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Facts
The Revenue appealed against the CIT(A)'s order deleting additions made for alleged unexplained unsecured loans and a disallowance on commission payments. The assessee, a HUF, had classified a substantial amount as unsecured loans, which the AO treated as unexplained cash credit. The commission payments were disallowed on an ad-hoc basis.
Held
The Tribunal held that the amount treated as unsecured loans was actually sundry creditors arising from purchases, and the misclassification did not warrant addition under Section 68. Regarding commission payments, it was found to be a genuine business expenditure, duly evidenced and accepted in prior years, hence the ad-hoc disallowance was not justified.
Key Issues
Whether the amount treated as unsecured loans was genuine sundry creditors, and if the ad-hoc disallowance of commission expenses was justified.
Sections Cited
68, 143(3)
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Income Tax Appellate Tribunal, “C’ BENCH
Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI PRABHASH SHANKAR
Appellant by : Shri Bhupendra Shah Respondent by : Shri Mahesh Pamnani, (Sr.DR) Date of Hearing 13.02.2025 Date of Pronouncement 24.02.2025 आदेश / O R D E R PER PRABHASH SHANKAR [A.M.] :- The present appeal emanating from the appellate order dated 27.03.2024 is filed by the Revenue against the order of the Learned National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”] pertaining to assessment order u/s. 143(3) of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 29.12.2019 passed by the Asst. Commissioner of Income Tax -23(2), Mumbai for the Assessment Year [A.Y.] 2017-18.
The Revenue has raised following grounds of appeal:
1. "Whether on the facts and circumstances of the case and in law the Ld.CIT(A) has erred in deleting the addition of Rs. 7,20,33,333/-made by AO on account of A.Y. 2017-18 Omprakash Somani HUF unexplained unsecured loans taken from M/s Sanika Commodities India Pvt. Ltd, u/s 68 of the Act, without appreciating the facts that during the assessment proceedings the assessee failed to prove the creditworthiness of the lender and genuineness of transaction?" 2. "Whether on the facts and circumstances of the case and in law the Ld.CIT(A) has erred in not considering the fact that in such transactions the primary onus is lying upon the assessee to prove the identity, creditworthiness of the loans/creditor and genuineness of transaction with all documentary evidences, but the assessee failed to discharged his duty to prove the creditworthiness of lender and genuineness of transaction, in-spite of given ample opportunities during the assessment proceedings?" 3. "Whether on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in directing the AO to accept the amount of Rs. 7,20,33,333/-as Sundry Creditors instead of unsecured loans taken from M/s Sanika Commodities India Pvt. Ltd, whereas during the assessment proceedings in the details of new loans taken during the year under consideration filed in response to notice u/s 142(1), the assessee himself accepted that during the year under consideration he has taken new interest free unsecured loan of Rs.7,20,33,333/-from M/s Sanika Commodities India Pvt. Ltd. 4. "Whether on the facts and circumstances of the case and in law the Ld.CIT(A) has erred in directing the AO to accept the amount of Rs. 7,20,33,333/- as Sundry Creditors instead of unsecured loans taken from M/s Sanika Commodities India Pvt. Ltd, whereas as per Audit report filed with ITR of A.Y. 2017-18, it is very clear that the assessee has shown in column No. 31(a) of the 3CD form at Sr. No. 72 as new loan taken during the year under consideration from M/s Sanika Commodities India Pvt. Ltd of Rs. 7,20,33,333/-?" 5. "Whether on the facts and circumstances of the case and in law the Ld.CIT(A) has erred in admitting the new evidences without asking remand report from Assessing Officer as prescribed in rule 46B of Income tax Rule, 1962?" 6. "Whether on the facts and circumstances of the case and in law the Ld.CIT(A) has erred in deleting the addition of Rs. 56,87,810/-made by AO on account of 25% of unexplained commission paid during the year under consideration, without appreciating the facts that during the assessment proceedings the assessee failed to prove the genuineness of commission paid and also the assessee has failed to submit full details of commission parties?"
7. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary?”
3. With regard to the ground nos.1 to 5, facts of the case are that the assessee is a Hindu Undivided Family (HUF) carrying on its business of trading and A.Y. 2017-18 Omprakash Somani HUF manufacturing of furnishing fabrics in the name of Jai Mahavir Textiles at Mumbai. The ground nos. 1 to 5 relate to the addition of Rs. 7.20 cr. as unexplained cash credit being unsecured loan from one M/s Sanika Commodities Pvt. Ltd.(henceforth ‘SCPL’).The AO noticed that this amount reflected as Unsecured loan was a new loan. Though certain Income Tax details etc were submitted, the bank statement was not submitted. The AO accordingly, held the sum to be unexplained cash credit in terms of section 68 of the Act. In the subsequent, appeal, the assessee pleaded before the ld.CIT(A) that the impugned sum was not a credit rather ‘Sundry Creditor’ which was wrongly classified as Loan in the accounts. It was submitted before him that the said amount was the purchase effected by the appellant during the year of Rs. 540.26 lakhs and Rs. 180.07 lakhs was the opening balance of the preceding previous year, totalling Rs. 720.33 lakhs. The appellant has also stated that complete details were provided before the AO during the assessment proceeding. The said amount was classified as Unsecured loan instead of trade payable by the appellant for the reason that the extended credit line was offered by the supplier. However, the supplier of the goods SCPL had properly shown as ‘Sundry debtors’ (trade receivables) in their books of accounts/Balance Sheet. The AO had considered the purchases to be genuine from all the parties as reflected in the statement of party wise purchases submitted. The appellant had made payments gradually to all the supplies made in the subsequent years as is reflected in the ledger confirmation of the said party. Thus, simply for a A.Y. 2017-18 Omprakash Somani HUF wrong classification, the same ought not have been considered as unexplained cash credit u/s 68 of the Act by AO. The CIT(A), however, considered the written submissions of the appellant favourably and deleted the addition.
4. Before us, the ld.DR relied on the assessment order. On the other hand, the ld.AR of the assessee supported the appellate order and has also relied on its submissions made before him. A detailed paper book was also submitted. He took us through the various pages thereof drawing attention to the several documents and other evidence submitted before the authorities below. The ld.CIT(A) has made following observations while deciding the issue in favour of the assessee:
“7.1 After detailed examination it was confirmed the Appellant made the following submission before the AO. Written submission along with the basic details such as ITR Copy, computation of Income, Power of allumey, Balance Sheet & 3CD report, Written submission, Expenditure claimed Ledger copies, Purchase and sales details, TDS details & Form 26AS, Loan Confirmation from the parties, Written submission along with Capital Account copy, and Loan details, Written submission, Capital Account copy, Loans and confirmations, Purchases and sales details. Expenditure details 7.2 During the course of the appellate proceeding, the appellant has stated that It was also submitted by the appellant that during the year there were purchases of Rs 5,40,26,112/- from M/s. Sanika Commodities India Pvt. Ltd and also the opening balance of the party was Rs. 1,80,07,221/- against the purchases of goods in previous years. The said amount was supposed to be shown as Sundry Creditors, however by mistake the same was classified as unsecured loan for the year under consideration. In support of its claim the appellant has also submitted ledger copies, bank account statement, ITR & Balance sheet of the M/s. Sanika Commodities India Pvt. Lid 7.3 The details submitted by the appellant have been perused. As claimed by the appellant, purchases were made on various dates from the M/s. Sanika Commodities India Pvt. Ltd, who has granted line of credit to the appellant as well. The appellant has claimed that the amount was being paid subsequently. The claim of the appellant can be ascertained after careful perusal of the bank account statement, wherein there are multiple payments from the appellant to M/s Sanika Commodities India Pvt. Ltd. 7.4 It was also noticed form the Balance sheet of the M/s. Sanika Commodities India Pvt. Ltd for the year ending 31.03.2017 that the entire amount under dispute (Rs.
A.Y. 2017-18 Omprakash Somani HUF 7,20,33,333/-) has been shown as sundry debtors against the appellant's name. This further strengthens the claim of the appellant of the mistakenly showing the amount as unsecured loans instead of Sundry Creditors. The relevant portion of the Balance sheet of M/s. Sanika Commodities India Pvt. Ltd is reproduced as under:- SUNDRY DEBTORS Khandwa Oils 7,500,000.00 Helios Mercantile Ltd 9,725,786.00 The Future Wear Pvt. Ltd 16,146,970,00 S.B.Commodities Pvt Ltd. 245,749.45 Jai Mahavir Textile 2017 72,033,333.00 Tinay Securities Trading Pvt.Ltd. 16,831 323.61 SPT Commodities Pvt. Ltd. 61,851,730.74 Shree Shyam Trading Company 2,000,000.00 S.N.Laddha Advisory-Advance 1,500,000.00 Thar Merchants Pvt. Ltd 12,714,000.00 7.5 This clarifies that the entire amount of Rs. 7,20,33,333/- amount was disclosed by the appellant, however due some mistake the same was shown as unsecured loan instead of the Sundry Creditors. Appellant has also not claimed any interest payment expenditure on the said amount which has also been recorded in the assessment order by the AO. Therefore the intention of the appellant can not be doubted and the amount also remain verified In view of the above discussion I hereby allow the appellant's ground No 1 of appeal and the AO is directed to delete the addition made accepting the same amount as Sundry Creditors instead of unsecured Loans.”
On careful consideration of all the relevant facts of the case, rival submissions and the record before us, we do not find any reason for differing from the aforesaid conclusion drawn by the ld.CIT(A). The AO did not appreciate the facts correctly and jumped to an adverse conclusion. Mere misclassification of the impugned sum in the books of account did not justify treating the same as unexplained cash credit liable to be added u/s 68 of the Act. We therefore, uphold the deletion of the addition by the ld.CIT(A), dismissing the grounds of appeal of the assessee in the matter.
6. The ground no.6 of appeal relates to the addition of Rs. 56.87 lakh, being 25% amount of Brokerage and Commission paid by the appellant on ad-hoc A.Y. 2017-18 Omprakash Somani HUF basis. The AO made an estimated disallowance at the rate of 25% of the total amount of commission debited to the profit and loss account amounting to Rs 2.27 cr. Though details were admittedly furnished before him, it is stated that no documentary evidences were produced to justify the claim. The ld.CIT(A) took note of the facts that the assessee did submit respective PANs and other details before the AO, there was no substantial spike under this head and similar claim being allowed by the department in the past, did not approve of the disallowance and deleted the same.
7. Before us, the ld.DR relied on the assessment order. Per contra, it was contented by the ld.Authroised Representative that no show cause notice was ever issued for any of the aforesaid additions which itself was also against the principles of natural justice. The assessee is making sales on pan India basis and has about 4000 and odd customers scattered to be all over. In order to effectively control sales and after sales services to various customers, it had appointed commission agents in all market centres/cities. They not only procured the orders and managed the payments of parties but also keep informing about the changing market trends and demands etc. Similar such payments in the same volumes were made in the past years and were accepted by the department. The scrutiny assessment in past years had taken place and no such addition was ever made in any of the past assessment years. (Page 193 to 206 and paper book). The assessee had also provided the names and addresses and PAN of all parties and had also submitted all the confirmations of all parties to whom the brokerage and commission was paid. (Page 94 to 97). The TDS as applicable had also been deducted by it. It is thus not understood on what basis the said addition on ad-hoc basis was made by the AO. There was no inquiry ever made by the assessing officer in assessment proceedings nor any notice u/s 133(6) was issued to any of the parties.
A.Y. 2017-18 Omprakash Somani HUF 8. On careful consideration of all relevant facts of the case, we do not find any infirmity in the conclusion drawn by the ld.CIT(A).The ld.AR before us as well duly demonstrated that the said expenditure was a genuine one and the AO did not make out a case of disallowance without bringing on record any cogent finding. In the backdrop of the evidences placed on record by the assessee, it would be unreasonable to hold that the assessee had failed to justify the deduction claimed. Now, in the case before us, it is an admitted factual position that (i) the commission expenditure was incurred by the assessee wholly and exclusively for the purpose of its business, which was dictated by business needs and was allowable (ii) the fact that the assessee had deducted tax at source on the aforesaid commission payments, substantiated the genuineness of the said expenditure; (iii) the commission paid by the assessee was not high in relation to the sales made during the year; (iv) the names and address of the parties, to whom commission was claimed by the assessee to have been paid was furnished with the AO and (v) the details along with the PAN numbers of the dealers to whom commission was paid were furnished by the assessee. Moreover, no independent finding has been brought on record by making any effort was made by the AO to independently verify the said expenditure by way of examining any of the commission agents. Therefore, we are of the considered view, that the genuineness of the aforesaid commission expenditure and the fact that the said expenditure was incurred wholly and exclusively for the purpose of the business of the assessee, admittedly stands established beyond any scope of doubt. On the basis of our aforesaid observations, we are of the view that the assessee had placed on record substantial materials to substantiate the genuineness and veracity of the commission expenditure, therefore, there was no justifiable reason for disallowing a part of the aforesaid commission expenditure on ad hoc basis. Accordingly, the order of the ld.CIT(A) is upheld and the ground in this regard is dismissed.
Order pronounced in the open court on 24.02.2025.