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Facts
The assessee company, engaged in ginning and pressing cotton, filed a return of income for AY 2014-15. The Assessing Officer (AO) made additions for unsecured loans under Section 68, disallowance for late provident fund contribution under Section 36(1)(va), disallowance of interest expenditure, and ad-hoc disallowance of administrative expenses.
Held
The Tribunal noted that for Section 68 additions, once the assessee establishes taking money via account payee cheques from income tax assessees with disclosed PANs, the initial burden is discharged. The AO's duty is then to verify with the lenders' assessing officers. The Tribunal also noted that Ground No. 2 was not pressed, and Grounds 3 & 4 were for interest and ad-hoc disallowances, which were approved by the CIT(A).
Key Issues
Whether the additions made by the AO under Section 68 for unsecured loans, disallowances for late provident fund contribution, interest expenditure, and ad-hoc administrative expenses were justified.
Sections Cited
68, 36(1)(va), 143(3)
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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: DR. ARJUN LAL SAINI, AM. &
आदेश / O R D E R
PER DINESH MOHAN SINHA JM; Captioned appeal filed by assessee pertaining to Assessment Year 2014-15, is directed against order passed by Commissioner of Income Tax (Appeal), vide order dated 31/07/2023, which in turn arises out of an order passed by the Assessing Officer dated 19/12/2016 u/s 143(3) of the Income Tax Act, 1961.
-RJT-2023 Kaveri Cotex Pvt Ltd GROUNDS OF APPEAL
S:-
1. The grounds of appeal mentioned hereunder are without prejudice to one another.
2. The Id. Commissioner of Income-tax (Appeals)-11, Ahmedabad (hereinafter referred to as the "CIT(A)"] erred on facts as also in law in retaining the addition of Rs.34,50,000/- out of Rs.50,50,000/- made u/s.68 of the Act on the alleged ground that the appellant failed to prove the creditworthiness of lenders/prove the genuineness of transactions. The addition retained is totally unjustified and deserves to be deleted, may kindly be deleted.
3. The Id. CIT(A)erred on facts as also in law in confirming disallowance of Rs.31,361/- made u/s.2(24)(x) r.w.s.36(1)(va) of the Act on account of late payment provident fund contribution. The disallowance confirmed is unjustified and uncalled for, which deserves to be deleted, may kindly be deleted.
4. The learned CIT(A) erred on facts as also in law in confirming disallowance of interest expenses of Rs.1,75,000/- on the alleged ground of diversion of interest-bearing fund. The disallowance confirmed is totally unjustified and uncalled for and deserves to be deleted and may kindly be deleted.
5. Ld. CIT(A) erred on facts as also in law in confirming ad-hoc disallowance of Rs.6,95,619/- from various expenses debited to profit & loss account on the alleged ground of non-furnishing documentary evidence. The disallowance confirmed is unjustified and uncalled for, which deserves to be deleted, may kindly be deleted.
6. Your Honour's appellant craves leave to add, to amend, alter, or withdraw any or more grounds of appeal on or before the hearing of appeal.
STATEMENT OF FACTS During the year, the appellant-company was engaged in the business of ginning and pressing of cotton. The return of income for the year was filed by the appellant-company on 15-09-2014 declaring total income of Rs. 7,62,590/-. The assessment u/s 143(3) of the Act was completed on 19-12- -RJT-2023 Kaveri Cotex Pvt Ltd 2016 determining total income at Rs.67,65,860/-.
During the course of assessment proceedings, the A.O. noticed that the appellant had received unsecured loan aggregating to Rs. 50,50,000/- from 8 persons mentioned on Page 2 of the assessment order. The A.O. held that the appellant failed to establish identity, genuineness and creditworthiness of the depositors and hence, show caused the appellant as to why the impugned amount of loan should not be treated as unexplained cash credits u/s 68 of the Act. The appellant vide letter dated 07-12-2016 submitted cash books, confirmations, acknowledgement of return of income and bank account statements of the said 8 depositors. It was further submitted that all necessary documents to prove the identity, creditworthiness and genuineness of transactions were submitted and that loans obtained were utilized for business purposes. It is further pointed out that in respect of one M/s Amit Cotton Industri es, the A.O. has mentioned in the order hat acknowledgement of return of income and bank account statement were not submitted but the appellant submits that it had filed both, vide its letter dated 07-12-2016 Thus, the A.O., on account of reasons stated in the order, proceeded to make addition of Rs.50,50,000/- u/s 68 of the Act.
The A.O. has further disallowed Rs. 31,361/- u/s 36(1)(va) of the Act by holding that the appellant did not pay the employees' contribution towards Provident Fund within due date specified in the Act.
The A.O. has further proceeded to disallow Rs. 1,75,000/- (12% of Rs. 25,00,000/- for 7 months) out of interest expenditure by holding that the appellant ha d had diverted its interest bearing funds by giving interest free advance of Rs.25,00,000/- to one Shri Jayaben Ghodasara. The appellant vid e its reply dated 07-12-2016 submitted that it had paid interest of Rs. 1 25,32,607/- to the bank, interest on unsecured loan of Rs.7,30,667/-t o one Ashray Agency and all other unsecured loans obtained were interest free. Various other contentions were raised by the -RJT-2023 Kaveri Cotex Pvt Ltd appellant.
Further, the A.O. has proceeded to make adhoc disallowance of Rs. 6, 95,619/- being 25% of administrative, brokerage and commission expenses aggregating to Rs.27,82,477/- respectively. The assessment order passed u/s. 143(3) of the Act on dared 19/12/2016 with the under mention remark: Subject to the above remarks, the total income of the assessee is recomputed as under: Particulars Amount (Rs.) Total income as per return of income 762590 Add: Addition u/s.68 5050000 Add: Discrepancy of Form No. 26AS 51288 Add: Disallowance u/s.36(1)(va) 31361 Add: Disallowance out of interest expenses 175000 Add: Disallowance out of selling and administrative expenses 695619 Assessed Income 6765858 Rounded off to 6765860 The assessee filed an appeal against the order of AO in the office of CIT(A) (NAFC). The Ld. CIT has disposed of the appeal with a view that ground no.1 is party allowed and ground no. 2,3,4 are dismissed. In the result appeal is partly allowed. The assessee filed an appeal against impugned order dated 31/07/2024 by moving of an appeal before us. (i) The AR of the assessee submitted that the addition of Rs. 34,50,000/- u/s. 68 is wrongly approved by the CIT ground 2 is -RJT-2023 Kaveri Cotex Pvt Ltd
not praised and interest disallowance and ad hock addition are wrong assessee maintain books of accounts and are audited by CA. The assessee has sufficient fund in his business to advance Tax free loan. The Ld. AR has relied on order of the hon’ble Gujrat High Court and order of Ld. ITAT Surat. (ii) On the contrary DR has submitted the DR is relied on the order of the lower authority.
We have heard the matter and perused the material available on record. We note that an application date: 21/12/2017 u/R 46A of the Income Tax Rule filed along with paper book containing additional documents. We further note that the assessee submitted the judgment delivered by Gujrat High Court in the case of Commissioner of Income-Tax v. Ranchhod Jivabhai Nakhava* [2012] 21 taxmann.com 159(Guj.)
Section 68 of the Income-tax Act, 1961 Cash credits Assessment year 2006- 07 -Whether once assessee has established that he has taken money by way of account payee cheques from lenders who are all income tax assessee whose PAN have been disclosed, initial burden under section 68 is discharged and then, it is Assessing Officer's duty to ascertain from Assessing Officer of those lenders, whether in their respective returns they have shown existence of such amount of money and have further shown that those amount of money had been lent to assessee - Held, yes Whether if Assessing Officers of those creditors are satisfied with explanation given by creditors as regards those transactions, Assessing Officer in question has no justification to disbelieve transactions reflected in account of creditors - Held, yes Whether if before verifying such fact from Assessing Officer of lenders of assessee, Assessing Officer decides to examine lenders and asks Page | 5 -RJT-2023 Kaveri Cotex Pvt Ltd assessee to further prove genuineness and creditworthiness of transactions, it would be against principles laid down under section 68 Held, yes [In favor of assessee] We further note the Ground. No 2 not pressed and Ground. No 3&4 are for addition of interest on Tax free Loan amount to Rs. 1,75,000/- and ad hock disallowance of Rs. 6,95,618 (25%) That the same addition were approved by Ld. CIT(A) in appellate order. We note that the audit report of the assessee was available before the revenue authority and no fault has been detected in the audit report by the Ld. CIT(A) & AO.
We are of the view and find it more appropriate to set-aside the order dated 31/07/2023 and restore the matter to the file of AO for de novo assessment after consideration of all evidence of the assessee according to law after affording the due opportunity of being hard to the assessee.
In result the appeal of the assessee allowed for statical purpose.