ACIT22(1), MUMBAI vs. UNIQUE BANGLES, MUMBAI

After considering the material available on record and the submissions made by the assessee, the Assessing Officer completed the assessment under section 143(3) read with section 144B on 25.03.2025 determining the total income at Rs. 24,70,39,423/- as against the returned income of Rs. 87,43,270/-. The additions made by the Assessing Officer were as under: 1. Disallowance under section 40(a)(ia) on account of alleged failure to deduct tax at source on various payments such as purchases, professional fees, rent and other expenses – Rs. 23,35,80,090/-.

Addition under section 68 on account of unsecured loans treated as unexplained cash credits – Rs. 47,13,589/-.

While making the disallowance under section 40(a)(ia), the Assessing Officer observed that the assessee had allegedly failed to deduct tax at source or had made short deduction of tax in respect of certain payments including rent, professional fees and purchases. The Assessing Officer held that the assessee had violated the provisions relating to deduction of tax at source and accordingly disallowed 30% of the payments aggregating to Rs. 23,35,80,090/- under section 40(a)(ia) of the Act.

With regard to the unsecured loans reflected in the balance sheet, the Assessing Officer observed that unsecured loans had increased during the year by Rs. 47,13,589/- as compared to the preceding year. According to the Assessing Officer, the assessee failed to establish the identity, creditworthiness and genuineness of the loan creditors by furnishing complete documentary evidence. The said amount was therefore treated as unexplained cash credit under section 68 and added to the income of the assessee.

Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee submitted that during the course of assessment proceedings it had furnished detailed information regarding deduction of tax at source on various payments and the same was also duly reported in Clause 34(a) of Form 3CD of the tax audit report. The assessee Unique Bangles also submitted statements showing details of TDS deducted on payments such as purchases, labour charges, interest, rent, salary and professional fees and contended that the disallowance made under section 40(a)(ia) was unjustified. With regard to the addition made under section 68, the assessee submitted that the unsecured loans had been received through banking channels and that the assessee had furnished copies of income-tax returns, computations of income and loan confirmations of the concerned parties. It was therefore contended that the identity and genuineness of the loan creditors stood established.

After considering the submissions of the assessee and the material placed on record, the CIT(A) held that the assessee had furnished detailed statements showing deduction of tax at source and therefore the disallowance made by the Assessing Officer under section 40(a)(ia) was not sustainable. Accordingly, the CIT(A) deleted the addition of Rs. 23,35,80,090/-.With respect to the addition made under section 68, the CIT(A) observed that the assessee had furnished copies of income-tax returns and other documents of the loan creditors. The CIT(A) further observed that the Assessing Officer had not issued notices under section 133(6) to the creditors nor conducted any independent verification of the documents furnished by the assessee. In the absence of any adverse material brought on record by the Assessing Officer, the CIT(A) held that the addition under section 68 was not justified and accordingly deleted the addition of Rs. 47,13,589/-.

Being aggrieved by the relief granted by the CIT(A), the Revenue is in appeal before us raising following grounds of appeal:

During the course of hearing before us, the learned Departmental Representative strongly relied upon the assessment order passed by the Assessing Officer and submitted that the learned CIT(A) erred in deleting the disallowance made under section 40(a)(ia) of the Act. Referring to the details furnished by the assessee before the learned CIT(A) on page No. 6 of the Order, the learned DR submitted that the very statement relied upon by the assessee clearly demonstrates that the assessee had not fully complied with the provisions relating to deduction of tax at source under section 194Q of the Act. The learned DR drew our attention to the chart of purchases and TDS computation furnished before the first appellate authority, wherein the assessee itself had worked out the amount on which tax was deductible and the tax actually deducted. From the said chart, the learned DR submitted that the aggregate purchases during the year amounted to Rs. 93,89,61,852.65/-, out of which the amount liable for deduction of tax under section 194Q after considering the threshold limit of Rs. 50,00,000/- worked out to Rs. 89,07,85,740.27/-. However, as per the TDS return filed by the assessee, the purchases considered for deduction of tax were Rs. 88,94,29,821.41/-, and the TDS deducted thereon was Rs. 8,89,430/-. According to the learned DR, the chart itself reflects that an amount of Rs. 13,55,918.86/- relating to Amar Tara Jewellers remained on which tax was required to be deducted but Unique Bangles was not deducted. The learned DR further submitted that despite this discrepancy being evident from the details furnished by the assessee itself, the learned CIT(A) accepted the assessee’s explanation and deleted the entire disallowance under section 40(a)(ia) without properly appreciating the factual position. It was therefore contended that the relief granted by the learned CIT(A) was not justified in law and on facts.

With regard to the addition made under section 68 of the Act, the learned DR relied upon the findings recorded by the Assessing Officer in the assessment order. The learned DR submitted that on perusal of the balance sheet of the assessee for the immediately preceding assessment year, it was observed that unsecured loans as on 31.03.2022 stood at Rs. 4,38,99,896/-, whereas the unsecured loans as on 31.03.2023 were Rs. 4,86,13,485/-. Thus, unsecured loans amounting to Rs. 47,13,589/- had been raised by the assessee during the relevant previous year. According to the learned DR, the assessee failed to discharge the primary onus cast upon it under section 68 of the Act to establish the identity, creditworthiness and genuineness of the loan creditors. The Assessing Officer therefore treated the said amount of Rs. 47,13,589/- as unexplained cash credit and added the same to the income of the assessee under section 68 of the Act.

On the basis of the above submissions, the learned DR contended that the learned CIT(A) was not justified in deleting the Unique Bangles additions made by the Assessing Officer and therefore the order of the Assessing Officer deserved to be restored.

In response to the submissions made by the learned DR, the learned Authorised Representative (AR) for the assessee fairly conceded that tax was not deducted at source under section 194Q in respect of purchases amounting to Rs. 13,55,918.86/-, as reflected in the statement furnished before the learned CIT(A). The learned AR submitted that to this limited extent there was a shortfall in deduction of tax at source. However, it was contended that even assuming such non-deduction, the provisions of section 40(a)(ia) provide for disallowance of only thirty per cent of the sum on which tax was deductible but not deducted, and therefore the disallowance, if any, ought to be restricted to 30% of Rs. 13,55,918.86/- and not the entire amount as disallowed by the Assessing Officer while computing the addition under section 40(a)(ia). The learned AR accordingly submitted that appropriate relief may be granted by restricting the disallowance to the extent permissible under the provisions of the Act.

The learned AR submitted that the issue sought to be raised by the Revenue in Ground No. 2, namely verification of compliance with the proviso to section 40(a)(ia), is not emanating from the reasoning recorded by the Assessing Officer in the assessment order. According to the learned AR, the said ground seeks to introduce a new line of reasoning which was never the basis of the addition made by the Assessing Officer. It was therefore submitted that the ground raised by the Revenue is Unique Bangles misconceived and does not arise from the order of the Assessing Officer.

With regard to the addition made under section 68 of the Act in respect of unsecured loans, the learned AR invited our attention to the details of unsecured loans placed in the paper book and submitted that the assessee had furnished complete particulars of the loan creditors before the Assessing Officer as well as before the learned CIT(A). The learned AR submitted that the details included the name and PAN of the creditors, confirmations of loan, copies of income-tax returns, computation of income and bank statements evidencing the transactions. It was contended that these documents clearly established the identity of the creditors, their creditworthiness and the genuineness of the transactions. The learned AR further submitted that the learned CIT(A), after examining the documentary evidence placed on record, recorded a finding that once the assessee had furnished the basic documentary evidence in support of the loans, the onus shifts upon the Assessing Officer to establish the incorrectness of such documents. The learned AR pointed out that the learned CIT(A) had observed that in the absence of any adverse material brought on record by the Assessing Officer to rebut the documents furnished by the assessee, the addition made under section 68 could not be sustained and accordingly deleted the same. The learned AR also pointed out that the addition made by the Assessing Officer was largely based on the comparison of the balance of unsecured Unique Bangles loans as appearing in the balance sheet as on 31.03.2022 and 31.03.2023, without properly appreciating that a substantial portion of the amount represented opening balance of loans and not fresh loans received during the year. It was therefore submitted that the addition made by the Assessing Officer on account of unsecured loans was unjustified and the learned CIT(A) had rightly deleted the same after examining the material placed on record.

We have carefully considered the rival submissions and perused the orders of the authorities below as well as the material placed on record.

The first issue relates to the deletion by the learned CIT(A) of the disallowance made by the Assessing Officer under section 40(a)(ia) of the Act. From the assessment order it is evident that the Assessing Officer had made a disallowance of Rs. 23,35,80,090/- on the premise that the assessee had failed to deduct tax at source on certain payments including purchases on which provisions of section 194Q were applicable. The learned CIT(A) deleted the disallowance on the ground that the assessee had furnished details of TDS deduction along with statements and documents. However, during the course of hearing before us, the learned DR drew our attention to the details furnished by the assessee itself before the learned CIT(A), wherein the assessee had tabulated the purchases, threshold exemption and the amount on which tax was deductible under section 194Q. From the said statement it emerges that though the aggregate Unique Bangles purchases liable for TDS were reflected at Rs. 89,07,85,740.27/-, the purchases considered in the TDS return were Rs. 88,94,29,821.41/-, leaving a difference of Rs. 13,55,918.86/- relating to Purchases from Amar Tara Jewellers on which tax was deductible but was not deducted. Significantly, the learned AR fairly conceded before us that tax under section 194Q had not been deducted in respect of the aforesaid amount of Rs. 13,55,918.86/-. However, the learned AR submitted that in terms of the provisions of section 40(a)(ia) only 30% of the amount on which tax was not deducted is liable to be disallowed.

We find merit in the contention of the learned AR. The disallowance under section 40(a)(ia) is restricted to thirty per cent of the sum on which tax was deductible but not deducted. Since the assessee has admitted that tax was not deducted only on the amount of Rs. 13,55,918.86/-, the disallowance under section 40(a)(ia) is required to be restricted to 30% of the said amount. Accordingly, the order of the learned CIT(A) deleting the entire disallowance is modified and the Assessing Officer is directed to restrict the disallowance under section 40(a)(ia) to 30% of Rs. 13,55,918.86/-.

The next issue relates to the deletion by the learned CIT(A) of the addition of Rs. 47,13,589/- made by the Assessing Officer under section 68 of the Act on account of unsecured loans. The Assessing Officer had made the addition primarily on the basis that the unsecured loans reflected in the balance sheet had increased from Rs. 4,38,99,896/- as on 31.03.2022 to Rs. Unique Bangles 4,86,13,485/- as on 31.03.2023, resulting in an increase of Rs. 47,13,589/-, which according to the Assessing Officer represented unexplained cash credit. The learned CIT(A), however, deleted the addition after observing that the assessee had furnished basic documentary evidence in support of the loan transactions including copies of income-tax returns, confirmations and other relevant documents of the loan creditors. The learned CIT(A) further recorded that once such primary evidence was furnished, the onus shifts upon the Assessing Officer to verify the same and establish the incorrectness of the documents produced by the assessee. Since no adverse material was brought on record by the Assessing Officer to rebut the evidence furnished by the assessee, the learned CIT(A) deleted the addition. Before us, the learned AR reiterated that the assessee had furnished complete details of the creditors including their identity, PAN, confirmations, income-tax returns and bank statements and therefore the requirements of section 68 stood satisfied. It was also pointed out that the addition made by the Assessing Officer was based merely on comparison of closing balances of unsecured loans between two years without properly examining the details of the creditors.

Having considered the material available on record, we find that the addition made by the Assessing Officer was primarily based on the increase in the closing balance of unsecured loans as reflected in the balance sheet. The learned CIT(A), on the other hand, has recorded a categorical finding that the assessee had Unique Bangles furnished the relevant documentary evidence in support of the loans and that the Assessing Officer did not bring any adverse material on record to disprove the same. The Revenue has not placed any material before us to demonstrate that the findings recorded by the learned CIT(A) are factually incorrect or that the evidence furnished by the assessee was unreliable. In the absence of any contrary material, we do not find any infirmity in the order of the learned CIT(A) deleting the addition made under section 68.Accordingly, the order of the learned CIT(A) on this issue is upheld.

In the result, the appeal of the Revenue is partly allowed.