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Facts
The assessee, a wholesale trader and commission agent, declared interest income but did not show corresponding loans/advances in the balance sheet for AY 2018-19. The Assessing Officer (AO) made an addition of Rs.2,67,22,210/- under section 69B, presuming it to be unexplained loans and advances. The Ld. CIT(A)/NFAC deleted this addition, leading the Revenue to appeal to the ITAT.
Held
The ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of the addition. The Tribunal found that the interest income was legitimate, arising from delayed payments by debtors in the assessee's agency business model where the assessee guarantees payments. The ITAT concluded that the AO had incorrectly disregarded the agency nature of the transactions, and the sales and debtors were reflected in the principal's books.
Key Issues
Whether the CIT(A) erred in deleting the addition made under section 69B for unexplained loans and advances; whether the interest income was genuinely earned from delayed payments by debtors as a commission agent; and whether additional evidence was properly considered by the CIT(A) without a remand report.
Sections Cited
Section 250, Section 143(3), Section 144B, Section 143(2), Section 142(1), Section 69B, Rule 46A(3)
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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI MANISH BORAD & MS. ASTHA CHANDRA
ORDER
PER MANISH BORAD, AM:
This appeal filed at the instance of Revenue is directed against the order of Ld. CIT(A)/NFAC u/s 250 of the Act dated 22.09.2025 which is arising out of the assessment order u/s 143(3) r.w.s. 144B of the Act for Assessment Year 2018-19 framed on 27.09.2021 by the ITO, NFAC, Delhi.
Revenue has raised five grounds of appeal but effectively there are two grievances of the Revenue. Ground no.1- mandatory requirements of Rule 46A(3) of the Rules not complied and an opportunity to the Assessing Officer has not been granted to examine and rebut the evidence. Ground no.2- Ld. CIT(A) erred in deleting the addition of Rs.2,67,22,210/- made u/s 69B of the Act.
Brief facts of the case are that the assessee is an individual and income of Rs.80,74,800/- declared in the return filed for A.Y. 2018-19 on 21.09.2018 and the same was subsequently revised on 15.10.2018 and 01.02.2019. Case selected for complete scrutiny to examine (i) source of loans/advances and (ii) income from other sources. The assessee is in the business of wholesale trading of yarn and general commission agent. Statutory notices u/s 143(2) and 142(1) were duly served on the assessee. In response, various details were submitted by the assessee. Ld. Assessing Officer on going through the said details observed that the assessee has shown interest income of Rs.26,72,221/-. However, there were no loans and advances appearing in the balance sheet against which such interest has been received. Though, it was claimed by the assessee that the interest has been received from debtors but Ld. Assessing Officer was not satisfied and he applying the interest rate of 10% calculated the loans and advances figures not reported in the books at Rs.2,67,22,210/- and made the addition u/s 69B of the Act along with other minor additions and assessed the addition of Rs.3,48,46,339/-. Aggrieved the assessee preferred appeal before Ld. CIT(A)/NFAC and succeeded.
So far as the issue under consideration i.e. addition u/s 69B of the Act, Ld. CIT(A)/NFAC has deleted the addition observing as follows :- “4. I have carefully considered the assessment order, the grounds of appeal and the written submission of the appellant along with supporting documents famished in the case. 4.1. Upon careful consideration of the facts and submissions provided by the assessee, the following points are established: The assessee operates as a wholesale trader in yarn and cloth and also functions as a del credere/depot agent for principal companies such as M/s Elljay Textile (P) Limited and The Rajratna Mills (P) Limited. Sales made by the assessee as a depot agent are recorded in the books of the principal companies, not in the assessee's own books. The assessee s books only reflect commission income and late payment interest charged to debtors for whom he acted as an agent. The accounting treatment and revenue recognition principles followed by the assessee align with standard practices for agency relationships, where only commission and interest income are recognized in the agent's accounts, while the principal records the underlying sales and corresponding debtors. The Assessing Officer's addition of Rs. 2,67,22,210/- as unexplained loans and advances appears to be based on the presumption that interest income could only arise from loans, disregarding the agency nature of the transactions and the fact that the corresponding sales and debtors are reflected in the principal's books, not in the assessee's accounts.
The assessee has provided supporting documentation, including account extracts from both the principal's and his own books, and debit notes for interest charged, to demonstrate the flow of transactions and the proper recording of income. Regarding the addition of Rs. 49,329/-on account of interest income variation, the assessee has explained that the difference arises due to the timing of accounting entries and the method of recognition under the mercantile system, with supporting reconciliations. 4.2. In light of the above, the assessee's claim that late payment interest is properly accounted for as per the agency model, and that the principal amount of sales and debtors is not required to be reflected in his books, is justified and supported by documentary evidence and accounting standards. The addition of Rs 2,67,22,210/- as unexplained loans and advances is not warranted, as it is based on an incorrect understanding of the nature of the assessee's business and the relevant accounting treatment. Similarly, the addition of Rs. 49,329/ on account of interest income variation should be reconsidered in view of the reconciliation provided by the assessee. Therefore, the appellant's grounds on the above issues are allowable, and the additions made by the Assessing Officer is deleted.”
Aggrieved Revenue is in now in appeal before this Tribunal.
Ld. DR submitted that the additional evidences have been filed by the assessee for which no remand report has been called by Ld. CIT(A)/NFAC. Ld. DR also challenged the finding of Ld. CIT(A)/NFAC deleting the impugned addition for which reference was made to the observation of the Assessing Officer.
On the other hand, Ld. AR for the assessee submitted that the assessee along-with carrying on business of trading in yarn, also works as a commission agent. He submitted that the assessee stands as a guarantor for the payment of debtors for the other parties selling the goods and who delays the payment to the original seller of goods. Thereafter, when the debtors are realized, the assessee charges the interest for delayed payment and such interest income is shown in the books under the interest account head and are duly recorded in the books. Examples also given about such debtors appearing in the books from which interest has been received and goods have been sold by other parties to such debtors. Reference also made to the copy of financial statement and debtors’ ledger appearing at page 48 to 108 of paper book.
We have heard rival contentions and perused the records placed before us. The grievance of the Revenue revolves around the deletion of addition of Rs.2,67,22,210/-. Ground no.1 has been raised by the Revenue challenging that for the additional evidences filed before Ld. CIT(A)/NFAC no remand report has been called for form Ld. Assessing Officer. We however on going through the submissions filed by the assessee before us find that the Ld. Assessing Officer has extensively dealt with the alleged issue and duly referred to the chart having details of debtors, opening balance, sales interest receipts appearing at page no.2 to 8 of paper book.
Therefore, it cannot be said that the new details were filed by the assessee. We therefore, dismiss the Revenue’s ground no.1.
Grounds no.2, 3 and 4 are against the deletion of addition u/s 69B of the Act. We note that Ld. Assessing Officer has calculated the notional figure of loans and advance based on the interest income of Rs.26,72,221/- declared in the audited financial statements and duly offered to tax. Only because there were no loans and advances appearing in the balance sheet, Ld. Assessing Officer has applied 10% interest rate and assumed that the assessee had given loans and advances to the tune of Rs.2,67,22,210/- and the same are not recorded in the books. We have gone through the audited financial statement of the assessee of current year and preceding year and also the debtor’s ledger and note that the interest income of Rs.26,72,221/- is basically in the nature of commission income, which the assessee earns for securing the payments of debtors of various other parties. To understand for example, the seller namely ‘A’ sells the goods to ‘B’ and debtors stand in the books of ‘A’ such transaction of sale has been carried out through the commission agent i.e. the assessee termed as ‘C'. Now, when ‘B’ does not make payment on the due date, the role of ‘C' comes into the picture and he makes the payment to ‘A’ from his own funds and thereafter recovers the money from debtor ‘B’ and for the delay in making the payment, interest is charged. All these transactions are duly recorded in the regular books and such type of outstanding debtors are appearing in the list of sundry debtors of the assessee. We note that the assessee was required to exhibit such transaction clearly in audited balance sheet showing separately the interest received from such debtors to which the assessee had not sold the goods and should have also made separate list of debtors for those to which the assessee sold the goods and for those from which the assessee recovered the payment. In absence of all these details, Ld. Assessing Officer had made the addition.
We find that Ld. CIT(A)/NFAC has examined the said transaction and has observed that Ld. Assessing Officer has disregarded the agency and also not taken note that the sales and debtors are reflected in the principal’s books and along with the commission income the assessee also earns the interest income on delayed payments of debtors. Ld. DR failed to controvert the contention of Ld. counsel of the assessee. We therefore find no inconsistency in the finding of Ld. CIT(A) deleting the impugned