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Facts
The assessee, engaged in processing pulps and juices, filed a return declaring a loss. The Assessing Officer (AO) made several additions to the income, primarily treating advances received from Pranav International Ltd. as unexplained credit due to a lack of creditworthiness substantiation and for other reasons like payments to Franco Itely, bank balance differences, bad debts, and stock discrepancies. The CIT(A) deleted most of these additions.
Held
The Tribunal held that the CIT(A) erred in accepting additional evidence without giving the Assessing Officer an opportunity to rebut. The creditworthiness of Pranav International Ltd. was found doubtful. Therefore, the issues related to Pranav International Ltd. and Franco Itely were restored to the AO for fresh adjudication, with a direction to provide the assessee an opportunity to present evidence. Other grounds were also decided, with some allowed for statistical purposes.
Key Issues
Whether advances received from a foreign party are unexplained credit when creditworthiness is not adequately substantiated, and whether certain other expenses and discrepancies are genuine.
Sections Cited
143(2), 142(1), 68, 271AAC, 36(1)(vii), 36(2), 46A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI R. K. PANDA & SHRI VINAY BHAMORE
This appeal filed by the Revenue is directed against the order dated 31.05.2024 of the Ld. CIT(A) / NFAC, Delhi relating to assessment year 2017-18.
Facts of the case, in brief, are that the assessee is a company engaged in production / processing of pulps, juices and vegetables etc. It filed its return of income on 22.11.2017 declaring total loss of Rs.9,22,960/-. The case was selected for scrutiny through CASS. Accordingly, statutory notices u/s 143(2) and 142(1) of the Income Tax Act, 1961 were issued and served on the assessee in response to which the AR of the assessee filed the requisite details from time to time.
3. During the course of assessment proceedings the Assessing Officer noted that the assessee has received an amount of Rs.1,70,10,539/- from a Dubai based company namely Pranav International Ltd., Dubai and shown the same as debtors with credit balance of Rs.3,82,14,088/-. He, therefore, asked the assessee to submit the details of foreign remittances done by the assessee in the capacity of remitter and remittee along with business connection. The assessee submitted the supplier order confirmation issued by Pranav International Ltd. The Assessing Officer thereafter asked the assessee to show cause as to why the payment received from the debtors with credit balance during the year under consideration should not be treated as unexplained credit and added to the total income of the assessee in absence of any documentary evidence to substantiate their creditworthiness. The assessee was further asked to submit the confirmation of Pranav International Ltd., copy of agreement made with Pranav International Ltd., bank account statement of Pranav International from where funds have been debited and any other document to substantiate the creditworthiness of Pranav International. Although the assessee submitted the confirmation from Pranav International, however, the assessee did not submit any documentary evidence to substantiate the creditworthiness of Pranav International Ltd.
The Assessing Officer further noted that the assessee has only submitted the details of funds received from the party Pranav International Ltd. and submitted the evidence of genuineness but the assessee has failed to substantiate the creditworthiness of third party who has given such huge advance. The Assessing Officer further observed from the perusal of Management Representation Letter dated 01.09.2017 that there are some observations regarding the advances received from Pranav International Ltd., Dubai which the Assessing Officer reproduced in the order which read as under: "The company has received advance against order. Said order was cancelled by party hence it was returned during the year Rs.2,12,03,549/- for non compliance of supply order along with Rs.63,36,964/- repaid which received during the year. Company has received fresh advance against order Rs.3,74,87,702/-which is outstanding on 31.03.2017."
The Assessing Officer observed that the assessee company failed to fulfill the orders of previous years and hence it was required to return the advance to the debtor. But in contrary, it received additional advance of Rs.3,74,87,702/- from the company Pranav International Ltd. The letter of management is not representing the true picture of affairs. He observed from the Ledger account of Pranav International Ltd. in the books of the assessee that Pranav International Ltd., Dubai had given Rs.2,12,03,549/- during the financial year 2015-16. The assessee did not make any sales to Pranav International Ltd during the financial year 2015-16. Despite the failure of assessee to supply the goods against the advances received in financial year 2015-16, the debtor Pranav International Ltd again provided additional advance of Rs.4,38,24,666/- to the assessee during the financial year 2016-17, out of which the assessee-company returned back Rs.2,75,40,513/- to Pranav International Ltd. The assessee company has shown that it had returned the earlier advance of Rs.2,12,03,549/- but actually it did not return the advance received in the financial year 2015-16 but it again received additional advance of Rs.1,62,84,153/- during the financial year 2016-17.
The Assessing Officer analyzed the details of funds received by the assessee and supplies made for 3 consecutive financial years and observed that Pranav International Ltd. is providing funds to the assessee company in the disguise of advances and no sales were being made by the assessee company. These funds are not trade advances as claimed by the assessee but it is an effort to bypass the statutory provisions of foreign remittances and to siphon off the unaccounted funds in the disguise of trade advances. Rejecting the various explanations given by the assessee and relying on the decisions of the Hon'ble Supreme Court in the case of CIT vs. Durga Prasad More reported in 82 ITR 540 (SC) and Sumati Dayal vs. CIT (1995) 214 ITR 801 (SC), the Assessing Officer made addition of Rs.1,62,84,153/- to the total income of the assessee by observing as under: “9….. The explanation of the assessee has been considered but the same is found not acceptable. The assessee-company is trying to state that Pranav International Ltd., Dubai advanced to the assessee-company at Rs.2,12,03,549/- in FY 2015-16, Rs.1,62,84,153/- in FY 2016-17 and Rs.3,46,25,041/- in FY 2017-18 in expectation of future delivery of goods to be made by the assessee-company which was not done in three consecutive years. These advances/loans were completely interest free and Pranav International Ltd., Dubai, transferred additional funds every year without any supply of goods. The explanation of the assessee-company is neither convincing nor logical and is without any verifiable evidence hence the same cannot be accepted. It is further observed that vide this office notice u/s 142(1) dated 13.11.2019 the assessee-company was asked to submit the copy of trade agreement made with Pranav International Ltd., Dubai, bank account statement of Pranav International Ltd., Dubai from which funds have been debited and any other document to substantiate the creditworthiness of Pranav International Ltd., Dubai. In response the assessee company failed to submit any documentary evidence to substantiate its claim.
The nature of funds received from Pranav International Ltd., Dubai is of interest-free unsecured loan. Hence the primary onus is on the assessee to substantiate the genuineness of loan, identity and creditworthiness of unsecured loan provider. The assessee has not only failed to substantiate the creditworthiness of unsecured loan provider - Pranav International Ltd., Dubai but also failed to substantiate that whether these funds are having any business connection with the assessee or not. The assessee did not submit any documentary evidence to prove that there is any business relation between the assessee- company and the Pranav International Ltd., Dubai. The funds received as advance by the assessee has not been kept idle but the same has been used to invest in fixed assets which also indicates that the funds received by the assessee in disguise of trade advances are not the payments received against future sale but these funds have been transferred for investment in fixed assets. Hence it is hereby concluded that the funds received by the assessee-company from the Pranav International Ltd., Dubai to the tune of Rs.1,62,84,153/- in FY 2016-17 are unexplained credit in the books of the assessee. Accordingly, the unexplained credit of Rs.1,62,84,153/- is added to the total income of the assessee. Penalty proceedings u/s 271AAC of the Act are initiated separately. [Addition: Rs.1,62,84,153/-]”
The Assessing Officer further noted that the assessee company has made payment of Rs.7,26,386/- to Franco Itely through journal entry. He therefore, asked the assessee to explain the transaction along with documentary evidence and substantiate the business exigency of such payment. The assessee in response to the same submitted that Franco Itely provided services to repair Plant & Machinery and the assessee-company also purchased a spare part of machinery from Franco Itely but due to technical problem the assessee could not send money so that on behalf of the assessee-company, Pranav International Ltd, Dubai paid the required amount and that is why the journal entry was passed. However, the Assessing Officer rejected the explanation of the assessee and made addition of Rs.7,26,386/- by observing as under:
“11…. The explanation of the assessee has been considered however, the same is not acceptable. The assessee has failed to provide a plausible explanation that what are the technical problems due to which payment cannot be made by the assessee- company directly to Franco Itely and why Pranav International Ltd made a payment on behalf of the assessee. The assessee also did not submit any documentary evidence in support of the services rendered by the Franco Itely. The assessee failed to provide copy of maintenance contract entered by the assessee with Franco Itely or the bills issued by it for purchase of spare part. Hence in absence of any documentary evidence, the explanation of the assessee is not acceptable. Accordingly, payment made to Franco Itely through journal entry is treated as bogus and the same is added to the total income of the assessee. Penalty proceedings u/s 271AAC of the Act are initiated separately. [Addition: Rs. 7,26,386/-]”
The Assessing Officer similarly observed from the bank account statement of the assessee maintained with Bank of Baroda that the opening bank balance as on 01.04.2016 is Rs.60,39,257/-. However, as per books of accounts maintained by the assessee, the opening bank balance of the same bank account as on 01.04.2016 was shown at Rs.60,14,757/-. Thus, there is a difference of Rs.24,500/- in bank balance shown in books of accounts and bank account statement. Since the assessee has shown less bank balance, he asked the assessee to explain the difference. The assessee in its response stated that it was done erroneously as transport charges of Rs.24,500/- was credited to bank account. The Assessing Officer therefore, made addition of Rs.24,500/- to the total income of the assessee treating the same as unaccounted cash balance.
The Assessing Officer asked the assessee to submit the documentary evidence along with bills for the payment of processing charges at Rs.1,65,675/-. The assessee submitted the bills of processing charges paid to Sahyadri Farmers Producer Co. Ltd. From the details so produced, the Assessing Officer observed that the total payment of Rs.1,60,500/- was paid to Sahyadri Farmers Producer Co. Ltd. However, the assessee has debited Rs.1,65,675/-. He, therefore, made addition of Rs.5,175/- to the total income of the assessee on account of such difference.
10. The Assessing Officer observed from the Profit & Loss account that the assessee has debited bad debts written-off to the tune of Rs.5,10,422/-. He therefore, asked the assessee to substantiate the same. The assessee in response to the same submitted that the sales invoice of Rs.1,52,460/- issued to Macmoon traders. However, the assessee did not submit the ledger of the previous year in which such debt or part thereof has been taken into account in computing the income of the assessee. In absence of satisfactory explanation given by the assessee, the Assessing Officer made addition of Rs.5,10,422/- to the total income of the assessee.
The Assessing Officer similarly observed from the ledger confirmation of Laxmi traders that the assessee has paid Rs.15,000/- in cash on 08.06.2016. However, the same was not accounted for in the cash book. The assessee on being confronted submitted that it was erroneously not taken in the books of accounts. The Assessing Officer therefore, treated the same as unexplained expenditure and added the same to the total income of the assessee.
The Assessing Officer noted that the assessee has shown total amount payable to Mishra Automatics as on 31.03.2017 at Rs.90,36,403/-. From the confirmation of Mishra Automatics filed by the assessee the Assessing Officer noted that the total amount payable by the assessee-company is only Rs.81,94,160/-. He therefore, asked the assessee to explain as to why the difference of Rs.8,42,243/- should not be added to the total income of the assessee. In absence of any explanation given by the assessee, the Assessing Officer made addition of Rs.8,42,243/- to the total income of the assessee as unexplained credit.
The Assessing Officer observed from the ITR filed by the assessee-company for assessment year 2016-17 that the closing stock of finished goods shown by the assessee as on 31.03.2016 was at Rs.1,75,000/-. However, on perusal of ITR filed for AY 2017-18 he noted that the opening stock of finished goods as on 01.04.2016 is Rs.34,20,500/-. He therefore, asked the assessee to explain as to why the unexplained stock of finished goods introduced by the assessee to the tune of Rs.32,45,500/- should not be added to the total income. In absence of any explanation given by the assessee along with documentary evidence, the Assessing Officer made addition of Rs.32,45,500/- to the total income of the assessee as unaccounted stock. The Assessing Officer thus determined the total income of the assessee at Rs.2,16,53,380/-.
In appeal the Ld. CIT(A) / NFAC deleted the addition of Rs.1,62,84,153/- being the addition made by the Assessing Officer u/s 68 of the Act, Rs.7,26,386/- made by the Assessing Officer on account of payment made to M/s. Franco Itely through journal entry, Rs.24,500/- on account of difference in bank account statement, bad debts of Rs.5,10,422/-, Rs.8,42,243/- being the difference in balance confirmation and Rs.32,45,500/- being the difference in the stock introduced. The relevant observations of Ld. CIT(A) / NFAC read as under: 5. APPELLATE DECISION: The submissions of the appellant and the findings of the AO have been considered. This Appellate authority has noted the following: 1. Ground No.-1: pertains to the addition of Rs.1,62,84,153/- made by the AO under un-explained credit. The Assessing Officer disallowed the said amount of Rs.1,62,84,153/- received from Pranav International Dubai under section 68 considering the same as interest free advances as credit worthiness is not submitted by the appellant to the AO. Further the AO has considered the amount of advance against export received by the appellant company from M/s Pranav International Dubai as Interest free loan stating the reason that the appellant has not exported any goods to the party and even after, further advance are being received from party and the said advances are being used to build the factory and buying/installing of plant and machinery. I have gone through the submissions made by the appellant and AO's order and it is noticed that, the said amount was received by the appellant from M/s Pranav International, Dubai towards advance for goods. The appellant submitted the following documents in support of the same: a) Copy of agreement made between the appellant company and M/s Pranav International Dubai. b) Copies of Foreign Inward Remittance certificates (FIRC's) wherein the purpose of remittance is advance for goods. c) Copies of letters submitted before the Bank, Authorised Dealer (AD) for extension of time as the appellants could not export the material within the stipulated time. d) Confirmation from Pranav International Dubai e) Copies of Bank statements wherein the said amounts of remittances are appearing.
f) The agreement submitted by appellant mentions that the appellant company has entered into a long term contract with M/s Pranav International Dubai wherein the appellant company will adjust 50% of the amount of export against the said advance and remaining 50% of the export invoice the party M/s Pranav International will pay to the appellant company. g) Copies of Export invoices raised afterwards wherein the appellant company adjusted 50% of the amount against the said advances. The appellant company further given the reason of not exporting the material to party within the time that the appellant company is in the business of manufacturing of Fruit Pulp having its factory at Parbhani wherein good quality raw material i.e. Mango, Papaya, Guava etc is grown in the same or nearby area. The appellant Company is in the process of setting up the factory wherein it is constructing building premises and installing the machines. This setting up of machines is a long process and requires various permissions from Food and Health Department. Further the appellant company was planning to manufacture fruit pulp and exporting the same which again needs permission from that countries food department to approve the same and get license to enable to export it. The Director Mr. Md. Yusuf Inamdar, who died in Covid-19 epidemic and now his son Mr Ashraf Yusuf Inamdar has taken charge, was a technical engineer in Food Industry and worked in many big organisations as technical consultant and having experience in setting up the fruit pulp plant where he met to many people connected to the marketing of fruit pulp so he decided to start his own venture for which he started this company. The appellant Company came to a contract with M/s Pranav International Dubai who is in the business of marketing and exporting of fruit pulps and joined hand wherein the appellant company is to supply the fruit pulp to M/s Pranav International Dubai and for which M/s Pranav International Dubai advanced certain amount. As per the understanding between the parties, the appellant company will adjust 50% of the amount of export against the said advance and remaining 50% the party M/s Pranav International Dubai will pay to the appellant company and hence it is a long term contract between the parties and hence the appellant company has used certain amount of advance received from Pranav International for its project and for its capital expansion. As mentioned earlier that setting up a fruit pulp plant is very long process and furthermore needed permissions and licenses. The appellant company's project got delayed and started only partially. Further the supply is depending upon the fruit crop which again depending upon many natural factors say rain, draught, animal, pest etc. If crop of fruit is good then you will get good quality of fruit at a cheaper price however if fruit crop is not good then you will not get the good quality of crop, even if you get it will be very costly and not viable for export as there are many countries in this business and will not be able to compete with other countries. During the year due to the poor fruit production in the region and not fully operating the plant, the export could not take place. From the above it is observed that the money received from Pranav International Dubai for export only and due to various reasons, export could not take place as cited by the appellant which was beyond the control of the appellant. Further the customer M/s Pranav International Dubai has shown interest in equity stake in the Company by way of Capital infusion and participation in management. Now M/s Pranav International Ltd is holding 50% stake in the company's Capital and in Management. If a person receives an advance for goods and the other party could not deliver the material as per stipulation, then the said advance does not convert to loans and advances automatically unless the other person acts something like which provides that it is not the advance for goods. In the case of appellant company, the appellant company could not export the material due to the market conditions and later on exports were made and the said amount of advance has been adjusted against the said exports so there is a reason of not exporting and the appellant did not do any act and change the nomenclature of the said advance afterwards but adjusted the same against export only which took place when market condition improved. Hence, in such case this authority is of the view that, the amount of advance received against export cannot be treated as Interest free loan and since appellant has proved about the genuineness of the transactions, and submitted the documents submitted to Bank for extension of time and goods were exported later on and the advance was adjusted, no disallowance can be made under section 68 of the Income tax Act, 1961 and this ground of appeal is accordingly allowed.
2. Ground No.-2: pertain to the addition of Rs.7,26,386/- on payment made to M/s Franco Italy by M/s. Pranav International Ltd. as bogus. The AO disallowed the amount of Rs.7,23,386/- which was incurred by appellant company towards spare parts for setting up the machinery and the said amount was paid by Pranav International Ltd. on behalf of the appellant company, but the AO disallowed the same treating it as bogus. The appellant company submitted that the appellant company had purchased plant and Machine spare parts of Rs.8,13,812/- from M/s. Franco Italy which were paid to them, further an amount of Rs.7,26,386/- is paid to them as advance for spare parts during the year. The said payment of Rs.7,26,386/- was made on behalf of the assessee company by M/s. Pranav International Dubai being a sister concern and the said payment was acknowledged as payable to M/s. Pranav International Ltd as duly reflected in the balance sheet and ledger account. Further the said amount was an advance as on 31 March 2017 and appearing in the books of Pranav International and was confirmed by them.
I have considered the submissions made by appellant and AO's order and it is noticed that, the said amount is an advance made to M/s Franco Italy for plant and machinery's spare parts as the appellant company is in the process of installing its machines and the said advance is being confirmed by both the parties and being an advance there is no question of any Invoice/ bills etc, the same cannot be treated as bogus and this ground of appeal is accordingly allowed.
3. Ground No.-3: pertain to the disallowing an amount of Rs.24,500/- on account of difference in Bank Book and Bank statement. The AO disallowed an amount of Rs.24,500/- being the difference between the opening balance in Bank book and Bank Statement stating the reason the transport charges paid and credited to Bank erroneously is not acceptable and added to the total income of the appellant Company as unaccounted cash balance. The appellant Company submitted that the appellant company issued cheque for transportation charges of Rs.24500/- which was not presented in Bank and hence there is a difference in Bank Balance as per Bank statement and Bank Book of the assessee. The assessing officer has stated that the appellant company is corporate assessee and negligence in maintenance in account is not accepted without appreciating the facts that assessee has to pay to various parties and not necessary that all the payments will be cleared by March 31 i.e. closure of accounts. I have considered the submissions made by appellant company and AO's order wherein it is observed that, the cheque issued by appellant company which is not cleared by year end i.e. 31st March does not amount to disallowance as it is a part of Bank reconciliation. And hence this ground of appeal is accordingly allowed.
4. Ground No.-4: pertain to the disallowing an amount of Rs.5,175/- out of processing charges. The AO has disallowed an amount of Rs.5,175/- out of processing charges for want of documentary evidences. The appellant Company stated that the appellant Company has made payment to M/s. Sahyadri Farmers Producers Co Ltd. of Rs.1,60,500 towards processing charges and Rs.5,175/- towards packing material. The payment of Rs.5,175/- is supported by voucher. We are enclosing herewith copy of ledger account of Processing Charges with copy of payment voucher. Since this is the payment made by the appellant Company for the purpose of purchase and its business, the same is deductible expenses. I have considered the submissions made by appellant company and AO's order wherein it is observed that, the AO has made addition due to non-submission of supporting bill however the appellant Company has submitted ledger account and voucher. Since, this is not supported by any proper bill as this is for purchase of material so addition made by AO is correct and hence this ground of appeal is accordingly dismissed.
5. Ground No.-5: pertain to the Disallowing an amount of Rs.5,10,422/- out of bad debts. The AO has disallowed an amount of Rs.5,10,422/- out of Bad debts stating the reason that the appellant Company has not submitted the documentary evidences. The appellant Company has stated that the assessing officer made an addition of Rs.5,10,422 on account of Bad Debts stating that the appellant Company has not substantiated its claim without appreciating the facts that the appellant Company has sold goods to customers and since no payments were received, the appellant Company has written off the same in the books of accounts. The appellant Company also furnished copy of ledger account of bad debt and parties account showing that the amount has actually been written off in the books of accounts and copy of ledger account of earlier years showing that the income has been shown as sales in earlier years. Further he given reference to Section 36(1)(vii) of the Income Tax Act, 1961 wherein writing off the amount of any income which is offered for tax in earlier year is sufficient to claim Bad Debts. I have considered the submissions made by appellant company and AO's order. As per Section 36(1)(vii) which states as under: “subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year; Provided that in the case of an assessee to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause: Provided further that where the amount of such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof becomes irrecoverable or of an earlier previous year on the basis of income computation and disclosure standards notified under sub-section (2) of section 145 without recording the same in the accounts, then, such debt or part thereof shall be allowed in the previous year in which such debt or part thereof becomes irrecoverable and it shall be deemed that such debt or part thereof has been written off as irrecoverable in the accounts for the purposes of this clause. In order to claim deduction under section 36(1)(vii), the following conditions to be satisfied.
There must be a Debt- Before claiming an amount as a debt, it must be shown that it is a proper debt. In other words, a bad debt presupposes the existence of a debt and relationship of a debtor and creditor. Unless, therefore, there is an admitted debt it cannot be allowed as bad debt when it becomes irrecoverable.
2. Debt must be Incidental to the Business or Profession of the Assessee- The debt which is claimed as bad debt under section 36(1)(vii) must be incidental to the business or profession carried on by the assessee. In other words, debts not connected with business or profession carried on by the assessee or not arising out of the operation of business or profession carried on by the assessee, are not admissible as bad debts even if other conditions are satisfied.
Debt must have been taken into Account in computing Assessable Income- 4. Debt must have been Written Off in the Books of Account of the Assessee- No deduction in respect of bad debt is allowable under section 36(1)(vii) unless it is written off as irrecoverable in the books of the assessee in the previous year in which claim for deduction is made. It is not necessary to establish that debt has become bad during the relevant previous year. For this purpose, transfer to "provision for bad and doubtful debts account shall not be taken as bad debts written-off. Further, in case of TRF Limited the Hon Supreme court of India has held that post the amendment to Section 36(1)(vii) (Section) of the Indian Tax Law (ITL), for claiming deduction of bad debts, it is sufficient that the debt is written off in the books of account as bad debt. It is not necessary for the taxpayer to establish that the debt has become irrecoverable. In view of the above, since the amount has been shown earlier as Income and the same has been written-off in the books of account of the appellant company, the appellant Company is fulfilling the conditions specified in Section 36 (1)(vii) and 36(2) and hence the same is eligible for deduction. And hence this ground of appeal
is accordingly allowed.
6. Ground No.-6: pertain to the disallowance of Rs.8,42,243/- on account of difference in balance confirmation. The AO has disallowed an amount of Rs.8,42,243/- between the difference in balance confirmation The appellant Company has stated that the assessing officer has disallowed an amount of Re 8,42,243/- on account of unexplained credit due to difference in Balance of one of the party M/s Mishra Automatics. However the facts is that the appellant Company has total outstanding of Rs. 90,36,403/- payable to M/s.
Mishra Automatics. Rs 81,94,160/- is the amount of Loan taken and Rs.8.42.243/- is on account of excess amount received from the party as advance on account of sale of material. During the assessment proceedings the said party has given confirmation of Loan given only inadvertently of Rs.61,94,160. We are enclosing herewith copy of ledger account of Mishra Automatics Loan account and Customer account named as Mishra Automatics Delhi account. I have considered the submissions made by appellant company and AO's order and observed that, the other party has maintained two accounts namely Loan account and customer/supplier account separately and the appellant company is combined one. After considering both the account the amount shown by appellant company and Mishra Automatics are matching and hence no disallowance can be made and hence this ground of appeal is accordingly allowed.
7. Ground No.-7 pertain to the disallowance of Rs.32,45,500/- as difference in opening balance of finished goods The AO has disallowed an amount of Rs 32,45,500/- as difference between opening and closing stock of finished goods in the ITRs filed for AY 2016-17 and AY 2017-18 as closing Stock in ITR for AY 2016-17 is shown as 1,75,000/- however in ITR for Ay 2017-18 the amount of Opening Stock is shown at Rs.34,20,500/- and accordingly the AO has disallowed the difference of Rs.32,45,500/- as unaccounted stock. The appellant Company has stated that, while filing of return of income for A.Y. 2017-18 the appellant Company erroneously filled amount of Raw material in Finished goods and finished goods in Raw material whereas the overall stock remaining the same. He also filed ITR for AY 2016-17 and 2017-18 wherein amount of stock are shown as under AY 2016-17 Closing Stock Raw Material 34,20,500 Work in Progress 0 Finished Goods 1,75,800 Total 35,86,300 AY 2017-18 Opening Stock Raw Material 1,75,800
Work in Progress 0 Finished Goods 34,20,500 Total 35,86,300 Since, this is an error and does not constitute any under reporting of no disallowance can be made and hence this ground of appeal is accordingly allowed.”
Aggrieved with such order of the Ld. CIT(A) / NFAC, the Revenue is in appeal before the Tribunal by raising the following grounds:
1. On the facts and in the circumstances of the case, the Ld. CIT (A), NFAC failed to appreciate the facts of the case and without considering the same decided the case in favour of the assessee which is against the law and the order of the CIT (A) deserves to be set-aside.
2. The Ld. CIT (A) erred in law in accepting that the amount of advance pertaining to addition of Rs.1,62,84,153/- received against export cannot be treated as Interest free loan as the funds received as advance by the Appellant was invested in fixed assets without making supply of the product to its customers.
3. The Ld. CIT (A) has erred in accepting that payment made of Rs.7,26,386/- to M/s. Franco Italy by M/s. Pranav International Ltd. was valid. The CIT(A) erred in considering such payment made without relying on any documentary evidence such as any contract, agreement etc in support of the services rendered by the Franco Italy.
4. The Ld. CIT(A) erred in allowing the ground of appeal of the Appellant on amount of Rs.24,500/- on account of difference in Bank Book and Bank Statement.
5. The Ld. CIT (A) has erred in allowing the Bad Debt of Rs.5,10,422/- relying on the reference made by the Appellant to Section 36(1)(vii) of the Act that the Appellant Company furnished copy of Ledger Account of Bad Debt and parties' accounts showing the amount was actually written off in its books of accounts; and copy of ledger account of earlier years showing that the income was shown as Sales in earlier years without taking into consideration the fact that the assessee had not furnished any Sale Bill and documentary evidence to substantiate the efforts taken by it for recovery of bad debts.
6. The Ld. CIT (A) has erred in allowing the appeal of the assessee on the ground of difference in confirmation of balance of Rs.8,42,243/- observing that difference in Balance of Rs.8,42,243/- of one of the parties M/s. Mishra Automatics as its total outstanding was of Rs.90,36,403/- payable and Rs.81,94,160/- was the amount of loan taken and Rs.8,42,243/- was on account of excess amount received from the party as advance on account of sale of material.
7. The Ld. CIT (A) has erred in allowing the appeal of the assessee on difference in Opening Balance of Finished Goods of Rs.32,45,500/-.
8. The appellant craves leave to add, amend or alter all or any of the Grounds of Appeal
The Ld. DR strongly opposed the order of the Ld. CIT(A) / NFAC in giving relief to the assessee without appreciating the facts of the case properly. He submitted that when the Assessing Officer has doubted the creditworthiness of Pranav International Ltd., Dubai who had given advances earlier for purchase of products of the assessee but the assessee failed to supply the goods, then it is not understood why the said party will again give the advance to the assessee. He submitted that the Ld. CIT(A) / NFAC has accepted the story told by the assessee before him and accepted the amount of Rs.1,62,84,153/- received from Pranav International Ltd., Dubai disregarding the detailed reasoning given by the Assessing Officer while making the addition. He submitted that when the assessee has filed the various details before the Ld. CIT(A) / NFAC which are in the shape of additional evidences, the Ld. CIT(A) / NFAC without making proper application of mind and without giving any opportunity to the Assessing Officer has deleted the various additions made by the Assessing Officer.
So far as other additions deleted by the Ld. CIT(A) / NFAC are concerned, the Ld. DR submitted that here also full details were not furnished before the Assessing Officer and those details were filed before the Ld. CIT(A) / NFAC, who without giving any opportunity to the Assessing Officer has accepted the same. He accordingly submitted that the order of the Ld. CIT(A) / NFAC be reversed and that of the Assessing Officer be accepted. In his alternate contention, the Ld. DR submitted that he has no objection if the matter is restored to the file of the Assessing Officer for fresh adjudication.
The Ld. Counsel for the assessee on the other hand heavily relied on the order of the Ld. CIT(A) / NFAC and submitted that the Ld. CIT(A) / NFAC after appreciating the facts properly has given relief to the assessee. There is neither any infirmity nor any perversity in the order of the Ld. CIT(A) / NFAC, therefore, the same should be upheld and the grounds raised by the Revenue be dismissed.
We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case has given a finding that despite receipt of huge advances from Pranav International Ltd., Dubai, the assessee had not delivered any goods to the said company for three consecutive years. No verifiable evidence was ever produced before the Assessing Officer to substantiate the creditworthiness of Pranav International Ltd., Dubai who transferred the additional funds every year without any supply of goods. Further, despite asking by the Assessing Officer to submit the copies of trade agreement made with Pranav International Ltd., Dubai, bank account statement of Pranav International Ltd., Dubai, from which funds have been debited and any other document to substantiate the creditworthiness of Pranav International Ltd., Dubai, the assessee failed to produce any documentary evidence. Since the assessee failed to discharge the primary onus cast on it by substantiating the genuineness of loan and creditworthiness of loan provider, the Assessing Officer made the addition. We find the assessee filed certain details before the Ld. CIT(A) / NFAC based on which the Ld. CIT(A) / NFAC, without giving any opportunity to the Assessing Officer to go through the same and without any application for admission of additional evidences, accepted those details and given relief which in our opinion, is not in accordance with law. Under these circumstances and considering the fact that the creditworthiness of Pranav International Ltd. are doubtful in absence of filing of documentary evidence, therefore, in the interest of justice, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to grant one opportunity to the assessee to substantiate the creditworthiness of Pranav International Ltd., Dubai and decide the issue as per fact and law. While doing so, he will verify whether the assessee has in fact exported any goods to Pranav International Ltd., Dubai or it is only a colourable transaction to overcome the stringent provisions of foreign remittance. The assessee is hereby directed to produce all the relevant details before the Assessing Officer to substantiate its case. Needless to say, the Assessing Officer shall give due opportunity of being heard to the assessee and decide the issue as per fact and law. We hold and direct accordingly. The first issue raised by the Revenue in the grounds of appeal is accordingly allowed for statistical purposes.
Similarly, the payment of Rs.7,26,386/- to M/s. Franco Italy through journal entry is also restored to the file of the Assessing Officer since it was the submission of the assessee before the Assessing Officer that due to technical problem the assessee could not send money and M/s. Pranav International Ltd. had sent the money on behalf of the assessee company.
So far as the other issues are concerned, here also, we find that the assessee had filed certain additional evidences before the Ld. CIT(A) / NFAC who without giving any opportunity to the Assessing Officer has accepted such additional evidences and decided the issue in favour of the assessee. Since the assessee in the instant case has not filed the requisite details before the Assessing Officer but filed before the Ld. CIT(A) / NFAC who in violation of Rule 46A of the Income Tax Rules, 1962 has accepted the same without giving opportunity to the Assessing Officer to rebut the same, therefore, the order of the Ld. CIT(A) / NFAC in our opinion cannot be accepted. However, considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to give an opportunity to the assessee to substantiate its case by filing the requisite details. We hold and direct accordingly.
The grounds raised by the Revenue are accordingly allowed for statistical purposes.
In the result, the appeal filed by the Revenue is allowed for statistical purposes.
Order pronounced in the open Court on 29th May, 2025.