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Facts
The assessee appealed against additions of Rs. 14,30,000/- as unexplained cash credit under section 68 and an ad-hoc disallowance of expenditure by the AO, which was partially confirmed by the CIT(A). The assessee also raised a preliminary jurisdictional issue regarding the correct ITAT bench due to a change in PAN jurisdiction. The assessee did not appear for hearings despite multiple opportunities.
Held
The Tribunal set aside the section 68 addition and the expenditure disallowance, remanding both issues to the CIT(A) for fresh adjudication with proper reasoning and independent inquiry, effectively allowing grounds 1, 2, 3, and 5 for statistical purposes. The preliminary jurisdictional grounds (4 and 6) were dismissed as general.
Key Issues
Whether the addition of unexplained cash credit under section 68 was justified without proper proof of identity, creditworthiness, and genuineness; whether the ad-hoc disallowance of expenditure was justified and properly reasoned by the lower authorities; and the appropriate jurisdiction of the ITAT bench.
Sections Cited
143(3), 144B, 250, 250(4), 250(6), 68, 127
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Income Tax Appellate Tribunal, RAIPUR BENCH “SMC”, RAIPUR
Before: SHRI PARTHA SARATHI CHAUDHURY
आदेश / ORDER
PER PARTHA SARATHI CHAUDHURY, JM
1. The captioned appeal preferred by the assessee emanates from the order of the Ld.CIT(Appeals)/NFAC, Delhi dated 11.07.2025 for the assessment year 2022-23 as per the following grounds of appeal: “1. For that under the facts and circumstances of the case, the assessment as made and completed u/s.143(3) r.w.s. 144B of the 1.T. Act. is arbitrary, unlawful and unjustified. As the assessee has furnished all the books of accounts in response to the notices and the assessee had also furnished all the required information and documents as per requirement to prove the genuineness of the transactions of unsecured loan. The AO was not justified and had made error in making addition of Rs. 14,30,000/- as unexplained cash credit u/s 68 stating that the creditworthiness of persons and the genuineness of the transactions has not been proved by the assessee. Copy of the Bank Statement, Confirmation of accounts, and 1. Tax Return copy was furnished before the AO during the assessment proceedings, which were not considered by the AO.
2. For that under the facts and circumstances of the case, the AO was not justified and erred in making addition u/s.68 without considering and appreciating the evidences and explanation furnished before the AO.
3. For that under the facts and circumstances of the case, the disallowances of expenditure as made by the AO to the amount of Rs.3,62,890/-(10% of the Expenses of Rs.36,28,907/-) is arbitrary, unlawful, unjust and excessive. The disallowance so made by the AO for possible leakage of revenue is unjust, arbitrary, and bad-in-law and baseless.
4. For that under the facts and in the circumstances of the case, the Order u/s.250 of the I.T. Act. as made by the Commissioner of Income Tax (Appeals), NFAC, Delhi is arbitrary, unreasonable. unlawful, uncalled for and unjustified as the CIT(A) without 4 applying his mind and without going through the fact and without going through the grounds of appeal and the assessment order had just passed the order abruptly by sustaining the addition and also by enhancing the addition of the disallowances of expenditure and dismissing this issue raised in the appeal.
5. For that under the facts and in the circumstances of the case, the disallowances of expenditure as made by the AO @ 10% of the total expenditure was restricted wrongly by the CIT(Appeal) to 5 15% from 20% of disallowances whereas the disallowances of expenditure as made by the AO is 10% which is highly excessive, baseless and arbitrary and had been made on ad-hoc basis without rejecting the books of accounts.
6. For that under the facts and in the circumstances of the case the return of income filed by the assessee should have been accepted by the AO.”.
At the time of hearing, none appeared on behalf of the assessee. That as evident from the order sheet entries, the matter is going on since 16.03.2025 and there has been several occasions, in which, the assessee was provided opportunities of hearing. The matter was posted for hearing 16.03.2025, 23.09.2025, 07.10.2025, 13.10.2025, 04.11.2025 and finally on 17.11.2025, when the matter was called for hearing, the assessee was again absent. That inspite of reasonable opportunities being provided to the assessee for hearing there was no compliance from the assessee. The prolonged process of litigation and providing adjournment unnecessarily delays the process of justice which hampers the trust of the litigants in the judicial process. The fact of the matter remains that all the communications regarding hearing of this matter had been duly communicated to the assessee in his registered address. The Hon’ble Supreme Court in the case of Ishwarlal Mali Rathod vs. Gopal and Ors., passed in Special Leave Petition (Civil) Nos. 14117-14118 of 2021 order dated 20.09.2021 held and observed that as on today the judiciary and the justice delivery system is facing acute problem of delay which ultimately affects the rights of the litigants to access to justice and speedy trial. Arrears are mounting because of such delay and asking of repeated adjournments by the advocates and mechanically and in routine manner also been granted by the Courts. That such delay in access to justice and not getting the timely remedy may shake the trust and confidence of the litigants and the justice delivering system, therefore, the Hon’ble Apex Court has directed specifically that the adjournments should not be granted in a routine manner and mechanically and such grant of adjournment by the Courts should not be a cause of delay in dispensing justice. In the present matter, sufficient opportunities of hearing have already been provided to the assessee, however, the assessee failed to comply with such hearing notices. Further, all the communications have been made to the registered address, which has been provided by the assessee. In these facts and circumstances any further delay in disposing this matter would ultimately result in hindrance of justice and therefore, as per the aforesaid direction of the Hon’ble Apex Court (supra), I proceed to hear this matter after recording the submissions of the Ld. Sr. DR and on careful consideration of all the documents on record.
3. The assessee had filed a written statement, wherein, he contends that the PAN of the assessee comes under the Orisha jurisdiction of ACIT Circle Rourkela and, therefore, the appropriate forum is not the ITAT Raipur Bench. The said submissions are extracted as follows:
That a report was called for from the Department on the correctness of this application filed by the assessee. The Ld. Sr. DR had written to the AO and the said report has been placed before this Bench, which is extracted as follows:
It is noteworthy as per the aforestated report of the Department that the PAN of the assessee was with the ITO-Mahasamund when the assessment was completed on 21.03.2024 by the faceless unit. However, the same was transferred to ACIT/DCIT Circle, Rourkela, since, the assesse was presently carry out his business at Panchgaon, Belpahar, Jharsuguda, Orisha. In effect, the situs of the AO was at Chhattisgarh i.e. with ITO- Mahasamund, when the relevant assessment was completed. That even in the Form-35, which is placed in the appeal memo, the address of assessee at the time of assessment for AY 2022-23 was with ITO-Mahasamund, since the assessee was himself residing at Mahasamund. The relevant extract of the personal information as found in Form-35 is extracted as follows:
That since, during the relevant assessment year, the assessee was residing in the State of Chhattisgarh and his PAN was with ITO- Mahasamund, the situs of the AO established and he had rightly framed the assessment, therefore, for this relevant assessment year the jurisdiction as correctly placed before the ITAT, Raipur (C.G.)
Coming to the merits of the matter, the Ld. CIT(A)/NFAC had upheld the addition of Rs.14,30,000/- as unexplained credit u/s 68 of the Act stating that the creditworthiness of person and genuineness of the transaction has not been proved. The Ld. CIT(A)/NFAC held as follows:
“7.2.3……………………………………..In the instant case, the appellant has only submitted the bank account of both the creditors and the ITR with respect to Shri Jai Hanuman Store. This evidence alone is insufficient to satisfy the requirements of Section 68, as detailed below:
Identity of the Creditor Merely providing a bank statement does not establish the identity of the lender. A proper identification includes PAN, address, confirmation letter, certificate of incorporation (in case of companies), and other relevant KYC documents. In the absence of these documents, identity remains unverified.
2. Creditworthiness of the Creditor
A bank statement shows movement of funds but does not prove that the lender has the financial capacity to give the loan. Creditworthiness must be established through the Income tax returns of the lender, Financial statements and the details of source of funds. Without such documents, the appellant fails to prove the lender's capacity, especially if the bank statement shows only accommodation entries or circular transactions.
Genuineness of the Transaction
Genuineness requires the appellant to prove that the transaction is real and not fictitious or accommodation in nature, there is a valid loan agreement, interest is paid and accounted for and repayment terms are defined and adhered to. A bank statement does not by itself establish the intention, terms, or purpose of the transaction.
To conclude, the mere reflection of the loan amount in the bank statement does not establish the identity, creditworthiness, or genuineness of the transaction. Accordingly, the Assessing Officer is justified in treating the loan amount as unexplained cash credit under Section 68 and making the relevant addition to the appellant 's income. I rely on the decision of Hon'ble Supreme Court in the case of Commissioner of Income-tax v. P.
Mohanakala [2007] 161 Taxman 169 (SC), where it has been held that the satisfaction of the Ld. AO is crucial and his view should not be disturbed unless perverse. It has also been held that just because the money was received through a bank, that does not automatically prove genuineness. If the AO finds surrounding circumstances suspicious or evidence lacking, he is not bound to accept such explanation.
Based on the above discussion, Ground No. 2 is Dismissed.” 8. I have carefully considered the assessment order, the order of the Ld. CIT(A)/NFAC, the submissions of the Ld. Sr. DR and documents on record and have analyzed the facts and circumstances of this case.
That regarding the addition u/s 68 of the Act as unexplained cash credit and as per the findings of the Ld. CIT(A)/NFAC, he has simply on summary basis had upheld the findings of the AO without specific enquiry and examination regarding the facts of this case. He has simply accepted the findings of the AO without bringing his own reasoning for upholding the said addition. The Ld. CIT(A)/NFAC needs to provide independent application of mind and come out with a speaking order in terms of section 250(4) & (6) of the Act. The order, therefore, is not in terms with the principles of substantive justice, which needs to be applied by any quasi judicial body. The Ld. CIT(A)/NFAC has relied upon the decision of Hon’ble Apex Court in the case of Commissioner of Income-tax vs. P. Mohanakala [2007] 161 Taxman 169 (SC), but how that case law is relevant to the present facts of the case of the assessee has not been spelt out through reasoning of the Ld. CIT(A)/NFAC. Therefore, in the interest of justice and fairness, I set-aside this issue and remand the same to the file of the Ld. CIT(A)/NFAC to pass order as per law complying with the provisions of the Act. Accordingly, grounds No. 1 and 2 stands allowed for statistical purposes.
Regarding ground No. 3 and 5, the assessee contends there has been an ad-hoc addition by the AO at Rs.7,25,781/- being 20% of the following expenses as claimed in the P/L account, the same is extracted as follows: S. No. Expenditure Amount 1 Labour charges 3,74,445/- 2 Transport 7,62,723/- 3 Salary 9,90,000/- 4 Staff Salary 3,96,000/- 5 Shop Rent 8,85,000/- 6 Staff fooding expenses 2,20,739/- Total 36,28,907/-
That as per the Ld. CIT(A)/NFAC, the assessee had submitted that he is running a liquor shop of country made liquor and in this business he has to make various payments in cash, like, payment to labour, salary to staff, rent, food to staff all these expenses cannot be made through banking channel. Ld. CIT(A)/NFAC had found force in the submission of the assessee and had restricted the disallowance @15% and accordingly, an amount of Rs.5,44,336/- was retained as disallowance and added in the hands of the assessee.
That in the entire finding of the Ld. CIT(A)/NFAC, he has not given justification for restricting the ad-hoc disallowance from 20% to 15%, he has not brought out any facts analyzing P/L account of the assessee, why the disallowance @20% was made in the first place by the AO was whether it correct or not. There was no enquiry conducted and nothing has been brought on record regarding any independent application of mind by the first appellate authority. I am, therefore, of the considered view that such adjudication on this issue is based on guess work and surmises only and there cannot be any tax imposed on the assessee on the basis of mere suspicion and guess work. The Ld. CIT(A)/NFAC has power co-terminous with that of the AO and, therefore, could have independently enquired into these facts emanating from the P/L account in order to justify its decision. That since, the Ld. CIT(A)/NFAC had summarily dismissed the appeal of the assessee on mere suspicion and since the order passed is not based on reasoning and enquiry it therefore derives character of a perverse order, arbitrary bad in law, accordingly, the findings of the Ld. CIT(A)NFAC on this addition is set-aside and accordingly, grounds No. 3 and 5 stands allowed.
Grounds No. 4 and 6 are general, hence, requires no jurisdiction.
In the combined result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in open court on 18th day of November, 2025.