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Income Tax Appellate Tribunal, “E” Bench, Mumbai
Before: Shri Shamim Yahya & Shri Ravish Sood
O R D E R
PER RAVISH SOOD, JM
The present appeals filed by the assessee are directed against the order passed by the CIT(A)-28, Mumbai under Sec. 250(6) of the Income Tax Act, 1961 r.w.rule 46A(2) of the Income Tax Rules 1962, dated 13.03.2018 for A.Y. 2013-14. As the issues involved in the captioned appeals are inextricably interlinked and interwoven, therefore, the same are being taken up and disposed off together by way of a consolidated order. Before adverting to the respective appeals, we may herein observe that the assessee has assailed before us the order passed by the CIT(A) under Rule 46A(2) of the Income Tax Rules, P a g e | 2 & 3672/Mum/2018 AY. 2013-14 Shri Tushar Mahendra Parekh Vs. The Income Tax Officer-17(3)(4) 1962, dated 13.03.2018, wherein he had in the course of the appellate proceedings declined to admit the „additional evidence‟ which was filed by the assessee before him under Rule 46A of the I.T rules. Thereafter, the CIT(A) had disposed off the appeal on merits under Sec. 250(6), vide his order dated 13.03.2018. To sum up, the aforesaid order passed by the CIT(A) under Rule 46A(2) while disposing off the appeal of the assessee stands merged in the order passed by him under Sec. 250(6) of the Act. We shall first advert to the order passed by the CIT(A) under Rule 46A(2). The assessee has assailed the declining on the part of the CIT(A) to admit the „additional evidence‟ on the following grounds of appeal:
“A) Not admitting the additional evidences 1) The learned Commissioner of Income Tax (Appeals) - 28 (Mumbai) [CIT(A)] erred on facts and in law in not admitting the additional evidences filed by the appellant by holding that: (a) the AO had given more than reasonable opportunity and the appellant failed to attend the hearings and give submissions; (b) the confirmations are stereotyped, prepared by assessee himself and unverified signatures appended as confirmations; (c) the documents do not inspire any confidence and are clearly cooked up; (d) the documents are self serving documents (e) the evidences filed are not worthy of admission since none of the four limbs of the Rule are established. 2) The learned CIT(A) failed to appreciate that the appellant was prevented by a reasonable and sufficient cause from furnishing the additional evidences before the AO. 3) The appellant prays that the additional evidences may be admitted and the CIT(A) may be directed to decide the appeal afresh after considering the additional evidences. B) General 4) The above Grounds of Appeal are without prejudice to one another and the appellant craves leave to add, alter, amend, delete or modify any of the above Grounds of Appeal.”
2. Briefly stated, the assessee had filed its return of income for A.Y. 2013-14 on 25.09.2013, declaring its total income at Rs.6,31,820/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec.143(2). The A.O vide his order passed under Sec. 143(3), dated 11.03.2016 inter alia made an addition under Sec.
P a g e | 3 & 3672/Mum/2018 AY. 2013-14 Shri Tushar Mahendra Parekh Vs. The Income Tax Officer-17(3)(4) 68 in respect of cash credit appearing in the books of accounts of the assessee against the name of 19 parties, as under:
Sr. No. Particulars Amount 1. Arti Jasani 6,748 2. Arvind M. Shah 27,000 3. Ashit Doshit HUF 1,32,000 4. Devayani Ganatra 87,750 5. Hemal M. Shaveri 5,00,000 6. Jignesh S. Sanghvi 3,35,000 7. Jogesh Jasani 13,500 8. Kamlesh M. Doshi 1,18,125 9. Kirti S. Shah 16,200 10. Kirti S. Shah HUF 32,400 11. Krooti Sanghvi 10,63,000 12. Neeta Kirti Shah 64,800 13. Neeta Nilesh 64,800 14. Nilesh S. Shah 16,200 15. Nilesh S. Shah HUF 32,400 16. Pragna H. Shanghvi 3,67,500 17. Sanjay Sanghvi 15,94,500 18. Vasantaben Jesani 13,500 19. Trishala Enterprises 86,00,000 Total 1,30,85,423/-
3. Aggrieved, the assessee assailed the order in appeal before the CIT(A). In the course of the appellate proceedings the assessee vide his letter dated 18.01.2019 placed on record confirmations of all the aforestated 19 parties which were added by the A.O as unexplained cash credit under Sec. 68 of the Act. However, the CIT(A) declined to admit the aforesaid „additional evidence‟ filed by the assessee. It was observed by the CIT(A) that as the A.O had afforded more than reasonable opportunity to the assessee for substantiating the veracity of the cash credits appearing against the name of the aforementioned persons, which it had failed to avail, therefore, the said fresh documentary evidence could not be admitted in the course of the appellate proceedings. Apart therefrom, the CIT(A) was also of the view that the confirmations filed by the assessee did not inspire much of confidence and appeared to be in the nature of cooked up documents. Accordingly, on the basis of his aforesaid observations the CIT(A)
P a g e | 4 & 3672/Mum/2018 AY. 2013-14 Shri Tushar Mahendra Parekh Vs. The Income Tax Officer-17(3)(4) declined to admit the aforesaid additional evidence, vide his order passed under Rule 46A(2) of the Income Tax Rules, 1962, dated 13.03.2018.
Aggrieved, the assessee has assailed the aforesaid order passed by the CIT(A) under Rule 46A(2) of the Income Tax Rules, 1962, which as observed by us hereinabove would merge with the order passed by him under Sec. 250(6) of the Act. We find that it was the claim of the assessee before the CIT(A) that initially on 26.06.2015 it was called upon to furnish certain information in the course of the assessment proceedings, which was duly complied with and the requisite documents as were called for by the A.O were filed on 29.07.2015. Also, subsequent replies to the notices issued by the A.O were filed till January, 2016. As is discernible from the contentions advanced by the assessee before the CIT(A), the notice calling upon the assessee to furnish the confirmations of unsecured loans was received by the assessee for the very first time on 15.02.2016. It is the claim of the assessee that the hearing of the case was thereafter fixed on 23.02.2016. On the said date, as stated by the assessee, his authorized representative had appeared before the A.O and had sought some further time to submit the confirmations, which however was declined by him and assessment was framed under Sec. 143(3), dated 11.03.2016. Further, it is the claim of the assessee that though the hearing of the case had started from 26.06.2015, however, the A.O had directed him to furnish the confirmation letters for the very first time on 15.02.2016. Accordingly, it is the claim of the assessee that as it was afforded a time period of less than 1 month for furnishing the confirmations of the aforementioned 19 parties, therefore, on account of paucity of time it could not obtain and file the said confirmations within the said short period. We find that it is the claim of the assessee that as sufficient time was not given to it to furnish the P a g e | 5 & 3672/Mum/2018 AY. 2013-14 Shri Tushar Mahendra Parekh Vs. The Income Tax Officer-17(3)(4) confirmations of the parties in the course of the assessment proceedings, therefore, the same in all fairness was admissible under Rule 46A of the Income Tax Rules, 1962.
In the course of hearing of the appeal, it was submitted by the ld. Authorized Representative (for short „A.R‟) for the assessee that as the assessee was not afforded sufficient time for furnishing the confirmations of the parties with the A.O, therefore, the CIT(A) had erred in declining to admit the same as „additional evidence‟ u/Rule 46A of the Income-tax Rules, 1962 during the course of the appellate proceedings.
Per contra, the ld. Departmental Representative (for short „D.R‟) relied on the order of the CIT(A). It was submitted by the ld. D.R that as the assessee had failed to file the aforesaid confirmations despite having been afforded sufficient opportunity in the course of the assessment proceedings, therefore, the CIT(A) had rightly declined to admit the aforesaid „additional evidence‟ that was filed by the assessee in the course of the appellate proceedings before him under Rule 46A of the Income Tax Rules, 1962.
We have heard the authorized representatives for both the parties and have perused the documentary evidence which was filed by the assessee by way of „additional evidence‟ under Rule 46A before the CIT(A). We find substantial force in the claim of the ld. A.R that as the assessee was not afforded sufficient time for furnishing the aforesaid confirmations of the parties in the course of the assessment proceedings, therefore, the same could not be obtained by him from the parties and thereafter filed with the A.O. Nothing is discernible from the orders of the lower authorities from where it could be gathered that the assessee was afforded sufficient time to furnish the confirmations of the aforementioned 19 parties in the course of the P a g e | 6 & 3672/Mum/2018 AY. 2013-14 Shri Tushar Mahendra Parekh Vs. The Income Tax Officer-17(3)(4) assessment proceedings. In fact, a perusal of the notice issued under Sec.142(1), dated 15.02.2016, reveals that the A.O had observed that the assessee as on 07.01.2016 was directed to furnish the confirmations along with the other details in respect of the aforementioned parties. Accordingly, we are of the considered view that it can safely be concluded that sufficient opportunity was not afforded to the assessee for furnishing the confirmations of the aforementioned parties in the course of the assessment proceedings. Apart therefrom, we find from a perusal of the confirmations of the parties that the same mainly pertains to the same parties to whom interest on loan, office rent etc was paid by the assessee during the year under consideration. Accordingly, now when the A.O had not drawn any adverse inferences as regards the genuineness of the aforesaid interest expenditure, rent expenditure claimed by the assessee in its profit and loss account for the year under consideration viz. A.Y. 2013-14, therefore, the said fact in itself inspires substantial confidence as regards the genuineness of the credits appearing against the names of the aforementioned parties. Be that as it may, in the backdrop of our aforesaid observations, we are of the considered view that the CIT(A) was in error in declining to admit the aforesaid confirmations which were filed by the assessee as an „additional evidence‟ under Rule 46A of the Income Tax, Rules, 1962. Accordingly, we „set aside‟ the order of the CIT(A) passed under Rule 46A(2) of the Income Tax Rules, 1962 and restore the matter to his file with a direction to consider the aforesaid confirmations of the parties which were filed by the assessee as an „additional evidence‟ under Rule 46A in order to substantiate the genuineness of the credits appearing against the names of the aforementioned 19 parties. The Grounds of appeal
Nos. 1 to 4 are allowed in terms of our aforesaid observations.
8. The appeal of the assessee is allowed.
P a g e | 7 & 3672/Mum/2018 AY. 2013-14 Shri Tushar Mahendra Parekh Vs. The Income Tax Officer-17(3)(4) ITA No.3672/Mum/2018 A.Y. 2013-14 9. We shall now advert to the appeal filed by the assessee against the order passed by the CIT(A) under Sec. 250(6) on merits. The assessee has assailed the impugned order of the CIT(A) on the following grounds of appeal:
“(A) Addition on account of long outstanding creditors - Rs. 7,51,308/- 1) The learned Commissioner of Income Tax (Appeals) - 28 (Mumbai) [CIT(A)] erred on facts and in law in confirming the order of the Income Tax Officer - 17(3)(4), Mumbai (AO) making an addition of Rs. 7,51,308/u/s. 41(l) on account of creditors outstanding for long. 2) The appellant prays that the addition of Rs. 7,51,308/- made by the AO u/s. 41(1) and confirmed by the CIT(A), may be deleted. B) Disallowance u/s. 40(a)(ia) - Rs. 1,32,875/- 3) The learned CIT(A) erred on facts and in law in confirming the disallowance made by the AO of Rs. 1,32,875/- u/s. 40(a)(ia). 4) The appellant prays that the disallowance made by the AO of Rs.1,32,875/- u/s. 40(a)(ia) and confirmed by the CIT(A), may be deleted. C) Addition u/s. 68 - Rs. 1,30,85,423/- 5) The learned CIT(A) erred on facts and in law in confirming the addition made by the AO u/s. 68 of Rs. 1,30,85,423/- 6) The learned CIT(A) erred in not admitting the additional evidences filed by the appellant in this regard. 7) The appellant prays that the addition of Rs. 1,30,85,423/- made by the AO u/s. 68 and confirmed by the CIT(A), may be deleted. D) Addition on account of capital receipt - Rs. 2,92,589/- 8) The learned CIT(A) erred on facts and in law in confirming the order of the AO making an addition of Rs. 2,92,589/- as a revenue receipt. 9) The appellant prays that the addition made by the AO of Rs. 2,92,589/- and as confirmed by the CIT(A), may be deleted. E) General 10) The above Grounds of Appeal are without prejudice to one another and the appellant craves leave to add, alter, amend, delete or modify any of the above Grounds of Appeal.”
2. We shall first advert to the addition made by the A.O under Sec.41(1) of the Act amounting to Rs.7,51,308/- on account of creditors which were outstanding in the books of accounts of the assessee for a long period. In the course of the assessment P a g e | 8 & 3672/Mum/2018 AY. 2013-14 Shri Tushar Mahendra Parekh Vs. The Income Tax Officer-17(3)(4) proceedings, it was observed by the A.O that the assessee had shown two sundry creditors in its balance sheet viz. (i) M/s Hare Krishna Developers:Rs.1,00,000; (ii)M/s Nand Steel & Pipe Industries: Rs.6,51,308/-. As the aforesaid respective amounts were outstanding in the books of account of the assessee for a long time, therefore, for the said reason the same were treated by the A.O to have ceased and were added to the income of the assessee under Sec.41(1) of the Act.
We have given a thoughtful consideration to the addition made by the lower authorities under Sec.41(1) and are unable to persuade ourselves to subscribe to the same. Admittedly, as per Sec. 41(1), in a case where the deduction has been made in the assessment for any year in respect of any trading liability incurred by the assessee, and subsequently during any previous year the assessee had obtained some benefit in respect of such trading liability by way of remission or cessation thereof, the benefit accruing to the assessee shall be deemed to be the profits and gains of its business or profession and accordingly chargeable to income tax as its income of that previous year. However, merely for the reason that a liability is outstanding in the books of accounts of the assessee for several years cannot on the said standalone basis justify characterising of the same as a ceased liability under Sec.41(1) of the Act. Our aforesaid view is fortified by the judgment of the Hon’ble High Court of Delhi in the case of CIT Vs. Jain Exports Pvt. Ltd. (ITA No.235/2013, dated 24.05.2013) Apart therefrom, we find that the A.O while making an addition under Sec.41(1) of Rs.7,51,308/- had failed to point out as to what benefit the assessee had obtained in respect of the aforesaid trading liability during the year under consideration. In sum and substance, as to on what basis the cessation of the aforesaid liability had been related to year under consideration is also not discernible from the assessment order. Accordingly, we are unable to persuade ourselves to sustain the P a g e | 9 & 3672/Mum/2018 AY. 2013-14 Shri Tushar Mahendra Parekh Vs. The Income Tax Officer-17(3)(4) aforesaid addition of Rs.7,51,308/- made by the A.O under Sec.41(1) of the Act, and thus vacate the same. The Grounds of appeal
Nos. 1 & 2 are allowed.
4. We shall now advert to the disallowance under Sec. 40(a)(ia) aggregating to Rs.1,32,875/- made by the A.O in context of 4 parties viz. (i) Arvind M. Shah: Rs.60,750/-; and (ii) Devyani Gonatra: Rs.54,000/-; (iii) Jogesh Jasani: Rs.3750/-; and (iv) Kamlesh N. Doshi: Rs.14,375/-. As is discernible from the assessment order, as the assessee had failed to deduct tax at source on the interest payments made to the aforementioned parties, therefore, the same was disallowed by the A.O under Sec.40(a)(ia) of the Act. Interestingly, we find that all of the aforesaid 4 parties appear in the list of the 19 parties in respect of which addition had been made by the A.O under Sec.68 of the Act. As we have restored the addition made by the A.O under Sec. 68 to the file of the CIT(A) for fresh adjudication, therefore, in all fairness as the disallowance made by the A.O under Sec. 40(a)(ia) in respect of the aforesaid parties is inextricably linked to the addition made under Sec.68 by the A.O, therefore, the same also is restored to the file of the CIT(A). At this stage, we may herein observe that the amount of interest credited by the assessee in the accounts of the aforementioned 4 parties prima facie is not found to be in conformity with the amount that had been disallowed by the A.O under Sec.40(a)(ia) of the Act. Accordingly, the CIT(A) is also directed to take cognizance of the aforesaid fact while adjudicating the issue pertaining to the disallowance made by the A.O under Sec.40(a)(ia) and addition under Sec.68 in respect of the said parties. The Grounds of appeal Nos. 3 & 4 are allowed for statistical purposes.
5. We shall now advert to the addition of Rs.1,30,85,423/- made by the A.O in respect of the 19 parties under Sec.68 of the Act. As we have directed the CIT(A) to consider the confirmations of the