NIGHTINGALE FINVEST PRIVATE LIMITED,GUWAHATI vs. ITO WARD 12(4), KOLKATA, KOLKATA

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ITA 980/KOL/2024Status: DisposedITAT Kolkata03 March 2025AY 2014-185 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

On the first issue concerning the disallowance of Rs. 1,55,710/- for cash expenses, the Tribunal held that the disallowance was ad-hoc and not permissible under the Income Tax Act. It noted that neither the Assessing Officer nor the Ld. CIT(A) had made a specific identification of any bogus or non-verifiable expenses, and the disallowance was based on an arbitrary percentage. Therefore, the disallowance of Rs. 1,55,710/- was deleted. On the second issue regarding the addition of Rs. 3,63,45,650/- for cash deposits, the Tribunal observed that while the assessee was granted opportunities, it failed to provide the necessary details, citing voluminous documentation. Recognizing the need for justice and to allow the assessee to substantiate its claim, the Tribunal restored this issue to the file of the Assessing Officer for re-adjudication, with a direction to grant the assessee adequate opportunity. The assessee was directed to cooperate in the set-aside proceedings.

What were the facts?

The assessee, Nightingale Finvest Private Limited, filed an appeal against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, for Assessment Year 2017-18. The appeal was initially filed with an incorrect Assessment Year in Form No. 36, which was later corrected. The assessee raised three issues: an addition of Rs. 1,55,710/- for cash expenses, an addition of Rs. 3,63,45,650/- for cash deposits during demonetization, and a legal challenge to the invocation of Section 68 of the Income Tax Act for cash deposits. The assessee withdrew the legal ground during the hearing.

What were the issues?

1. Whether the Tribunal can delete the disallowance of Rs. 1,55,710/- made on account of cash expenses, which was confirmed by the Ld. CIT(A) after restricting an initial disallowance by the Assessing Officer. The assessee argued that the disallowance was ad-hoc and uncalled for, as all vouchers were maintained and the expenses were incurred for business purposes. The revenue contended that the expenses were unverifiable as they were incurred in cash and that the Ld. CIT(A)'s restriction to 25% was reasonable. 2. Whether the Tribunal can delete the addition of Rs. 3,63,45,650/- made on account of cash deposits during the demonetization period. The assessee, an RBI-approved NBFC, claimed these were monthly/bimonthly collections from loan recoveries, with corresponding entries in its books and repayment of loans. It argued the figure was an arithmetic calculation by the AO and not from its books, and that samples were provided. The revenue argued that the assessee failed to provide details despite multiple opportunities, making the addition liable to be confirmed.

Which sections of the Income-tax Act were involved?

Section 68,Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A” BENCH, KOLKATA

Before: SHRI GEORGE MATHAN & SHRI RAKESH MISHRA

For Appellant: Shri Anil Kumar Agarwala, Advocate
For Respondent: Shri Prabhakar Prakash Ranjan, Addl. CIT
Hearing: 03.03.2025Pronounced: 03.03.2025

Present for: Appellant by : Shri Anil Kumar Agarwala, Advocate Respondent by : Shri Prabhakar Prakash Ranjan, Addl. CIT, Date of Hearing : 03.03.2025 Date of Pronouncement : 03.03.2025 O R D E R Per Bench : This is an appeal filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “the Ld. CIT(A)”] vide order no. ITBA/NFAC/S/250/2023-24/1062689695(1) dated 15.03.2024 passed u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2017-18.

2.

Shri Anil Kumar Agarwala, Advocate appeared on behalf of the assessee and Shri Prabhakar Prakash Ranjan, Addl. CIT appeared on behalf of the revenue.

3.

It was submitted by the Ld. AR that there was a mistake in Form No. 36 in respect of the mentioning of the Assessment Year which was shown as AY 2014-18. Corrigendum has also been filed which specifies that the Assessment Year is AY 2017-18. The corrected Form No. 36 is taken on record.

4.

It was submitted by the Ld. AR that there are three issues raised in the assessee’s appeal. The first issue was in respect of an addition of Rs.1,55,710/- confirmed by the Ld. CIT(A) in respect of the disallowance of cash expenses. The second issue was against the addition of Rs.3,63,45,650/- representing cash deposit during demonetization period. The third issue was legal issue wherein the assessee has challenged the cash deposits in the bank account of the assessee can be treated as disallowable by invoking the provisions of section 68 of the Act.

5.

At the time of hearing, the Ld. AR withdrew his legal ground. Consequently, the legal ground i.e. ground no. 3 of the assessee’s appeal stands dismissed as withdrawn.

6.

Coming to the first issue being the addition of Rs.1,55,710/-, it was submitted by the Ld. AR that the Assessing Officer in the course of assessment proceedings had disallowed 50% of the cash expenses relating to the canteen operated by the assessee the disallowance was Rs.3,11,418/-. It was the submission that on appeal, the Ld. CIT(A) held that the expenses were incurred for the purpose of business and the Assessing Officer could not comment about the verifiability of the same and consequently restricted the disallowance to 25% resulting in an amount of Rs.155,710/- as confirmed. It was a submission that the said expenses were not disallowable in so far as the assessee was a company and all the vouchers were maintained. It was the submission that the ad-hoc disallowance was uncalled for.

7.

In reply, the Ld. Sr. DR submitted that the expenses were unverifiable in so far as the expenses were incurred in cash. It was the submission that the Ld. CIT(A) has been extremely reasonable in restricting the disallowance to 25%.

8.

We have considered the rival submissions. A perusal of the assessment order shows that the Assessing Officer after bringing out the details of the expenditure took the stand that the expenses incurred were bogus expenses. On appeal, the Ld. CIT(A) shifted the issue from the claim of the Assessing Officer that it was bogus expenses to non-verifiable expenses. Admittedly, no specific expenses have been disallowed as either bogus or non-verifiable. The details of each and every voucher has been extracted by the Assessing Officer in his assessment order. What has been disallowed by the Assessing Officer and partly confirmed by the ld. CIT(A) is nothing but ad hoc disallowance, which is not permissible under the Indian Income Tax Act, 1961. If there are any specific items that called for any disallowance then the Assessing Officer and the Ld. CIT(A) ought to have made a specific identified disallowance, and as this has not been done, the disallowance of Rs.1,55,710/- as confirmed by the Ld. CIT(A) stands deleted.

9.

In regard to the addition of Rs.3,63,45,650/- made by the Assessing Officer in respect of the cash deposit by the assessee in its bank account, it was submitted by the ld. AR that these were monthly and bimonthly collections made by the assessee in the course of its business. It was a submission that the assessee is an NBFC approved by the Reserve Bank of India. It was the submission that the assessee gives loans to various persons and the recovery is on a monthly/bimonthly basis. It was a submission that the figure of Rs.3,63,45,650/- as adopted by the Assessing Officer was not the actual figure from the books of the assessee but was same figure arrived at by the Assessing Officer by doing some arithmetic jugglery. It was a submission that the disallowance was done not in respect of demonetized currency, which was deposited by the assessee in its bank account and the same was already accepted by the Assessing Officer. These were cash deposited in the various bank accounts of the assessee during the period of demonetization. It was the submission that though the Assessing Officer had asked for the details, due to the voluminous nature of the details it was not produced but some sample were produced. It was submitted that the Assessing Officer disallowed the entire cash deposit treating the same as unexplained cash credit in the books of the assessee. It was the submission that each of the deposit has a corresponding entry in the books of account of the assessee and it relates directly to the various clients of the assessee from the business who have taken loan from the assessee. It was the submission that each of these loan amounts have also been repaid. It was the submission that the Assessing Officer and the ld. CIT(A) has erred in making and confirming the addition.

10.

In reply, the Ld. Sr. DR submitted that no details had been produced by the assessee and to substantiate this claim of the cash deposited being monthly/bimonthly, claims made from the creditors who had taken loan needed verification. It was the submission that though multiple opportunities had been granted, the assessee failed to provide the details. It was the submission that the addition is liable to be confirmed.

11.

We have considered the rival submissions. A perusal of the facts in the present case on issue shows that admittedly the assessee has been granted opportunity. The assessee on the ground that the documents would be voluminous did not provide the same. When an authority under the statute asked for certain details, it is normally expected by the assessee to provide the details and substantiate its claim. Just because there is voluminous detail does not mean that the process of assessment can be short circuited by not providing the details. This being so, and in the interests of justice, one more opportunity is being provided to the assessee to produce the details before the Assessing Officer. Hence, this issue is restored to the file of the AO for re-adjudication. The Assessing Officer shall adjudicate the issue after granting the assessee adequate opportunity to substantiate its case. The assessee shall cooperate in the set aside proceedings.

12.

In the result, the appeal of the assessee is partly allowed for statistical purpose with the directions given above.

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