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Facts
The assessee's appeal for AY 2013-14 was initially filed physically, then electronically, and then a third time due to system errors and communication issues regarding previous orders. The CIT(A) dismissed the appeal without condoning the delay, leading to the current appeal before the ITAT. The assessee contested disallowance of interest paid to relatives under Section 40A(2)(b) and addition of unexplained cash credit under Section 68.
Held
The Tribunal held that the delay in filing the appeal before the CIT(A) was condonable due to the peculiar circumstances and system errors. It further held that the disallowance under Section 40A(2)(b) was not justified, relying on a previous decision of the Tribunal in the assessee's own case for subsequent assessment years. The addition under Section 68 was also deleted, as the assessee had successfully established the identity, creditworthiness, and genuineness of the transactions, and the lenders' non-response to Section 133(6) notices was not a sufficient ground for addition.
Key Issues
Whether the delay in filing the appeal before the CIT(A) should be condoned, and whether the disallowance of interest under Section 40A(2)(b) and the addition of unexplained cash credit under Section 68 were justified.
Sections Cited
40A(2)(b), 68, 133(6), 143(3), 254(1)
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PER PAWAN SINGH, JUDICIAL MEMBER:
This appeal by assesseeis directed against the order of ld. CIT(A) / NFAC dated 30.06.2025 for A.Y. 2013-14. The assessee has raised following grounds of appeal;
i. The order dated 30.06.2025 bearing No. ITBA/NFAC/S/250/2025- 26/1078038803(1) by the CIT[A], National Faceless Appeal Centre, Delhi is arbitrary, against natural justice, unlawful, against the provisions of Income Tax Act, 1961 and therefore liable to be quashed. ii. On facts and in the circumstances of the case and in law theC.I.T.(Appeals) has erred in not condoning the delay in filing the appeal even though the sufficient reason for the said delay was furnished by the appellant. iii. On facts and in the circumstances of the case and in law theC.I.T. (Appeals) has erred in confirming the disallowance of interest made u/s 40A(2)(b) of the Income Tax Act, 1961 amounting to Rs.
19,53,193/- on account of alleged excess interest payment made to relatives, even though the same was allowed in earlier years and accepted by I.T.A.T in subsequent years i.e. 2014-15 & 2015-16. iv. On facts and in the circumstances of the case and in law the CIT (Appeals) has erred in confirming the addition made u/s 68 of the Income Tax Act, 1961 amounting to Rs. 35,00,000/- on account of unexplained cash credit. v. The appellant craves to alter, add, delete, substitute, or modify and other grounds of appeal.
Rival submissions of both the parties have been heard and record perused.
The learned authorised representative (Ld. AR) of the assessee submits that the assessment was completed under Section 143(3) on 30.03.2016.The assessee filed first appeal before Ld. CIT(A) in physical form on 18.04.2016. The appeal was filed within time. In April, 2016, the e-filing system was introduced by income tax department. During the hearing of first appeal, the assessee was directed to filed appeal electronically. The assessee again filed appeal electronically on 20.12.2018.
The assessee also furnished all the details to substantiate his grounds of appeal with evidences. Once, the appeal was filed in e-form, the physical appeal of the assessee was dismissed vide order dated 26.12.2018 with the liberty to file appeal electronically and delay, if any, would be considered at the time of decision of appeal. However, the order of dismissal dated 26.12.2018 was not received by assessee either in physical form or by way of e-mail. Theother appeals of assessee for other assessment year were also pending. As per directions of CBDT, the order used to be uploaded on ITB system. On ITD system, the order of AY 2015-16 was uploaded in place of order for AY 2013-14, copy of screenshot of ITD portal as well as order of CIT(A) for AY 2015-16 is filed on record. On uploading wrong order on ITBA system, the system was closed. The assessee was waiting for disposal of appeal, however, when the order of other years was received, on enquiry from ITBA portal and on consultation and on legal advice, the assessee again filed appeal third time before ld CIT(A) on 22.05.2025. The assessee also made prayer to condone the delay. The appeal was straightway dismissed by ld CIT(A) in limine without condoning delay in order dated 30.06.2025. The perusal of impugned order clearly shows that no show cause notice was issued by ld CIT(A), nor the facts pleaded in the statement of facts was considered. The ld AR of the assessee submits that there was no delay in filing appeal before ld CIT(A).
First round of appeal was dismissed for the want of e-appeal. Second round appeal was closed by system erroneously. Third round of appeal was dismissed without considering the real and actual facts. The Ld. AR of the assessee submits that he has good case on merit and likely to succeed if their case is considered on merit or one more opportunity is given to assessee to contest his case on merit before lower authorities.The assessee is always interested in contesting the case on merits, rather succeeded in subsequent assessment years on similar additions.
3. On merits, the ld AR of the assessee submits that the assessee has furnished copy of written submission file before CIT(A). In the submissions, it is stated that complete evidences and submissions to substantiate interest payment to related parties and the transaction of unsecured loan form two parties. The AO made addition of Rs, 19,53,193/- under section 40A(2)(b) on account of interest disallowance to related parties. Similar disallowance has been allowed by Tribunal in assesses own case for AY 2014-15 & 2015-16. Hence, this issue is covered in favour of the assessee.
In the submission filed before lower authorities the assessee fully substantiated justification of difference in payment of interest to related parties and unrelated parties. The prime lending rate of interest from bank during relevant financial year was ranging from 14.5% to 16.00%. In default it may attract penal interest. Borrowing from bank is a complex and time consuming and required security against such loan, however, in case of loan from relative no such formalities are required. On the addition of loan under section 68, the assessee contended that the assessee discharged primary onus in furnishing complete details of lender, that identity, creditworthy and genuineness of transaction. The assessee furnished copy of ITR, bank statement, details of interest paid on such loan. Once, such evidence is furnished the AO has no disproved such documents and non-genuine. The only objection of AO was that notice under section 133(6) was not responded by lenders. Merely, the lenders not responded to the notice of AO, cannot be ground to make addition when the assessee proved the transaction as genuine. To support such view, the assessee relied on the decision of Delhi High Court in PCIT Vs We Intertrade (P) Limited (2023) 152 taxmann.com 663 (Delhi).
On the other hand, the learned Senior departmental representative (Ld. Sr.
DR) for the revenue submits that the assessee should have filed appeal immediately on dismissal of physical appeal. In case, the bench is of the view that delay deserve to be condone, the matter may be restored to the file of ld CIT(A) for considering the appeal on merit. Against various submission of ld AR of the assessee, theld Sr DR for the revenue supported the order of AO.
5. In short rejoinder submission, the Ld. AR, by showing screenshot of ITDportal, submits that the impugned order in physical appeal was not communicated to the assessee, rather, on the ITB system, the order for 2015-16, which is also a very cryptic order, is available.
We have considered the submission of both the parties and have gone through the orders of lower authorities carefully. Considering the peculiar facts of the case that initially the assessee filed physical appeal against the addition in assessment order within time. Further, the assessee also filed appeal by way of e-filing and thirdly again filedappeal, when second appeal was closed by system. Thus, considering the overall facts of the case as explained before us, which we have recorded in para-2 (supra), which is otherwise not controverted by revenue, we are convinced that when there was no delay in filing appeal before CIT(A) in physical form and assessee also filed appeal by way of e-appeal, not only once but twice. Hence, subsequent delay in filing appeal before ld CIT(A), is condoned. Now adverting to the merits of the case.
We find that the assessee has basically raised two substantial grounds of appeal. First substantial ground of appeal relates to disallowance of interest expenses under section 40A(2)(b) of Rs. 19,53,193/-. Before us, the ld AR of the assessee submits that this ground of appeal is covered in favour of assessee by the decision of Tribunal in assesses own case for AY 2014-15 and 2015-16. We find that in assesses own case for AY 2014-15 & 2015-16 in & 984/Mum/2029, the coordinate bench on similar issue, on similar set of facts and on considering similar submissions, passed following order;
“2. Brief facts of the case are that the Assessing Officer has observed that assessee has paid interest to outsiders at rates starting from 12% and other higher rates. He noted that assessee has paid interest at the rate of 18% to persons covered under section 40A(2)(b) of the Act. Assessing Officer proceeded to disallow interest paid to parties covered u/s. 40A(2)(b) of the Act by holding that the fair market value of the interest should be 12%. Learned CIT(A) upheld the Assessing Officer’s order.
Against this order the assessee is in appeal before us. We have heard both the counsel and perused the records. Learned Counsel of the assesseecontended that the assessee is obtaining loan from the market at various rates ranging from 18% to 21% in the contemporaneous situation. He submitted that even bank finance is available at the rate of 15%. He further submitted that advances from relatives were obtained at the time of stress. He further submitted that these loans do not require any collateral or complicated documentation. Hence, learned counsel pleaded that no adjustment/ disallowance is required in this case u/s. 40A(2)(b) of the Act.
4. Upon hearing both the counsel and perusing the records, we are inclined to agree with the contentions raised by learned counsel of the assessee. On the facts and circumstances of the case on consideration of cogency in the submission of learned Counsel of the assessee in our considered opinion the disallowance of interest to parties u/s. 40A(2)(b) of the Act is not justified. Hence, we direct that the disallowance of interest u/s. 40A(2)(b) be deleted.
In the result, both the appeals filed by the assessee stand allowed.” 8. Considering the decision of coordinate bench of tribunal in assesses own case on similar issue and respectfully following the same, the AO is directed to delete the entire addition under section 40A(2)(b). In the result, ground No.3 of the appeal is allowed.
Second substantial ground of appeal relates to addition under section 68 of Rs. 35.00 lacs. We find that AO made this addition by taking view that he issued show cause notice to assessee to file details of unsecured loan and advances. The assessee filed required details with reply dated 21.01.2016. the AO issued notice under section 133(6) to the lenders for seeking their confirmation. The AO recorded that no confirmation was received from Creative Industries Unit-II and Hukamchand Investment. The AO made addition of Rs. 35.00 lakhs, out of which Rs.25.00 lacs loan from Creative Industries and Rs. 10.00 lacs from Hukamchand Investment. In respect of loan from Creative Industries, we find that the assessee has filed copy of loan confirmation, bank statement of lender and assessee and copy of ITR of lender. The said loan was received on 25.02.2013 through banking channel, the assessee has paid interest of Rs. 33,542/- after making TDS of Rs.3,354/-. This lander has shown taxable income for AY 2013-14 of Rs. 1.62 Crore. Further, the loan has been repaid on 24.12.2013 through RTGS, copy of bank statement of assessee in Union Banak of India is on record, showing the receipt (credit) and repayment with interest (debit) of Rs. 25,72,450/-. Thus, the assessee has clearly proved the identity, creditworthy and genuineness of this transaction. For another loan of Rs. 10.00 lacs fromHukamchand Investment, the assessee has filed copy of loan confirmation, bank statement of lender and assessee and copy of ITR of lender. The said loan was received on 03.11.2012 through banking channel, the assessee has paid interest of Rs. 51,405/-. This lander has shown taxable income for AY 2013-14 of Rs. 15,53,779/-. We find that this loan has also been repaid on 15.11.2014 through RTGS, copy of bank statement of assessee in Union Banak of India is on record, showing the receipt (credit) and repayment with interest (debit) aggregating of Rs.
10.13,455/-. Thus, the assessee has clearly proved the identity, creditworthy and genuineness of this transaction as well. We find that the AO has not given any adverse remark on the evidence furnished by the assessee. The sole basis of AO for making addition was that notice under section 133(6) was not responded by lenders. We find that Delhi High Court in PCIT Vs We Intertrade (P) Limited (2023) 152 taxmann.com 663 (Delhi) held that merely, the lenders not responded to the notice of AO, cannot be ground to make addition when the assessee proved the transaction as genuine. We find that the Hon’ble Jurisdictional High Court in the case of Nikunj Exim Enterprises Private Limited 372 ITR 619, has held that merely because the suppliers had not appeared before the AO or before the CIT(A), one could not conclude that the transaction made by the assessee was not genuine. Thus, in view of the above factual and legal position, we do not find any justification in making the addition of unsecured loan as unexplained credit under section 68 of the Act. In the result, this ground of appeal is also allowed.
In the result, the appeal of the assessee is allowed.