SHRI RAJESH KARSHANBHAI VEKARIYA,RAJKOT vs. THE ITO WD-2(1)(5), RAJKOT
Facts
The assessee, an individual engaged in trading business, filed a return of income which was assessed at a higher figure by the AO under section 144 due to non-cooperation. The AO made additions for unexplained cash credit (unsecured loans), disallowed depreciation on a motor car, and disallowed a portion of administrative and kharajat expenses. The CIT(A) dismissed the assessee's appeal, upholding the AO's additions.
Held
The Tribunal noted that the CIT(A) had not adequately considered the remand report and the assessee's submissions. While some disallowances were confirmed, the Tribunal restricted the additions for unsecured loans, depreciation, and administrative/kharajat expenses, finding them to be partly justified. The addition for kharajat expenses was restricted to 5%.
Key Issues
Whether the additions made by the AO and confirmed by the CIT(A) on account of unexplained cash credit, disallowed depreciation, and disallowed expenses were justified, and if not, to what extent the disallowances should be restricted.
Sections Cited
144, 68, 46A, 36, 8, 44AB, 143(3)
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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: DR. ARJUN LAL SAINI, AM.&
ITA NO. 173-RJT-2024 SHRI RAJESH KARSHANBHAI VEKARIYA
IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT BEFORE DR. ARJUN LAL SAINI, AM.& DINESH MOHAN SINHA, JM आयकर अपील सं./ITA No.173/RJT/2024 �नधा�रण वष� / Assessment Year: (2011-12) Shri Rajesh Karshanbhai Vekariya, Income Tax Officer, Ward- Plot No. 266, Kuvadva GIDC, Opp. 2,(1)(5), Rajkot, Aayakar Vs. Riddhi Agro Industries, Kuvadva, Bhavan, Race Course Ring Rajkot-360003 Road, Rajkot – 360001 �थायीलेखासं./जीआइआरसं./PAN/GIR No.: ACXPP9434A (Appellant) (Respondent) Appellant by : Shri Mehul Ranpura, Ld. AR Respondent by : Shri Abhimanyu Singh Yadav , Ld .Sr. DR Date of Hearing : 08 /01/2025 Date of Pronouncement : 03/04/2025 आदेश / O R D E R PER DINESH MOHAN SINHA JM; Captioned appeal filed by assessee pertaining to Assessment Year 2011-12, is directed against order passed by National Faceless Appeal Centre (NFAC) Delhi /Ld. Commissioner of Income-tax (Appeal) , vide order dated 25.012024, which in turn arises out of assessment order passed by the Assessing Officer (‘AO’ for short) dated 26.03.2015 u/s 144 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). 2. The assessee has raised following grounds of appeal: “1. The grounds of appeal mentioned hereunder are without prejudice to one another. 2. The Id. Commissioner of Income-tax(Appeals), National Faceless Appeal Centre, Delhi (hereinafter referred as to the "CIT(A)"] erred on facts as also in law confirming addition of Rs.86,68,718/- made by the AO on account of alleged unexplained cash credit u/s.68 of the Act on the alleged ground that the appellant failed to prove genuineness and creditworthiness of various parties from whom unsecured loan of Rs.86,68,718/-were Page | 1
ITA NO. 173-RJT-2024 SHRI RAJESH KARSHANBHAI VEKARIYA
received. The addition confirmed is unjustified and uncalled for, which deserves to be deleted and may kindly be deleted. 3. The Id. CIT(A) erred on facts as also in law confirming disallowance of depreciation on motor car of Rs.76,595/- made by the AO on the alleged ground that the appellant failed to furnish material evidences related to purchase of Car. The disallowance confirmed is unjustified and uncalled for, which deserves to be deleted and may kindly be deleted. 4. The Id. CIT(A) erred on facts as also in law confirming disallowance of Rs.66,087/- & Rs.7,06,358/- made by AO being 10% of administrative expenses & Kharajat Expense respectively on the alleged ground that no proper check over the expense has been made by the appellant. The disallowance confirmed is unjustified and uncalled for, which deserves to be deleted and may kindly be deleted. 5. 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
1.0 The appellant, an individual, is assessed to tax by the Income tax Officer, Ward 2(1)(5), Rajkot (hereinafter referred to as the "AO") and maintains books of account and gets the same audited u/s. 44AB of the Act. The appellant filed his return of income of 2,84,452/- and agricultural income of Rs.2,05,000/- for the relevant AY on 29.09.2012 During assessment u/s 143(3) of the Act, the AO alleged that the appellant remained non-cooperative and did not comply with notices issued and thereby invoked section 144 of the Act. The AO, vide order u/s. 144 of the Act, dated 26.03.2015 assessed the total income at 98,02,210/- and agriculture income of Rs.2,05,000/-, wherein following variations to the returned income were made: (i) Treating unsecured loans of ₹86,68,718/- received from various depositors as unexplained and alleging that appellant has failed to discharge the onus and thereby made addition of 286,68,718/-u/s. 68 of the Act, on account of unexplained cash credit.
ITA NO. 173-RJT-2024 SHRI RAJESH KARSHANBHAI VEKARIYA
(ii) Disallowing claim of depreciation of Rs.76,595/- being 7.5% on new Verna motor car on the alleged ground that appellant failed to furnish material evidences of purchase of new Verna car. (iii) Disallowing Rs.66,087/-& Rs.7,06,358/- being 10% of administrative expenses & groundnut kharajat expenses respectively on alleged ground that no proper check over the expenses has been made by the appellant. The assessment order passed u/s. 144 of the Act on 26/03/2015 and net total income assessed on Rs.98,02,210/- against the relevant income of Rs.2,84,452/- 3. Aggrieved by the addition made by AO assessee file an appeal before the Ld.CIT(A). That the Ld. CIT(A) has disposed the appeal with following remark: 4.2 I have considered the facts and circumstances of the case. Further, I have also given due consideration to the remand report submitted by the AO and the rejoinder to the remand report submitted by the appellant. Overall, I do not find enough merit in the rejoinder filed by the appellant and the remand report of the AO is very clear and convincing on why and how the additions made need to be sustained. Therefore, all additions and disallowances made by the AO are reasonable, justified and are sustained at this stage. 5. In the result, the appeal is dismissed. 4. Further aggrieved by the order of Ld. CIT(A) assessee has filed present appeal before the Tribunal. (i) During the course of hearing the Ld. AR has submitted that an addition of Rs.86,68,717/- u/s. 68 of the Act. On account of unsecured loan along with other addiction depreciation disallowed Rs.76,595/- kharajat expenditure. @ 10% 7,06,358/- In the appeal before Ld. CIT(A) and Ld.CIT(A) has disposed of the appeal on the ground that some documents have not been submitted. Page | 3
ITA NO. 173-RJT-2024 SHRI RAJESH KARSHANBHAI VEKARIYA
(ii) On the contrary, Ld. Senior DR for the Revenue has submitted Sub: “Written Submission in the matter of Rajesh Karshanbhai Vekariya, ITA 173/Rjt/2024 for AY-2011-12-reg. DOH: 23/09/2024 Your Lordship, the revenue is bringing following facts from admission made by Appellant at stage of CIT (A). 2. He admitted that he is a wholesale trader of agricultural products however under as per the provision of Gujarat APMC Act he must produce a valid license for trading in APMC market yards, which he failed on two occasions where opportunity was given to him, before the Assessing officer and before the CIT (A), so his admission itself are going against him. 3. The Gujarat Agricultural Produce Markets Act, 1963 governs the regulation of agricultural produce markets in Gujarat. Section 8 of the Act mandates that no person shall operate as a trader without a valid license. Engaging in trading without this license is punishable under Section 36, with up to 1 month imprisonment and fine of ₹1,000 per offense. 4. For the judicial precedent, the principle that fraud committed in one place cannot be used as evidence elsewhere is supported by S.P. Chengalvaraya Naidu vs Jagannath (1994) 1 SCC 1, where the court held that fraudulent documents cannot form the basis of any legal claim in subsequent proceedings. 5. If indeed the Appellant was a wholesale trader in agricultural products as per his own admission, he failed to produce his license. 6. Due to these reasons this appeal is liable to be rejected.”
ITA NO. 173-RJT-2024 SHRI RAJESH KARSHANBHAI VEKARIYA
We have heard rival contention of both the party. We have perused the material available on record. We note that the assessee is in trading business of groundnut. The sale of the assessee 7.22 Cr. The books of accounts of the assessee are audited and the report is available on record since the assessment order was framed ex parte u/s 144 of the Act. The assessee has placed all details before the Ld. CIT(A) during the course of hearing along with an application under Rule 46A of the Income Tax Rules, 1962 by it was requested that all documents submitted here with kindly consider while making the order in this case.
5.1 We note that the Ld. CIT(A) has asked for remand report from the AO on the four issues of addition made in the ex parte assessment order. (i) Remand report in respect of Rs.88,68,718/- according to be report submitted by the AO. That the outstanding creditors of the assessee are recorded on books of accountants are nothing but bogus. However, the addition was on accountant of unsecured loan. (ii) Addition of Rs.76,595/- on accountant of disallowance of deprecation. The reports is that motor car is not utilized for his business purpose. (iii) Disallowance of expense of Rs. 66,087/- is due to that electricity bill is not in the name of assessee. (iv) Disallowance of khajarat of Rs.87,06,358/- on account excess claimed. 5.2 We note that while considering remand report the Ld. CIT(A) has not given due care and attention and accepted the remand report considering that remand report is clear and convincing. We note that the books of account are duly audited. Sundry creditors shown in the books of account were considering as cash creditor. While making the assessment and the depreciation was disallowed on the ground
ITA NO. 173-RJT-2024 SHRI RAJESH KARSHANBHAI VEKARIYA
that the motor car is not use for business purpose. While in the order of assessment depreciation was disallowed because of ownership bill was not submitted in the assessment proceedings and ad hoc disallowance was made without any basis. While the books of account audited and are nothing wrong detected in the books of account. The AO's disallowance is made merely on suspicion, conjectures and surmises, is totally unjustified and deserves to be deleted.
5.3 We find that the Ld. CIT(A) has dealt with the remand report. We further note that when noting wrong detected in the books of account. Since the matter has not been adjudicated by AO in ex parte procedure u/s 144 of the Act. Since the assessee did not respond for such proceedings of ex parte assessment proceedings.
5.4 Regarding disallowance of Rs.86,68,718/-. We find that AO observed that it is unsecure loan and no evidence in available on records the assessee submitted that it is the trade creditors duly recorded in books of account. The Ld. CIT(A) concluded that outstanding creditors in the books of account the assessee are bogus. We disallow to the extent of 10% of trade creditors which comes to Rs.8,66,871/- to be added in the hands of the assessee. The AO is directed to compute the same. 5.5 Regarding depreciation of Rs.76,595/- for purchase of new motor car and no bill/voucher is available during the course of assessment proceedings. Bill submitted during the remand proceedings. The AO observed that the same as not used for business purposes. The Ld. CIT(A) observed that the depreciation on motor car is not allowable. Considering the car is used for personal purposes and for ends of justice, we disallow depreciation to the extent of 20% which comes to Rs.15,319/-. AO is directed accordingly. 5.6 Regarding administrative expenses of Rs.66,087/-, the AO disallowed by the AO @ 10% of total expenditure clam. The assessee is trader and the electric bill is
ITA NO. 173-RJT-2024 SHRI RAJESH KARSHANBHAI VEKARIYA
in the name of land lord. We restrict the administrative addition of 10% which comes to Rs. 6,087/-. The AO is directed accordingly.
5.7 Regarding groundnut kharajat expenses of Rs.7,06,358/-. We find that AO disallowed the same by no furnishing details because no expenses are related to filing in transaction expenses and added to the income of assessee. The Ld.CIT(A) confirmed the addition made by AO. Since all the has been submitted by the assessee in remand proceedings we restrict the disallowance @ 5% which comes to Rs.35,317/-. The AO is directed accordingly. With the additions to conclude the issues and to avoid any possible revenue leakage. We are of the view to confirm the addition of Rs.9,23,595/-. The grounds of assessee’s appeal is party allowed in above terms.
In result the appeal of the assessee is partly allowed. Order pronounced in the open court on 03/04/2025.
Sd/- Sd/- (Dr. A.L. SAINI) (DINESH MOHAN SINHA) ACCOUNT MEMBER JUDICAL MEMBER Rajkot �दनांक/ Date: 03/04/2025 Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. Pr. CIT 5. DR/AR, ITAT, Rajkot 6. Guard File By Order Assistant Registrar/Sr. PS/PS ITAT, Rajkot
