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Facts
The Assessing Officer (AO) made an addition of Rs. 3,00,50,000/- under section 68 of the Income Tax Act for unsecured loans taken by the assessee company from its director, Sh. Jagjit Singh, during Assessment Year 2013-14. The AO found that the assessee failed to prove the creditworthiness and source of these loans. The CIT(A) confirmed the addition, noting the assessee's non-cooperation and incomplete explanations.
Held
The Tribunal observed that the CIT(A) failed to provide specific findings regarding the assessee's submission of bank statements and account copies, which purportedly detailed the source of funds for the unsecured loans. Consequently, the Tribunal remitted the issue back to the file of the CIT(A) for a fresh examination and a speaking order in accordance with law.
Key Issues
Whether the addition of unsecured loans from a director under Section 68 was justified when the assessee claimed to have provided bank statements and account details, and whether the CIT(A) adequately examined the evidence regarding creditworthiness and source of funds.
Sections Cited
Section 68 of the Income Tax Act, 1961, Section 142(1) of the Income Tax Act, 1961
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH, ‘E’: NEW DELHI
Before: SHRI KUL BHARAT & SHRI BRAJESH KUMAR SINGH
Date of Hearing 14.08.2024 Date of Pronouncement 22.08.2024 ORDER PER BRAJESH KUMAR SINGH, AM,
This appeal by the assessee is directed against the order of Learned Commissioner of Income Tax(Appeals)-XXVI, New Delhi, dated 10.01.2019 pertaining to Assessment Year 2013-14.
The grounds of appeal raised by the assessee reads as under:-
That the order passed by the Learned CIT (Appeals)-26 New Delhi is arbitrary, biased and bad in law and in facts and circumstances of the case in so far as it confirms an additions made by the Assessing Officer. - (2) That the Learned CIT (Appeals) has grossly erred in confirming an addition of Rs. 3,00,50,000/- u/s 68 of the Act, for alleged failure of the appellant to furnish the creditworthiness of the loan creditor, who happen to the Director of the company. (3) That the Learned CIT (Appeals) has grossly erred in confirming an additions of Rs.3,00,50,000/- u/s 68 of the Act for alleged addition made u/s 68 of the Act, by the Assessing Officer ignoring the fact that the appellant had filed the copy of bank statement of the loan creditor from which the fresh unsecured loan was received by the appellant during the year seeking source of source.
Brief facts of the case: As per the facts stated by the Assessing Officer in para no.1.2 of the assessment order, a statement on oath of Sh. Jagjit Singh, Director of the assessee company having 90% of share holder was recorded on 06.03.2012, wherein, he stated that the company was engaged in manufacturing of readymade garments at the premises situated opposite of Jain Hospital, Chandigarh Road, Ludhiana. The Assessing Officer made an addition of Rs.3,00,50,000/- u/s 68 of the Act being unsecured loan taken by the assessee company from its director Sh. Jagjit Singh. The relevant discussion by the AO in the assessment order in para no.7.2 to 7.3 is reproduced as below:-
7.2 During the year under consideration, the assessee company has shown "Unsecured loans from Directors & relatives" amounting to Rs.6,78,03,686/-. The assessee company vide Question No. 31 of questionnaire dated 08.03.2016 was asked to furnish details as appended below:- "Please provide the details of unsecured loans including squared up loans taken by during the year under consideration mentioning the name, PAN, Address with email & phone alongwith the copy of bank statement, Return of Income with audited financials statements and computation of income of the lenders also explain the source of money in the hands lenders which have granted unsecured loans to you. Also provide the details of repayment of the loans alongwith the source of funds utilized to repay such loans." 7.3 The above information was required to be furnished by 14.03.2016. However, none attended nor any reply was filed. Further, keeping in view the interest of natural justice, a final show cause notice u/s 142(1) of the I.T. Act, 1961 was issued on 15.03.2016 requiring assessee to show cause as to why the unsecured loans from directors & relatives amounting to Rs.6,78,03,686/- should not be treated as unexplained and added to the total income for the year under consideration. The reply has been received in this office vide letter dated 22.03.2016 through AR in which it is seen that out of the total unsecured loans received during the year an amount of Rs.3,77,53,686/- is opening balance of Sh. Jagjit Singh, director of the assessee company. The details of income of assessee and company under him as a director, it is important to verify the sources here. As the assessee has miserably failed to prove the creditworthiness and source the unsecured loans, an amount of Rs.3,00,50,000/- is being added to the total income of the assesssee unexplained credits u/s 68 of I.T. Act, 1961.”
Aggrieved with the order of the AO, the assessee filed an appeal before the Ld. CIT(A).
Before the ld. CIT(A), the ld. AR of the assessee submitted vide letter dated 15.11.2018 as under:-
Regarding:-Appeal No.35/16-17 of M/s NKH Garments Pvt. Ltd. for the Asstt. Year 2013-14. Respected Sir, In reply to your honour letter dated 01.10.2018, it is stated that S. Jagjit Singh, the director of M/s NKH Garments Pvt. Ltd. has raised unsecured loans to the extent of Rs.3,00,50,000.00 during the Asstt. Year 2013-14. The amount has been received in the saving account maintained with HSBC and UCO Bank and the amount has been credited in the books of M/s NKH Garments Pvt. Ltd. from the saving account of S. Jagjit Singh. The photocopy of the bank statement along with copy of account with M/s NKH Garments Pvt. Ltd. is enclosed. We hope your goodself will find the above information in order.”
The Ld. CIT(A) gave numerous opportunities to the assessee to explain its position to counter the action taken by the AO. However, the assessee did not attend the hearing and only sought adjournment as per the details mentioned in his order as reproduced below:-
The Ld. CIT(A) noted that the assessee had not bothered to file any written submission in support of grounds of appeal and the explanation regarding the source of funds brought in. The Ld. CIT(A) observed that the explanation furnished were incomplete and self serving and keeping in the view that the law will help only those, who are vigilant. Thereafter, the Ld. CIT(A) after reproducing the order of the AO confirmed the addition of Rs.3,00,50,000/- made by the AO and dismissed the appeal of the assessee.
Against the above dismissal of the appeal of the assessee, the assessee filed an appeal before us.
This appeal was fixed for hearing before the Tribunal on22.03.2022, 09.06.2022, 19.09.022, 07.12.2022, 22.02.2023, 16.05.2023, 17.07.2023, 24,08,202, .30.10.2023, 02.11.2023, 18.01.2024, 08.04.2024, 27.06.2024, 04.07.2024 and 14.08.2024, when the assessee sought either adjournment or did not appear. Therefore, this appeal is to be decided ex-parte after hearing the ld. DR and material available on record.
The ld. DR relied upon the orders of the authorities below.
We have heard the ld. DR and perused the records available on record. As seen from the submission of the Ld. AR vide letter dated 15.11.2018 before the Ld. CIT(A) as reproduced above, it was stated that the amount of Rs.3,00,50,000/- was received in the saving bank account maintained with HSBC and UCO Bank of the Director Shri Jagjit Singh, and was credited in the books of the assessee company from the savings bank account of its director. Further, it was submitted that the photocopy of the bank statement along with the copy of account with the assessee company was also enclosed with the said letter. However, on perusal of the order of the ld. CIT(A), it is seen that the ld. CIT(A) has neither given any finding in respect of the above submission of the assessee nor has given any finding regarding the transactions mentioned in the bank account submitted by the assessee. Therefore, in these circumstances, the order of the ld. CIT(A) cannot be upheld and it is deemed fit to remit the issue to the file of the Ld. CIT(A) to examine the issue afresh and pass a speaking order in accordance with law.
In the result, the appeal of the assessee is allowed for statistical purposes.