view that the assessee has satisfactorily proved the source of payment for purchase of immovable property. In the absence of any dispute regarding the identity and genuineness of the transaction, we do not find any basis in upholding the addition of Rs. 50,56,000/- under section 69 of the Act. Accordingly, this addition is deleted. As a result, Ground No. 4 raised in assessee’s appeal is allowed.

Ground No. 5, raised in assessee’s appeal, pertains to ad hoc disallowance of labour charges amounting to Rs. 19,94,068/-.

The brief facts of the case pertaining to this issue, as emanating from the record, are: During the assessment proceedings, it was noticed that the assessee has claimed labour charges amounting to Rs. 99,17,340/- in its profit and loss account. As the assessee could not furnish any ledger account in respect of the labour charges claimed during the year under consideration, the AO made a disallowance of 20% of the labour charges claimed by the assessee and made an addition of Rs. 19,94,068/-.

During the appellate proceedings before the learned CIT(A), the assessee filed additional evidence, such as vendor-wise breakup of labour charges along with PAN of vendors, details of labour charges reflecting in Form – 26AS and details of TDS under section 194C. Further, the assessee also furnished copies of Form – 26AS of vendors, where tax has been deducted at source under section 194C of the Act. On the basis that its earlier accountant has left the job, the assessee requested admission of additional evidence before the learned CIT(A). However, the learned CIT(A), vide impugned order, rejected the application filed by the assessee for admission of additional evidence on the basis that despite granting multiple opportunities, the assessee could not furnish these details. Accordingly, the learned CIT(A) upheld the disallowance of Rs. 19,94.68/- made in respect of labour charges claimed by the assessee.

During the hearing, the learned AR submitted that no addition can be made on an estimate basis without rejecting the books of accounts under section 145(3) of the Act. The learned AR submitted that, in the present case, no defects have been pointed out in the books of account maintained by the assessee, and the impugned disallowance on account of labour charges paid by the assessee has been made only on the basis of estimation. Further, by referring to the evidence filed before the learned CIT(A) by way of additional evidence, the learned AR submitted that in respect of all the parties, the payment was made after deduction of tax and, in this regard, Form – 26AS issued to these parties are available with the assessee. 8

On the other hand, the learned DR vehemently relied upon the order passed by the lower authorities.

We have considered the submissions of both sides and perused the materials available on record. In the present case, it is undisputed that the assessee is providing works contractor services. Therefore, it cannot be disputed that for the conduct of its business, the assessee requires labour. During the year under consideration, the assessee debited an amount of Rs. 99,70,340/- towards labour charges in its profit and loss account. However, the assessee could not furnish any documents in support of payment of these labour charges. Accordingly, the AO made an ad hoc disallowance of 20% and made an addition of Rs. 19,94,068/-. In order to substantiate its claim, the assessee, in the appellate proceedings before the learned CIT(A), filed a vendor-wise breakup of labour charges along with their PAN, details of vendors' charges as reflected in Form – 26AS and copies of Form – 26AS issued to these vendors, by way of additional evidence. However, the learned CIT(A) rejected the application filed by the assessee seeking admission of additional evidence on the basis that all these documents were available with the assessee and the same were not filed despite grant of repeated opportunities. During the hearing, the learned AR made a specific reference to these evidences, which forms part of the paper book from Pages 109 – 131. On perusal of these details, we find that the assessee provided a breakup of labour charges of Rs. 99,70,340/- paid to various vendors. Along with the name of each of these vendors, the assessee has also provided their PAN Number and the amount 9 of tax deducted at source. Except for one vendor to whom only a payment of Rs. 6,200/- was made. The assessee has also placed on record Form – 26AS issued to 22 vendors. Therefore, we are of the considered view that these evidences are relevant for the adjudication of this issue at hand. Accordingly, these evidences filed by the assessee are admitted on record.

From the perusal of these details, we are of the considered view that the assessee has duly established the basis for payment of Rs. 99,70,340/- labour charges, on which the assessee has also deducted the tax under section 194C of the Act. Accordingly, the impugned addition on account of labour charges is deleted, and Ground No. 5 raised in the assessee’s appeal is allowed.

Ground No. 6, raised in assessee’s appeal, pertains to addition on account of unexplained cash credit under section 68 of the Act.

We have considered the submissions of both sides and perused the materials available on record. During the year under consideration, it was noticed that the assessee has declared an unsecured loan of Rs. 15,64,130/-. Since the assessee failed to prove the genuineness of the transaction, the said loan amount of Rs. 15,64,130/- was treated as unexplained money in the hands of the assessee under section 68 of the Act and was added to its total income.

The learned CIT(A), vide impugned order, rejected the application filed by the assessee seeking admission of balance confirmation from parties from whom loan was received as additional evidence on the basis that despite grant of sufficient opportunity, the assessee did not furnish this evidence before the AO. The learned CIT(A) further held that the assessee has not submitted any bank statement to prove the genuineness of the transaction in the form of unsecured loan. Accordingly, the learned CIT(A) upheld the addition of Rs. 15,64,130/- made by the AO. Being aggrieved, the assessee is in appeal before us.

During the hearing, the learned AR submitted that the loan of Rs. 15,64,130/- was received from five parties in the preceding financial year and therefore these loans constitute the opening balance for the year under consideration. In support of his contention, the learned AR relied on the balance confirmations received from four lenders, which form part of the paper book from Pages 132 – 135, as well as the ledger accounts. Accordingly, the learned AR submitted that since these loans were not received in the year under consideration, the impugned addition is not unsustainable.

On the other hand, the learned DR submitted that the loan confirmation placed reliance upon by the learned AR requires verification, as the same has not been examined by any of the lower authorities. Further, by vehemently relying upon the order passed by the learned CIT(A), the learned DR submitted that the assessee has still not furnished its bank statement to substantiate his claim that these loans were received in the preceding financial year.

We have considered the submissions of both sides and perused the materials available on record. During the year under consideration, the assessee received a total unsecured loan of Rs. 17,57,435/-. Since the loan of Rs. 1,93,304/- was received from HDFC Bank, no addition was made in respect of the said amount. However, the remaining balance of Rs. 15,64,130/- was treated as unexplained loan under section 68 of the Act, as the assessee failed to discharge the onus of genuineness of the transaction. During the hearing, by referring to the assessee’s submission made before the learned CIT(A), the learned AR submitted that the loan of Rs. 15,64,130/- was received from five different parties. It was further submitted that the assessee received all these credits in the preceding financial year and, therefore, they constitute the opening loan balance for the year under consideration. In support of its contention, the learned AR drew our attention to the loan confirmations received from four of the five parties, placed in the paper book from Pages 132 – 135 as well as ledger accounts. From the perusal of the loan confirmations, it is evident that each of these four out of five parties has confirmed that the loan given to the assessee constitutes the opening balance for the year under consideration. However, we find that apart from these loan confirmations, the assessee has not provided any other documentary evidence, such as a bank statement, as highlighted by the learned DR during the course of the hearing. Further, we find that the assessee has only placed on record its balance sheet for the year ending 31.03.2019, and the balance sheet for the preceding year in which this loan was claimed to have been received is not placed on record. Further, in respect of the loan of Rs. 86,131/- received from Janalakshmi Financial Service Ltd., the assessee has placed on record a loan sanction letter dated 10.05.2016 in respect of a loan of Rs. 20 lakhs granted to the assessee. However, it is evident that none of the lower authorities examined the said loan sanction details.

Therefore, having considered the facts and circumstances of the present case and perusal of the documents placed on record, we deem it appropriate to grant one more opportunity to the assessee to furnish other supporting documentary evidence to substantiate its claim that the loan was received in the preceding financial year. Accordingly, this issue is restored to the file of the Jurisdictional AO for de novo adjudication with the direction to the assessee to furnish the relevant details. We further direct that if, upon examination, it is found that the loan was not received in the year under consideration, then the impugned addition made under section 68 of the Act be deleted. With the above directions, the impugned order is set aside, and Ground No. 6 raised in assessee’s appeal is allowed for statistical purposes.

Ground No. 7 raised in assessee’s appeal pertains to levy of interest under section 234A, section 234B and section 234C of the Act, which is consequential in nature. Therefore, this ground needs no separate adjudication.

In the result, the appeal by the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 06-Oct-2026.