ACIT 22 (3), MUMBAI vs. M/S RUKHANA ENTERPRISES, MUMBAI

These appeals in 6507/Mum/2019 & 6509/Mum/2019 for A.Y.2010-11, 2011-12 & 2013-14 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-34, Mumbai in appeal Nos.CIT(A)-34, Mumbai/10349/2016-17, CIT(A)34, Mumbai/10351/2016-17, CIT(A)-34, Mumbai/10352/2016-17 & CIT(A) 34, Mumbai / 10353/2016-17 dated 11/07/2019 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 24/12/2016 & 31/03/2016 respectively by the ld. Asst. Commissioner of Income Tax, Circle-22(3), Mumbai (hereinafter referred to as ld. AO).

At the outset, we find that Revenue has challenged the loan addition made u/s.68 of the Act for the A.Y. 2010-11 in the sum of Rs.3,31,00,000/- together with proportionate disallowance of interest of Rs.24,57,973/- before us.

We have heard rival submissions and perused the materials available on record. We find that the ld. AO had made an addition of Rs.3,31,00,000/- towards loans u/s.68 of the Act and made disallowance of interest of Rs.24,57,937/- in the assessment. During the course of first appellate proceedings, a remand report was called for by the ld. CIT(A). In the said remand report, the ld. AO himself had categorically stated that fresh loans received during the year under consideration was only Rs.30,00,000/- and the remaining sums represent only opening balance which was also added u/s.68 of the Act. The ld. AR in support of this proposition drew our attention to pages 34-41 of the order of the ld. CIT(A) wherein the entire remand report is reproduced by the ld.CIT(A). We hold that no addition could be made in respect of opening balance of loans u/s.68 of the Act. The ld. CIT(A) had granted relief to the assessee based on the remand report of the ld. AO by categorically stating that assessee had proved all the three necessary ingredients of Section 68 of the Act, viz., identity of loan creditors, genuineness of the transactions and creditworthiness of the loan creditors in respect of loans received during the year under consideration. Accordingly, the ld. CIT(A) had deleted the entire addition made u/s.68 of the Act and correspondingly deleted the disallowance of interest paid on such loans. Since, the ld. AO in his remand report had categorically admitted the fact that fresh loans received during the year was only Rs.30,00,000/-, the Revenue ought not to have challenged the addition made u/s.68 of the Act in respect of opening balance of loans. Reliance in this regard is placed on the decision of Hon’ble Madras High Court in the case of B Jayalakshmi vs ACIT reported in 258 Taxman 318 (Mad), wherein it was held that where the Commissioner (Appeals) on the basis of remand report of Assessing Officer allowed the claim of the assessee , revenue was not entitled to maintain an appeal before the Tribunal against said order of Commissioner (Appeals). The ld. AR before us argued that if the remand report of the ld. AO is considered, then the tax effect of the amounts disputed by the Revenue before this Tribunal would fall within the monetary limit prescribed by CBDT for filing of appeal by the Revenue before this Tribunal. We have gone through the said pages 34-41 of the order of the ld. CIT(A) and are convinced that if the remand report is considered then the appeal filed by the Revenue squarely falls on the ground of low tax effect. Accordingly, the appeal of the Revenue would be liable to be dismissed on the ground of low tax effect itself as not maintainable. Apart from this, we also find that assessee had duly proved the three necessary ingredients of Section 68 of the Act in respect of loans received during the year. The ld. CIT(A) had also granted relief to the assessee on merits and categorically held that no addition u/s.68 of the Act could survive in the instant case. This finding of the ld. CIT(A) had not been controverted by the Revenue before us. Hence, even on merits, we do not find any infirmity in the order of the ld. CIT(A) granting relief to the assessee. Hence, appeal of the Revenue is dismissed.

The facts are exactly identical with A.Y.2010-11. During this year there is no fresh loan received by the assessee and the interest disallowance made of opening balance amounts to Rs.23,66,094/- which squarely falls within the monetary limit prescribed by CBDT for preferring appeal by the Revenue before this Tribunal. Even on merits, we hold that no addition u/s.68 of the Act could be made in respect of opening balances of loan creditors. We further find that the ld. CIT(A) had also granted relief to the assessee both on merits as well as based on the remand report of the ld. AO. We find that the ld. CIT(A) had also deleted the addition made u/s.68 of the Act on merits and deleted the disallowance of interest paid on such loans on merits. These factual findings recorded by the ld. CIT(A) were not controverted by the Revenue before us. Hence, we do not find any infirmity in the order of the ld. CIT(A) granting relief to the assessee even on merits. Accordingly, the appeal of the Revenue is dismissed.

We find that a letter was filed from the ld. AO confirming the fact that the case squarely falls within the ambit of low tax effect as the total addition made by the ld.AO in the assessment itself is only Rs.70,15,014. Even though we find that in the grounds of appeal raised by the Revenue, a higher figure has been mentioned, the same is grossly erroneous as is evident from the authorisation memo issued by Pr. Commissioner of Income Tax for preferring appeal to the Tribunal. We find from the aurhorisation memo duly signed by Pr. Commissioner of Income Tax, the correct addition to be disputed is mentioned at Rs.70,15,014/-. Hence, we have no hesitation to hold that the present appeal squarely falls within the ambit of low tax effect circular issued by CBDT and accordingly dismiss the appeal of the revenue.

In the result, all the appeals of the Revenue are dismissed.