NIRAV ARVINDKUMAR PATEL, HUF,AHMEDABAD vs. THE ITO, WARD-3(1)(2), AHMEDABAD

The Grounds of Appeal raised by the Assessee reads as under: 1. The order passed by the Ld. CIT(A) is against law, equity & justice.

The brief facts of the case are that the assessee, a Hindu Undivided Family, filed its return of income for the Assessment Year 2022–23 on 28.07.2022 declaring a total income of Rs. 8,78,520/-. The return was selected for scrutiny under CASS on the ground that substantial loans were given by the assessee as reflected in Form 3CD in comparison to the gross total income shown in the return. During the course of assessment proceedings, the Assessing Officer asked the assessee produce details regarding the lending activities, source of funds, bank statements, details of loans advanced and borrowed, confirmations and related information. In response, the assessee submitted before the Assessing Officer that it was engaged in finance and investment activities. The assessee submitted before the Assessing Officer that funds were borrowed from friends and relatives and were further advanced as loans, mainly to family members, and that interest was paid on borrowings and earned on loans advanced. The assessee furnished copies of computation of income, unaudited balance sheet, profit and loss account, bank statements, confirmations of lenders, details of loans and advances, and interest details. When specifically asked whether the assessee was carrying on the business of money lending and whether any approval from the Reserve Bank of India had been obtained, the assessee

While doing so, the Assessing Officer noted that the assessee had received interest of Rs. 98,09,734/- during the year and, according to him, had paid interest of only Rs. 38,11,713/-. He thus computed net interest income of Rs. 59,98,021/- and, after reducing the income already offered by the assessee under section 44AD of the Act at Rs. 8,78,397/-, the Assessing Officer made an addition of Rs. 51,19,624/- to the total income under the head “Income from Other Sources”. The total income was assessed at Rs. 59,98,144/- under section 143(3) of the Act and penalty proceedings under section 270A were also initiated.

Aggrieved by the assessment order, the assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals). In the grounds of appeal, the assessee challenged the assessment order as being bad in law and on facts and as violative of principles of natural justice. The assessee

Along with Form No. 35, the assessee filed a statement of facts reiterating that it was engaged in lending business under the name Aditya & Sons, that net interest income was correctly worked out at about Rs. 8.78 lakhs, and that the Assessing Officer had made a factual error in computing net interest income. It was also stated that the show cause notice proposing the variation could not be responded to in time and that the assessment was completed without proper consideration of the explanation.

During the appellate proceedings before the CIT (Appeals), notices of hearing were issued on several occasions. However, the assessee did not file any written submissions or supporting documents during the appellate stage. The CIT(Appeals), therefore, proceeded to decide the appeal on the basis of material available on record.

While adjudicating the grounds of appeal, the CIT(Appeals) noted that the substantive grievance of the assessee related to the addition of Rs.

In the absence of any supporting material or reconciliation furnished during appellate proceedings, the CIT(Appeals) held that there was no reason to interfere with the findings of the Assessing Officer. Accordingly, the action of the Assessing Officer in treating the income as income from other sources and in making the addition of Rs. 51,19,624/- was upheld and all the grounds of appeal were dismissed.

The assessee is in appeal before us against the order passed by the CIT(Appeals) dismissing the appeal of the assessee.

We have heard the rival contentions and perused the material on record.

From the facts placed before us, it is evident that the core dispute in the present appeal relates to the nature of income earned by the assessee from lending activities and, more importantly, the correct computation of net interest income. The assessee has consistently taken a stand that it is

We find that the assessment order contains a detailed discussion on the nature of activities, but the computation of net interest income appears to be based on figures which are disputed by the assessee. The assessee, on the other hand, has pleaded that full details, books of account and bank statements were available and that a proper reconciliation would demonstrate that the addition made is factually incorrect. We also note that before the CIT(Appeals), the assessee could not effectively place the reconciliation and supporting documents on record, resulting in dismissal of the appeal on the basis of material available.

Considering the totality of facts and in the interest of substantial justice, we are of the view that the matter requires fresh examination at the level of the Assessing Officer. Issues relating to the correct amount of interest paid, interest received, reconciliation of figures from the profit and loss account, bank statements and ledgers, and the consequent computation of taxable income require verification. Such factual reconciliation cannot be conclusively undertaken at this stage without proper examination of primary records.

Accordingly, we deem it appropriate to restore the matter to the file of the Assessing Officer for de-novo consideration. The Assessing Officer shall re-examine the entire issue afresh, carry out necessary reconciliation of interest income and interest expenditure on the basis of books of account, bank statements and other supporting documents, and thereafter determine the correct taxable income in accordance with law after providing adequate opportunity of being heard to the assessee.

The appeal of the assessee is allowed for statistical purposes.