AMITKUMAR AGRAWAL,SURAT vs. ACIT, CIRCLE 1(2), SURAT

Brief facts of the case are that assessee is an individual and engaged in the business of trading and cloth, fabric, garments in the name and style of “Mahadev Lifestyle”. The assessee filed his return of income for AY.2017-18 on 30.09.2017, declaring total income of Rs.20,25,110/-. The case was selected for scrutiny. During the assessment, the Assessing Officer noted that assessee has availed unsecured loan of Rs.24,83,700/- from 11 parties, details of loan and interest paid to such parties are recorded in para 3.1 of assessment order. The Assessing Officer issued show cause notice dated 18.09.2019 to furnish details (A.Y.17-18) Amitkumar Agrawal of unsecured loan and interest paid along with copy of ITR, confirmation of loan and source of their money. In response to such show cause notice, the assessee filed his reply on 09.12.2019 and furnished required details. The Assessing Officer has not recorded the contents of reply, however the reply of assessee was not accepted. The Assessing Officer in para 3.3 in a tabulated form in his order recorded the amount of loan, interest paid, total income declared by lender, whether ITR, confirmation of loan, balance sheet is filed or not. The Assessing Officer in his summary recorded that in respect of all lenders, the assessee filed their confirmations, however, in certain cases, ITR and bank statement were filed and in certain cases in bank statement or ITR was not filed. The Assessing Officer in para 3.4 of assessment order held that income of various lenders was meagre and the assessee could not furnish complete details of lenders. The Assessing Officer disallowed the entire unsecured amount of unsecured loan as well as interest paid thereon, thereby the Assessing Officer made addition of Rs.24,83,700/- and added the same under section 68 and taxed under section 115BBE of the Act.

The Assessing Officer further noted that in the profit and loss account, the assessee has debited various indirect expenses aggregating to Rs.28,14,890/-, details of which are recorded in para 5 of assessment order. The Assessing Officer noted that despite giving various opportunity, thus, in absence of any details, the Assessing Officer treated the expenses as doubtful and disallowed 20% thereof and worked out disallowance of Rs.5,62,978/-.

Aggrieved by the additions in the assessment order, the assessee filed appeal before CIT(A). Before CIT(A), the assessee filed detailed written submission. Against the addition of unsecured loan, added under section 68, the assessee submitted that he is engaged in the business of sarees and dress material in the name of “Mahadev Lifestyle”. The business turnover of assessee is more than Rs.10.00 Crore and has shown net profit of Rs.20.63 lakhs. During the year under consideration, the assessee has availed unsecured loan from different persons through cheque. To substantiate such loan, the assessee during the assessment provided complete details. To prove the identity, genuineness and creditworthiness of the lender and genuineness of transaction, the assessee filed confirmation, PAN and relevant bank statement of lender. The assessee also filed ITR, balance sheet of immediate preceding year of all the lenders. The assessee paid interest and deducted TDS, they have given loan from their own capital and they have not borrowed any amount from anybody, their balance sheet and other documents were furnished. The part of written submission of assessee is recorded by ld. CIT(A) from page 14 to 19.

The ld. CIT(A) on considering the submission of assessee in sub para (j) at page no.19 of his order recorded that assessee has received amount from a company which is controlled by Shri Anirudh Joshi, who admitted to have provided accommodation entry through his concern. The assessee has not discharge onus in respect of loan received from Payal Tarun Agarwal, Tarun Kumar Agarwal, Gourav Raval and Dinesh Kumar Agarwal along with their amount of loan interest paid and evidences furnished below: Sl No. Name of the loanee Amount of loan in Rs along Document uploaded with interest 1 Payal Tarun Kumar 20000 70360 No bank statement, Agarwal ITR filed only confirmation filed. 2 Gaurav Raval 30370 46080 No bank statement, ITR filed only confirmation filed. 3 Tarun Kumar Agarwal 100000 73499 No bank statement, ITR filed only confirmation filed. 4 Dinesh Kumar Agarwal 100000 43011 No bank statement, ITR filed only confirmation filed. 5 TOTAL including interest 7,57,499/- 2,32,950/- 4

The ld. CIT(A) without discussing the nature and evidence thereby upheld the addition to the extent of Rs.24,83,700/- and interest amount of Rs.2,32,950/-, thereby upheld total addition u/s 68 and 69C of Rs.9,36,650/-. The ld. CIT(A) also upheld the action of Assessing Officer in taxing the addition at the enhanced rate u/s 115BBE.

On the ad hoc disallowance of direct and indirect expenses @ 20% of total expenses, the assessee also furnished detailed written submission. The ld. CIT(A) has not mentioned the reference of written submission in his order. The assessee also explained nexus of each and every expenses along with relevant evidence. Copy of written submission filed by assessee is placed at page no.22 to 24 of the paper book. On considering the submissions of assessee, the ld. CIT(A) held that there was no compliance of notice under section 142(1). Thus, the Assessing Officer has rightly disallowed 20% of the expenses. Further aggrieved, the assessee has filed present appeal before this Tribunal. 8. We have heard the submission of ld. AR of the assessee and the ld. Sr. DR for the revenue. The ld. AR of the assessee submitted that during assessment proceedings, assessee furnished complete details of unsecured loan, which consist of details of identity of lender, their name, address, PAN and ITR. The assessee also furnished the evidence of creditworthiness of each and every lender by filing their confirmation and ITR. The assessee has paid interest to all the lenders by deducting TDS. The Assessing Officer has not investigated the fact. The Assessing Officer has not disputed to the identity of person, the assesse has proved creditworthy of lenders and genuineness of transaction. The assessee has availed loan ranging from Rs.1.00 lakhs to Rs.3.00 lakhs from each individual lender. The Assessing Officer without making every investigation, added the entire unsecured loans, however, the ld. CIT(A) restricted the addition in respect of four lender aggregating to Rs 7,57,499/- and interest amount for (A.Y.17-18) Amitkumar Agrawal Rs.2,32,950/-. The ld. CIT(A) in his finding has noted that assessee has availed loan from entry provider Shri Anirudh Joshi, which observation is contrary to the facts. Neither the assessee availed from Anirudh Joshi nor from his any concern. The assessee availed loans from his friends and relatives. The ld. CIT(A) made cut paste the paragraph from some other/ different assessee’s order. The ld. CIT(A) confirmed the addition in respect of loan availed from Payal Tarun Agarwal, Tarun Agarwal, Gourav Raval and Manish Agarwal, from whom the assessee has availed very meagre amount of loan ranging from Rs.1.00 lakh, Rs.2.00 lakhs and Rs.3.00 lakh only. The assessee submitted that Payal Tarun Agarwal shown the return of Rs.3,50,000/- in AY 2017-18 . Her computation of income and capital accounts was furnished. She is having capital account and more than Rs.9.00 lakh and in AY.2016-17, she has shown return of income Rs.2,83,213. Gourav Raval has shown taxable income of Rs.2,68,564/- in AY.2016-417 and Rs.4,40,000/- in AY.2017-18 and he was having capital and more than Rs.8.00 lakhs as on 31.03.2016. Shri Tarun Kumar Agarwal has shown return of income of Rs.4,40,000/- for AY.2017-18 and more than Rs.4.00 lakh in AY.2016-17. The assessee has availed loan of Rs.1.00 lakh only. Moreover, his credit balance forwarded for earlier years of rupees for more than Rs.1.00 lakh, which is never doubted in past. From Manish Kumar Agarwal, the assessee has availed a loan of Rs.1.00 lakh only. The ld. CIT(A) wrongly mentioned his name ‘Dinesh Kumar Agarwal’. His ITR for AY.2017-18 and AY.2016-17 is filed. He was having taxable income for AY.2016-17 and Rs.2,88,573/- and in AY.2017-18 of more than Rs.6.00 lakhs. The assessee furnished their confirmation and complete ITR. The ld. CIT(A) without discarding such submission, confirmed the addition of their loan amounts. No investigation of fact was carried out either by ld. CIT(A) or by AO. Once the assessee discharged his primary onus, in term of section 68, the onus shifts on the revenue/ Assessing Officer (AO) to make further investigation. To disprove such evidence, the (A.Y.17-18) Amitkumar Agrawal AO should verify the genuineness of transaction from the Income-tax Returns from lenders. The AO and ld. CIT(A) have not discussed anything about the payment of interest made after deducting TDS. To support his submission, ld. AR of the assessee relied upon the decision of jurisdictional High Court in case of DCIT vs. Rohini Builders, 256 ITR 360 (Guj.), CIT vs. Orissa Corporation (P) Ltd., 159 ITR 78 (SC), CIT vs. Ranchod Jivabhai Nakhava, (2012) 21 taxmann.com 159 (Guj.).

On the issue of disallowance of indirect expenses of ad hoc basis, the ld. AR of the assessee submits that expenses incurred by assessee for the purpose of business. The assessee furnished the details, however, Assessing Officer disallowed the expenses @ 20%. Before ld. CIT(A), the assessee again furnished complete details, yet he without discussing the facts and evidence furnished by assessee upheld the action of Assessing Officer. The ld. AR of the assessee submits that all the expenses were incurred for the purpose of business, yet to avoid further litigation for some token disallowance may be upheld. On the issue of taxing the additions under section 115BBE, the ld AR of the assessee submits that applicability of section 115BBE is not retrospective rather than perspective has been held in various decisions by various Benches of Tribunal including by Surat Bench.

On the other hand, ld. Sr. DR for the revenue, on the addition of unsecured loan submitted that assessee failed to discharge his onus. The ld. CIT(A) in his findings has clearly written that assessee failed to furnish the bank account of the lenders. The ld CIT(A) upheld the addition in respect of lenders to whom the assessee failed to prove creditworthy. On the ad hoc disallowance of expenses, ld. Sr. DR submitted that AO reasonably made disallowance for the want of necessary documents. On taxing the addition under section 115BBE, the ld Sr DR for the revenue supported the order of lower authorities.

Ground No.4 relates to ad hoc disallowance indirect expenses. We find that Assessing Officer disallowed 20% of expenses by holding that no details of expenses were furnished. The ld. CIT(A) also confirmed the action of Assessing Officer by taking view that no details were furnished before Assessing Officer. We find that before ld. CIT(A), the assessee filed detailed submission of various expenses. The ld. CIT(A) neither considered such submission nor made reference thereof. Considering the nature of expenses which includes the salary of staff, bonus to staff, brokerage expenses, packing expenses, travelling expenses, convenience expenses etc. All the expenses are related to business expenses. Considering the fact that bonus expenses are more than the salary expenses, similarly the assessee has claimed travelling expenses and convenience expenses is seemed to be higher side. The assessee in his submission, before CIT(A), explained that assessee travel at various destination to procure order and to negotiate the deal. In our view, the ad hoc disallowance of all the expenses in the present case, is on higher side, therefore, disallowance is restricted to 10% on total indirect expenses. Thus, the assessee is allowed part relief. In the result, ground No.4 is partly allowed.