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Facts
The assessee, an individual engaged in fruit business, hotel business, and construction business, filed a Nil return claiming set-off of losses. The Assessing Officer (AO) made additions for unsecured loans, interest on unsecured loans, sundry creditors, and estimated net profit. The CIT(A) deleted these additions after calling for remand reports.
Held
The Tribunal held that the CIT(A) correctly admitted additional evidence under Rule 46A(4) and that the grounds raised by the Revenue regarding deletions of additions for unsecured loans, interest, sundry creditors, and estimated net profit were devoid of merit, as the CIT(A) had sufficiently verified the genuineness and creditworthiness of the transactions.
Key Issues
Whether the CIT(A) erred in admitting additional evidence at the appellate stage and in deleting the additions made by the AO for unsecured loans, interest on loans, sundry creditors, and estimated net profit.
Sections Cited
143(3), 68, 145A, 46A
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Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH
Before: DR. BRR KUMAR & Shri T.R. SENTHIL KUMAR
Asst Commissioner Shri Govind Jairamdas Of Income Tax, Changlani Circle-3(1)(1), Vs GF-35/1,New Fruit Market, Ahmedabad Nr.Kishan Dayal, Vijay Mall, Memco-Naroda Road, Ahmedabad-382330 PAN: ADDPC7047F (Appellant) (Respondent) Revenue Represented: Shri Rignesh Das, Sr.D.R. Assessee Represented: Shri Sanjay R. Shah, A.R. Date of hearing : 12-12-2024 Date of pronouncement : 07-03-2025 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
This appeal is filed by the Revenue as against the appellate order dated 05.12.2023 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), arising out of the assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2016-17.
A.Y. 2016-17 Page No 2 ACIT Vs. Shri Govind Jairamdas Changlani
Brief facts of the case is that the assessee is an individual and engaged in carrying out Fruit Business (on Trading and Commission basis) in the name of M/s. D J Foods, hotel business in the name of Hotel German Palace and construction business. For the Asst. Year 2016-17, assessee filed his Return of Income on 04-09-2016 declaring Nil income after claiming set off of losses from hotel business as against the profits from fruit business. The return was taken up for scrutiny assessment and assessment was completed making following additions: Unsecured Loans of Rs.5,78,03,556 [DJ Fruits of Rs.11553566 & Hotel German Palace of Rs.46250000] Interest on Unsecured Loans Rs. 44,87,521 Sundry Creditors Rs. 47,02,918 GP addition Rs. 8,25,834 Thus the Assessing Officer determined the total income as Rs.6,35,19,054/- and demanded tax thereon.
Aggrieved against the assessment order, assessee filed an appeal before Ld. CIT(A) and during the appellate proceedings the assessee filed additional evidences, which were considered by Ld. CIT(A) by calling for three Remand Reports from the Assessing Officer from time to time and deleted the additions and partly allowed the appeal.
Aggrieved against the Appellate order, the Revenue is in appeal before us raising the following Grounds of Appeal:
(1) The Ld.CIT(A) has erred in law and on facts in admitting additional evidences at appellate stage which would be in contravention to the Rules made under Rule 46A of IT Rules.
A.Y. 2016-17 Page No 3 ACIT Vs. Shri Govind Jairamdas Changlani (2) The Ld.CIT (A) has erred in law and on facts in deleting the addition of Rs. 3,38,51,466/- made u/s. 68 of the Acton account of unsecured loan. (3) The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.15,02,757/- made on account of interest on unsecured loan. (4) The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.24,54,528/- made u/s 68 of IT Acton account of Sundry Creditors. (5) The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 8,25,834/- made on account of estimated net profit u/s 145A of IT Act. (6) The appellant craves leave to add, alter and/or to amend all or any the ground before the final hearing of the appeal.
Heard rival submissions at length and perused the materials placed on record including the Paper Book filed by the assessee. Let us deal with each ground wise the issue before us.
Ground No.1 raised by the Revenue is admission of Additional evidences which is contravention of Rule 46A of the Rules. It is undisputed fact that the assessee responded to the notices by filing reply dated 29-10-2018 and 04-12-2018. Whereas the final show cause notice dated 11-12-2018 to comply the response before 14- 12-2018 was received by the assessee only on 19-12-2018. In the meanwhile, the Assessing Officer passed the assessment order dated 17-12-2018 stating that the assessee failed to comply the final SCN. However during the appellate proceedings, the assessee filed the details by way of additional documents, which were entertained by the Ld. CIT(A) by calling for Remand Report from the A.Y. 2016-17 Page No 4 ACIT Vs. Shri Govind Jairamdas Changlani Assessing Officer dated 05-04-2019, 13-09-2019 and 29-08-2020 and by observing as follows:
“10. Thus, sub-rule (4) of rule 46A of the rules permits the Appellate Commissioner to direct production of any document, or examination of any witness to enable him to dispose of the appeal. In the facts of the present case, a perusal of the order of the Commissioner (Appeals) reveals that he has recorded therein that the Assessing Officer has not examined the aspect relating to genuineness of the commission expenses during the assessment proceedings and that the disallowance was on technical basis. The assessee has now given the evidence in the course of appellate proceedings as it was asked to prove the genuineness of the commission expenses also. Therefore, it is evident that it was at the instance of the Commissioner (Appeals) that the assessee had produced the additional evidence on record, which would fall within the ambit of sub rule (4) of rule 46A of the rules, and hence, the question of violation of such rule on the ground urged on behalf of the appellant based on sub-rules (1) and (2) of rule 46A, does not arise. Moreover, the Assessing Officer has been given opportunity to deal with the additional evidence produced by the assessee as the remand report was called for. Under the circumstances, no substantial question of law can be said to have arisen insofar as this issue is concerned." 6.1. We do not find any infirmity in the order passed by the Ld. CIT(A) invoking sub-rule 4 of Rule 46A of the I.T. Rules. Thus the Ground No. 1 raised by the Revenue is devoid of merit and the same is liable to be dismissed.
Ground No.2 raised by the Revenue is deletion of unexplained addition of Rs.3,38,51,466/- made u/s.68 of the Act. The assessee availed unsecured loan of Rs. 4,62,50,000/- for its Hotel German Palace business from 26 persons. The assessee produced details by way of additional documents during appellate proceedings which was considered each credit wise by the Ld. CIT(A) by calling for A.Y. 2016-17 Page No 5 ACIT Vs. Shri Govind Jairamdas Changlani three Remand Reports from the Assessing Officer and deleted the addition by observing as follows: “… 12.1 On going through the voluminous details and submissions filed by the appellant and duly verified and commented upon by the Assessing Officer through three remand reports as mentioned above, the following facts have been noticed-
1. 1. The appellant is a wholesale dealer in fruits having his shop at G.M. Market, Naroda-Memco Road, Naroda, Ahmedabad which is a place where a large number of fruit merchants are doing their business.
2. The appellant belonged to a Sindhi Community which deals in fruit business on large scale in the city of Ahmedabad.
3. The appellant has disclosed the turnover of Rs. 14,80,95,304/- during the year under consideration as against the turnover of Rs. 14,69,65,102/-, Thus, there is voluminous turnover in this fruit business.
4. The appellant had taken the loans on need basis and also repaid the same within reasonable time when the funds were available for such repayment.
5. All the transactions are through banking channels and most of the loans have been taken from the relatives of merchants dealing in the fruit business.
6. There has been no instance noticed on verification of the details so furnished that the appellant attempted to introduce his own unaccounted money by depositing the huge amount of cash in the bank accounts of lenders and then received the cheques for such unsecured loans.
7. In many cases, I have also noticed that there were repayment of loans from one concern (M/s. D. J. Fruits) and the same amounts have been transferred to another concern i.e. Hotel German Palace.
8. I have also noticed that the hotel business was commenced only in the year under consideration and total receipts of Rs.86,36,814/- has been shown from renting out the rooms, banquette hall, etc. The hotel building was under construction during the year under consideration as evidenced from the chart of depreciation and fixed assets and put to use in the second half of the previous year.
A.Y. 2016-17 Page No 6 ACIT Vs. Shri Govind Jairamdas Changlani
The A.O. has not doubted the identity in all the cases and doubted the creditworthiness in many cases and in few cases also, he doubted the genuineness of the loan transactions.
In many cases, the A.O. found himself satisfied with all the three ingredients of section 68 of the Act and reported the same in the remand reports. Therefore, so far as these cases are concerned, there cannot be any adverse finding on such unsecured loans.
11. Further, the appellant has relied many decisions in support of his contentions with regard to the unsecured loans. I have also carefully perused the same and found that no adverse finding can be given even on relying these decisions. On the contrary, the A.O. has not given any revenue-favoured decision in the assessment order so passed which appeared to be ex-parte assessment making the additions on the basis of accounts as uploaded by the appellant. 12. In the forwarding letter dated 05.04.2019, the Joint Commissioner of Income-tax. Range-7, Ahmedabad has relied upon the decision of Hon'ble Supreme Court of India rendered on 05.03.2019 in the case of NRA Iron & Steel Pvt. Ltd. And stated that the assessee ought to have discharged his primary onus to prove the identity of the lender, genuineness of the transaction and the creditworthiness of the lender. I have gone through this decision also and found that in that case, the company introduced the money in the name of share capital or as share application money and did not respond to the notices issued by the Hon'ble Supreme Court whereas in the case of the appellant, he is an individual well settled in the business and taken the unsecured loans on need basis and repaid the same within a reasonable time and in most of the cases, before the date of passing the impugned assessment order. Therefore, the facts discussed in the relied upon case by the Joint CIT are found to be not fitted in the facts of the appellant's case. 1. The case of each lender has been separately examined by visiting the relevant individual details of such lenders, i.e. the copies of accounts, contra accounts, copies of income-tax returns, bank statements/passbooks, etc. so as to arrive at the correct and logical finding on each of the unsecured loans. Conclusion:-
A.Y. 2016-17 Page No 7 ACIT Vs. Shri Govind Jairamdas Changlani
Considering the detailed submissions of the appellant, remand reports and all the rejoinders to the remand reports, the addition of Rs.5,78,03,566/- made by invoking the provisions of section 68 of the Act is hereby deleted. The ground No.2 is, thus, succeeds. 7.1. Similarly in the case of unsecured loans availed by D.J. Foods, Ld. CIT(A) deleted the addition after verification of the lenders, creditworthiness and genuineness of the transaction by observing as follows:
“… 10.2 In view of the above findings given in respect of all the unsecured loans appearing in the balance-sheet of M/s. D.J Fruits, a prop, Concern of the appellant have been examined in depth individually in the light of all the relevant details furnished by the A.O. through three remand reports, rejoinders filed by the appellant and various documentary evidences supporting the identity of the lenders, genuineness of the transactions and in most of the cases, the creditworthiness of the lenders. In all the cases of lenders, it has been held that in none of the case, the A.O. was able to prove the lenders with reference to each of the three ingredients for invoking the provisions of section 68 of the Act, beyond doubt to be ingenuine or bogus or the assessee's own money routed through these lenders. Therefore, the addition of Rs.1,15,53,566/- being the total of unsecured loans taken from various persons who included the interest component also in the closing balances as drawn in the balance-sheet is hereby DELETED.” 7.2. Perusal of the appellate order clearly shows that three Remand Reports had been obtained from A.O. and every Loan creditor details were discussed by Ld. CIT(A) from Page Nos. 24 to 100 of his appellate order. The Revenue has not placed on record any contra evidences of loans and repayments. Thus we do not find any infirmity in the order passed by Ld. CIT(A) on the genuineness of the loan transaction. Thus the deletion made by the Ld. CIT(A) does not require any interference. Therefore the Ground No. 2 A.Y. 2016-17 Page No 8 ACIT Vs. Shri Govind Jairamdas Changlani raised by the Revenue is devoid of merit and the same is hereby dismissed.
Ground No.3 raised by the Revenue is disallowance of interest of Rs.15,02,757/- on the unsecured loans. This ground is consequential to Ground No. 3, since the unsecured loans is already deleted, consequently disallowance of interest is liable to be deleted. Thus Ground No. 3 raised by the Revenue is hereby dismissed.
9. Ground No.4 raised by the Revenue is addition of Rs.24,54,528/ made on account of sundry creditors. The Ld. CIT(A) held as follows:
“… 14.6 I have examined the facts afresh and noted that the appellant had furnished the details in the tabular format showing the details of opening balance, addition during the year, details of payments made in subsequent years, full postal addresses, etc. There have been payments towards purchases of traded goods, i.e. fruits on wholesale basis. In case of Hotel German Palace, there were purchase of capital goods (i.e. movables like Air-conditioners, building material, etc.) and these creditors are categorized as "Creditors for construction". Therefore, there appears no justification of disallowing the expenses incurred on capital goods. There are two other groupings i.e. "Creditors for goods" and "creditors for expenses". Since the A.O. himself has satisfied with the details furnished during the remand report proceedings to which the appellant also agreed by offering some additional comments through rejoinder to remand report No.3, I have been left with no alternative but to agree with the A.O.. Therefore, the total addition of Rs.47,02,918/- made by the A.O. by invoking the provisions of section 68 of the Act is deleted. Thus, the Ground No.4 succeeds.” 9.1. The Ld. D.R. appearing for the Revenue could not contravent the factual findings arrived by Ld. CIT(A) except raising grounds of A.Y. 2016-17 Page No 9 ACIT Vs. Shri Govind Jairamdas Changlani appeal and without any material on record. Hence the same is devoid of merit and Ground No. 4 is liable to be dismissed.
10. Ground No.5 raised by the Revenue is deletion of addition of Rs.8,25,834/- on account of estimated net profit u/s.145A of the Act. The Ld. CIT(A) held as follows:
“15.3. The appellant had disclosed the net profit of Rs.95,40,837/- on the total turnover of Rs.1,03,66,071/- for the asst Year under consideration. The gross profit has been worked out to 6.44% which was 6.15% in the immediately preceding asst. Year, wherein the total turnover of Rs 14,69,05,103/- and the gross profit of Rs.90,48,747/- was declared. Thus, the G.P. rate showed increase by 0.20% for the asstt. Year under consideration. Further, as per the provisions of section 145(3) of the Act, the A.O. has to draw the satisfaction that the appellant had not correctly or completely maintained the books of accounts or the appellant did not follow the prescribed method of accounting either cash or the mercantile system. The A.O. has not drawn such satisfaction on examination of such books of accounts maintained by the appellant. Therefore, the applicability of provisions of section 145(3) of the Act (though wrongly quoted as 145A an irrelevant section in the assessment order) cannot be made in the instant case. Considering the nature of business, past trading results, etc., the G.P. addition of Rs. 8,25,834/- is hereby deleted. Accordingly, the ground No.5 succeeds.”
10.1. The Assessing Officer without rejecting the books of accounts estimated the GP, whereas the GP rate declared by the assessee shows increase by 0.2% for the present year under consideration. Therefore Ld. CIT(A) deleted the addition which does not require any interference. Thus Ground No. 5 raised by the Revenue is hereby dismissed.
A.Y. 2016-17 Page No 10 ACIT Vs. Shri Govind Jairamdas Changlani
In the result, the appeal filed by the Revenue is hereby dismissed.
Order pronounced in the open court on 07-03-2025 Sd/- Sd/- (DR. BRR KUMAR) (T.R. SENTHIL KUMAR) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad: Dated 07/03/2025 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद