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Facts
The assessee's case was selected for scrutiny on issues of refund claim and contract receipts. The AO issued notices under Section 142(1) for details of expenses and loans, but the assessee did not comply. The AO made additions for unexplained expenses and unsecured loans.
Held
The Tribunal restored the matter to the AO for de novo assessment, granting the assessee one more opportunity to present evidence for the incurred expenses and unsecured loans. The assessee was directed to comply with the AO's requirements, failing which the AO would be justified in proceeding ex parte.
Key Issues
Whether the additions made by the AO for disallowance of expenses and unexplained credit were justified without proper compliance by the assessee, and whether a de novo assessment was required.
Sections Cited
142(1), 68, 115BBE, 143(3), 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, LUCKNOW ‘A’ BENCH, LUCKNOW
A.Y. 2018-19 Sachin Dwivedi, vs. Commissioner of Income Tax Vansh Traders, 129, Kaushal Puri, (Appeals), NFAC Hardoi 241001 PAN:ANYPD4012E (Appellant) (Respondent) Assessee by: None Revenue by: Sh. Amit Kumar, DR Date of hearing: 08.05.2025 Date of pronouncement: 18.07.2025 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee against the order of the ld. CIT(A), NFAC passed under section 250 of the Income Tax Act, 1961 on 28.10.2024 wherein the ld. CIT(A) has partly allowed the appeal of the assessee against the order of the National e-Assessment Centre dated 7.04.2021. The grounds of appeal are as under:-
1. That Commissioner of Income Tax (hereinafter referred to as Ld. Officer) has erred on facts and law while making addition of Rs. 63,27,327/- being disallowance of various expenses & Rs.10,00,000 as unexplained credit u/s 68 of the I. Tax. Act.
2. That Ld. Officer made addition of Rs.63,27,327 on ad hoc basis without any clear evidence only on assumptions, surmise and guess work.
3. That Ld. Officer made addition of Rs.10,00,000 ignoring the fact that such amount represents unsecured loan taken by the assessee.
4. The assessee reserves the right to add, delete, alter or amend any grounds of appeal stated above.
5. Any other relief which your good self may deem fit.” 1 Sachin Dwivedi A.Y. 2018-19 2. The facts of the case are that the case of the assessee was selected for scrutiny on the issues of refund claim and contract receipts or fees. The ld. AO issued notice to the assessee asking him to furnish details / documents in support of the return and for furnishing information / evidences as per the terms of the notices issued under section 142(1). However, ld. AO records that the assessee did not file details of contract receipt, details of direct and indirect expenses with documentary evidences or details of loans from parties alongwith confirmations and repayment made. From the verification of his profit and loss account, the ld. AO observed that during the course of the year, the assessee had made expenses to the extent of Rs.4,21,82,180/- and the assessee was asked to produce the bills and vouchers for these expenses. Since, the assessee did not furnish those details, a draft assessment order was issued to the assessee, asking the assessee as to why a sum of Rs. 63,27,327/-, being 15% of such total expenses should not be added back to his income. As the assessee did not give any response to the said show cause notice, the ld. AO held that direct and indirect expenses to the tune of Rs.4,21,82,180/- remained unexplained. However, looking to the business of the assessee, he decided to restrict the disallowance to 15% of claimed expenses and therefore, he added back a sum of Rs.63,27,327/- to the income of the assessee. During the assessment proceedings, the assessee was also asked to submit details of unsecured loans availed by him with necessary documentary evidence for the same. The ld. AO noted that unsecured loans to the tune of Rs.24,84,000/- were reflected and during the year, Rs.10 Lacs had been taken as a fresh loan from M/s Perfect Automobiles. Since the assessee did not submit any details in support of this fresh loan, in the draft assessment order, the assessee was asked to show cause as to why the same should not be added back. In the absence of any response, the ld. AO added the sum of Rs. 10 Lacs back under section 68 of the Act and brought it to tax as per the provisions of section 115BBE.
Sachin Dwivedi A.Y. 2018-19 3. Aggrieved with the said additions, the assessee went in appeal before the ld. CIT(A). The appeal was delayed but the ld. CIT(A) admitted it in view of the situation arising out of the Covid-19 Pandemic. The ld. AO records that during the appellate proceedings, he issued four notices to the assessee but despite seeking opportunities of adjournment, the assessee did not make compliance to any of the notices. Therefore, the ld. CIT(A) decided to pass the order on the basis of the material available. On the issue of disallowance of 15% of expenses, the ld. CIT(A) observed that the ld. AO had made a mistake in calculation of various expenses identified for verification and the sum of tabulated expenses on pages 3 and 4 of the assessment order only amounted to Rs.3,17,37,320/- and not Rs.4,21,82,180/-. He further observed that the ld. AO had disallowed 15% of total expenses but observed that since the assessee was also a supplier of goods and the majority of expenses debited were towards purchases, which had been accepted by the ld. AO, disallowance ought to be made at a reasonable quantity. He, therefore, restricted the disallowance to 5% of the expenses for which the assessee had been asked to furnish details and failed to do so. Accordingly, an addition of Rs.15,86,866/- was sustained. On the issue of credit of Rs.10 Lacs which has been added back under section 68, the ld. CIT(A) noted that the ld. AO had made the addition because the assessee had not discharged the onus to prove the identity / genuineness / creditworthiness of the lender. No confirmation or any details had been filed before the ld. AO and no further details were available from the statement of facts. The assessee had also not made any compliance before the ld. CIT(A) therefore, the ld. CIT(A) held that since the assessee had failed to prove the identity of the creditors, the creditworthiness and the genuineness of the transactions, in view of various Court decisions which he cited in his order, the addition was fit to be confirmed. Accordingly, it was confirmed.
Aggrieved with the said addition, the assessee filed an appeal before us but on neither of the two occasions that the case was called out for hearing was there any representation from the side of the assessee or any application filed for adjournment. 3 Sachin Dwivedi A.Y. 2018-19 On the first occasion, a copy of the notice was issued to the assessee by RPAD but on the appointed dated of hearing, there was no compliance. Therefore, seeing the history of non-compliance by the assessee, it was decided to proceed with the case. On going through the orders of the ld. AO and the ld. CIT(A), it is seen that both these orders have been passed without any meaningful representation from the assessee. Form No.35 of the appeal filed before the ld. CIT(A) shows that the assessee is engaged in contract business relating to supply of material by Government Departments by execution of contracts and he claims to have maintained complete books of accounts which have been audited as per the provisions of the Income Tax Act. The assessee submitted that these books of accounts had not been examined during the course of assessment proceedings and this was the result that profit had been assessed two and a half times of returned income which was impossible in his line of business. It was submitted that the net profit shown by the assessee was similar to the net profit of earlier years which had been accepted by the Department in assessment proceedings under section 143(3) in earlier years. With regard to the issue of unsecured loan of Rs.10 Lacs, it had been submitted that the amount had been received as loan and it has wrongly been added back by invoking provisions of section 68. Of course, the assessee did not submit any documentary evidences in support of these submissions and therefore, his case was not considered by the ld. CIT(A). On consideration of the matter, we observe that the additions have only been made because the assessee has not offered any proper explanations before either of the lower authorities. The onus to explain any expenditure that has been claimed and any credit that is recorded in its books of accounts lies primarily with the assessee. It is only once the assessee discharges that onus, that the Department can be asked to lead the evidence to disprove the claims of the assessee. In the instant case, since the assessee has been non-compliant during assessment and appeal proceedings, the additions have been made in an ad hoc manner. On consideration of the same, we feel that it is in the interest of justice that the facts should be brought out and assessee Sachin Dwivedi A.Y. 2018-19 should be given one more opportunity to present his case before the ld. AO and demonstrate that the expenses claimed by him have in fact been incurred, vouched and accepted in audit and that the unsecured loan taken by him is genuine on account of the fact that he has been able to prove the identity, creditworthiness of the creditor and the genuineness of the transaction. Therefore, we restore this matter back to the file of the ld. AO for de novo assessment and we direct the assessee to make compliances before the ld. AO as required by him, failing which the ld. AO would be justified in assuming that the assessee had no explanation to offer in regard to the questions raised before him, enabling the AO to thereafter proceed as per law. As the matter has been restored to the file of the ld. AO, the appeal of the assessee is deemed to be allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced on 18.07.2025 in the Open Court.