Loading judgment…
Facts
The assessee appealed against the CIT(A)'s order confirming the AO's additions on account of unsecured loan from father (Rs. 20,50,000), disallowance of expenses (Rs. 47,67,783), and addition on account of closing stock (Rs. 1,25,00,000) for AY 2015-16. The assessee claimed the loan was from his father's agricultural income accumulation.
Held
The Tribunal held that the AO rejected the assessee's explanation for the loan without cogent evidence, as the father had sufficient agricultural land. The disallowance under Section 40(a)(i) was invalid as no payment requiring TDS was identified. The addition on account of closing stock was also deleted as it was a revenue natural exercise.
Key Issues
Whether the addition on account of unsecured loan from father, disallowance of expenses, and addition on closing stock were justified. Whether the AO assumed proper jurisdiction and issued mandatory notice under Section 143(2).
Sections Cited
68, 40(a)(i), 143(3), 234A, 234B, 234C, 139(5)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘F’, NEW DELHI
Before: SHRI SATBEER SINGH GODARA, HON’BLE JUDICIAL & SHRI NAVEEN CHANDRA, HON’BLE
ORDER PER NAVEEN CHANDRA [A. M]:
The above captioned appeal is preferred by the assessee against the order dated 27.01.2019, passed by Ld. CIT(A)-1, Gurgaon u/s 250(6) of the Income Tax Act, 1961 [hereinafter referred to as, “Act”] for A.Y. 2015-16.
The assessee has raised following grounds of appeal: “
1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in passing the impugned assessment order Page 1 of 6 401/DEL/2021 Navdeep Singh vs DCIT and that too without assuming jurisdiction as per and without issuing/serving the mandatory notice u/s 143(2) in accordance with law and thus Ld. CIT(A) ought to have quashed the assessment order.
2. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs.20,50,000/- on account of unsecured loan received from father by treating it as alleged income of the assessee u/s 68 of the Act and that too by recording incorrect facts findings and without giving adequate opportunity of hearing and without bringing anything contrary on record and by disregarding the submissions, evidences and material placed by the assessee and in violation of principles of natural justice.
3. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of Rs.20,50,000/- on account of unsecured loan u/s 68, is bad in law and against the facts and circumstances of the case.
4. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making disallowance of Rs.47,67,783/- u/s 40(a)(ia) and that too by recording incorrect facts findings and without giving adequate opportunity of hearing and without bringing anything contrary on record and by disregarding the submissions, evidences and material placed by the assessee and in violation of principles of natural justice.
5. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making disallowance of Rs.47,67,783/- u/s 40(a)(ia), is bad in law and against the facts and circumstances of the case.
6. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs.1,25,00,000/- on account of closing stock and that too by recording incorrect facts findings and without giving adequate opportunity of hearing and without bringing anything contrary on record and by disregarding the submissions, evidences and material placed by the assessee and in violation of principles of natural justice.
7. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of Rs.1,25,00,000/- on account of closing stock, is bad in law and against the facts and circumstances of the case.
Page 2 of 6 401/DEL/2021 Navdeep Singh vs DCIT 8. That having regard to the facts and circumstances of the case, Ld. CIT(A) ought to have allowed the claim made by assessee by way of revised Income Tax Return.
That in any case and in any view of the matter, action of the Ld. CIT(A) in confirming the action of Ld. AO in making impugned addition/disallowance and framing the impugned assessment order is contrary to law and facts and void ab initio and the same is not sustainable on various legal and factual grounds and without observing the principles of natural justice and deserves to be quashed.
That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in charging interest u/s 234A, 234B and 234C of Income Tax Act, 1961.
That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”
3. Briefly, the assessee filed return declaring an income of Rs. 34,97,210/- for A.Y. 2015-16. The assessment was framed by the Assessing Officer [for short, AO] at an income of Rs. 2,28,14,990/- u/s 143(3) of the Act., vide order dated 30.12.2017. In this case, the AO had made three additions on account of section 68 of Rs. 20,50,000/- as unsecured loan from his father namely, Shri Bhompal Singh; section 40a(i) and addition on account of closing stock. With respect to loan from his father, the assessee submitted the bank statement of his father along with the details of land held by him and argued that his father is agriculturist and the said amount is accumulation of agricultural income. The AO, however, rejected the explanation and therefore, he made the addition as unexplained credit u/s 68 of the Act. The AO has not Page 3 of 6 401/DEL/2021 Navdeep Singh vs DCIT questioned the identity and the only issue for concern is the genuineness of the transaction and the creditworthiness of the lender.
4. We find from the assessment order that the assessee’s father had 18 acres of land from where the assessee claimed to have procured agricultural income. We further find that the assessee has also furnished the bank statement of his father. The AO has dismissed the explanation on the ground that the assessee’s could not furnish his father’s ITR and disbelieved that the loan was out of accumulation of agricultural activities and that the bank statement had meagre balance.
5. In such factual matrix, we are of the view that the AO has rejected the explanation of the assessee without any cogent evidence. The assessee’s father, having 18 acres of land has the probability of earning substantial agricultural income. The mere fact that the bank statement shows meagre amount does not prove that loan has not come through banking channel. It is also not the case of the AO that cash was deposited in the bank of the father which was extended as loan to the assessee. We therefore, are of the considered view that the assessee has given a satisfactory explanation for the loan received from his father. The said addition is deleted and the ground therefore, is allowed.
6. With respect to the disallowance of expenses u/s 40(a)(i), we find that the only ground for making such addition was that the assessee in its original return, had stated that an expense of Rs. 47,67,783/- was Page 4 of 6 401/DEL/2021 Navdeep Singh vs DCIT disallowable u/s 40(a)(i) of the Act. However, the ITR was subsequently revised u/s 139(5) of the Act, wherein the assessee stated that the said disallowance u/s 40(a)(i) was wrong since no such payment of Royalty/Fees for technical services were made. Neither the AO nor the ld DR has controverted the assessee’s stand. The AO has not identified any payment on which TDS was not deducted for which disallowance could be made in accordance with provisions of section 40(a)(i). We therefore, are of the considered view that the addition made u/s 40(a)(i) was invalid and accordingly the AO is directed to delete the said addition. Ground No. 2 is allowed.
With respect to the addition on account of closing stock, the assessee explained that the said valuation of stock was also taken in sales hence to avoid double addition, the value of closing stock was reduced in the accounts. Be that as it may, we find that the same is revenue natural exercise as the closing stock of this year would become opening stock for subsequent year. The same is therefore, deleted. This ground of appeal
is allowed.