SARNATH FINANCE LTD.,BAREILLY vs. INCOME TAX OFFICER-2(2), BAREILLY

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ITA 40/LKW/2025Status: FixedITAT Lucknow16 May 2025AY 2017-187 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal dismissed the appeal. Regarding the issue of the assessment order being bad in law under Section 144, the Tribunal found no infirmity in the CIT(A)'s order. The Tribunal noted that the assessee failed to present any material to justify interference with the CIT(A)'s order. Specifically concerning the addition of Rs.42,00,000/-, the CIT(A) noted that M/s Ahuja Goods Carrier (P) Ltd. denied any transaction with the assessee, the assessee failed to furnish the PAN of the entity, and no reply was received to a notice under Section 133(6). The CIT(A) also found a mismatch in signatures and concluded that the assessee failed to satisfy the primary conditions of establishing the existence of parties, genuineness of the transaction, and their creditworthiness. The Tribunal upheld the CIT(A)'s finding that the assessee failed to establish with cogent evidence that it had cash-in-hand of Rs.42,00,000/- as on 8.11.2016. The Tribunal also addressed the argument that the AO did not reject the books of account before making additions under Section 68, stating that Section 68 can be applied if the assessee cannot provide a satisfactory explanation for sums credited in its books. The Tribunal found no infirmity in the CIT(A)'s order and upheld it. The appeal was dismissed.

What were the facts?

The assessee, M/s Sarnath Finance Ltd., filed an appeal before the Income Tax Appellate Tribunal (ITAT), Lucknow Bench, for assessment year 2017-18. The appeal challenged the order dated 31/08/2024 passed by the Commissioner of Income Tax (Appeals) [CIT(A)], which upheld the assessment order passed by the Income Tax Officer-2(2), Bareilly. The Assessing Officer (AO) completed the assessment under Section 144, assessing the total income at Rs.43,39,110/- by making additions of Rs.4,50,000/- and Rs.42,00,000/- as unexplained cash credits under Section 68. The assessee contended that these amounts represented legitimate business transactions, specifically the repayment of loans advanced by the assessee, a registered Non-Banking Financial Company (NBFC). The CIT(A) dismissed the assessee's appeal.

What were the issues?

1. Whether the assessment order passed under Section 144 of the Income Tax Act, 1961, is bad in law due to non-satisfaction of the conditions precedent for invoking its provisions. (Mixed law and fact) 2. Whether the addition of Rs.4,50,000/- as unexplained cash credit under Section 68 is sustainable, representing the repayment of a loan given to Mr. Vivek Tandon. (Mixed law and fact) 3. Whether the addition of Rs.42,00,000/- as unexplained cash credit under Section 68 is sustainable, representing the recovery of a loan given to Ahuja Goods Carrier (P) Ltd. (Mixed law and fact) 4. Whether the CIT(A) erred in confirming the additions without appreciating that the assessee is a registered NBFC and the transactions are genuine business recoveries, making Section 68 inapplicable. (Mixed law and fact) 5. Whether the CIT(A) erred in rejecting the appeal without providing a due and proper opportunity of hearing and ignoring material on record. (Procedural) Assessee's Contentions: - The assessment order is bad in law as it was issued without jurisdiction and the conditions for invoking Section 144 were not met. - The additions of Rs.4,50,000/- and Rs.42,00,000/- represent genuine loan recoveries by the NBFC in the normal course of business, supported by loan agreements, books of accounts, banking transactions, and examination of parties on oath. - The CIT(A) erred in treating these recoveries as unexplained cash credits under Section 68, ignoring overwhelming evidence. - The assessee is a registered NBFC and these debtors were NPA accounts, regularly shown as such in RBI filings, and the AO did not reject the books of account. - Alternatively, if the debtors were unable to repay, a deduction for bad debts should be allowed. - The assessment order was illegal as it was not passed by a competent jurisdictional AO. - The appeal was rejected without a proper opportunity of hearing. Revenue's Contentions: - The Revenue relied on the orders of the authorities below.

Which sections of the Income-tax Act were involved?

Section 144,Section 68,Section 145(3),Section 133(6),Section 115BBE

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, LUCKNOW BENCH SMC, LUCKNOW

Before: SHRI ANADEE NATH MISSHRA

has been filed by the assessee for assessment year 2017-18 against impugned appellate order dated 31/08/2024 (DIN & Order No.ITBA/NFAC/S/250/2024- 25/1068228393(1) of Commissioner of Income Tax (Appeals) [“CIT(A)” for short]. Grounds of appeal are as under:

“1. BECAUSE, on the facts and in the circumstances of the case, the impugned order passed by the Ld. Commissioner of Income Tax (Appeals) is bad in law as the Order of Assessment is itself bad in Law as it has been issued without jurisdiction. The order of assessment deserves to be set-aside and quashed.

2.

BECAUSE, on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred in law Assessment Year:2017-18 2

and on facts in confirming the order passed by Assessing Officer u/s 144 without appreciating that the condition precedent for invoking the provisions of Section 144 of the Act have not been satisfied in the instant case and thus the assessment order, itself is bad in law.

3.

BECAUSE, on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the Order of Assessment and in disbelieving the stand of the appellant that the loan advanced by it to borrowers, in the normal course of business, was recovered by the assessee and in doing so has erroneously ignored positive evidence available on record and purely rested its decision on conjecture and suspicion, which is illegal. The Assessing Officer as also the Commissioner of Income Tax (Appeals) has not lawfully appreciated the submissions made by assessee and evidence available on record concerning the repayment of the loan; the additions are not legal, particularly as the appellant is a NBFC, the parties were examined on oath by the Assessing Officer, confirmation was received as also documentary evidence in the shape of loan agreements, books of accounts, transaction performed through banking channel, audit of Books etc; irrespective of such overwhelming evidence, the repayment of the loan has been treated as unexplained cash credit by the Assessing Officer, most unjustifiably.

4.

BECAUSE, on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts while confirming the addition made by the Assessing Officer for Rs.4,50,000/- as unexplained Cash Credit u/s 68, which sum of money represents repayment of Loan given to Mr. Vivek Tandon by the appellant. ADDITION OF Rs. 4,50,000/-

5.

BECAUSE, on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming an addition Rs.42,00,000/- as unexplained Cash Credit u/s 68 which sum of money represents repayment of loan taken by Ahuja Goods Carrier (P) Ltd. The appellant being a NBFC has advanced loan and the disputed Assessment Year:2017-18 3

addition represents its recovery, there is absolutely no jurisdiction vesting in the authorities to cause the impugned addition. The addition is further unsustainable as the person concerned has appeared before Assessing Officer and admitted. Therefore the addition made by Assessing Officer deserves to be deleted. ADDITION OF RS.42,00,000/-

6.

BECAUSE, on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has failed to consider that appellant is a registered NBFC Company and makes provision for Non-Performing Assets (NPA), Mr. Vivek Tandon and Ahuja Goods Carrier (P) Ltd. were NPA accounts in its Books. These debtors were regularly shown as NPA in the Returns filed by appellant before Reserve Bank of India and that the Assessing Officer has not rejected the Books of Account nor has there been ever any dispute concerning the RBI filings.

7.

BECAUSE, wholly without prejudice and in the alternative, if the Assessing Officer is of the opinion that debtors appearing in the Books of Account and reflected against the names i.e. Mr. Vivek Tandon and Ahuja Goods Carrier (P) Ltd. have become bankrupt and/or are not the persons who have the means to repay the loaned amount, then the assessee deserves to be permitted a deduction towards bad debts from its taxable income.

8.

BECAUSE, on the facts and in the circumstances of the case, the additions sustained by the Assessing Officer cannot be made under Section 68 of the Act as the assessee is a duly registered NBFC and the recovery of loan appearing as credits in its Books of Account is a genuine business transaction and accordingly, the provisions of Section 68 have no application.

9.

BECAUSE, on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred in law in failing to appreciate that the impugned order of assessment was itself illegal and bad in law as the order has not been passed by competent jurisdictional Assessing officer.

Assessment Year:2017-18 4

10.

BECAUSE, the Ld. Commissioner of Income Tax (Appeals) has grossly erred in rejecting the appeal of the assessee without providing the assessee with a due and proper opportunity of hearing and has also ignored material available on record including the submissions made by assessee therefore the impugned order deserves to be set-aside and quashed.”

(B) The facts of the case, in brief, are that the assessee filed its return of income for the year under consideration on 11/09/2017, declaring a total income of Rs.1,39,110/-. The Assessing Officer completed the assessment and assessed the total income of the assessee at Rs.43,39,110/- by making addition of Rs.4,50,000/- under section 68 of the Act, and Rs.42,00,000/- as unexplained cash credit. Aggrieved, the assessee carried the matter in appeal before the learned CIT(A). The learned CIT(A) dismissed the appeal of the assessee observing as under:

Assessment Year:2017-18 5 Assessment Year:2017-18 6 (C) During the course of hearing, none was present on behalf of the assessee. In the absence of any representation from the side of the assessee, learned Departmental Representative for Revenue was heard, who relied on the orders of the authorities below. On careful perusal of the impugned order of the learned CIT(A), and other materials on record, no infirmity is found in it. No material has been presented from either side to justify any interference with or modification of the impugned order of Assessment Year:2017-18 7 learned CIT(A). Therefore, the impugned order of learned CIT(A) is upheld and the appeal is dismissed.

(D) In the result, the appeal of the assessee is dismissed.

(Order pronounced in the open court on 16/05/2025)

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