RAM RATAN JANGIR,AMER vs. INCOME TAX OFFICER, WARD -7(2), JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”SMC” JAIPUR Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, vk;dj vihy la-@ITA No. 550/JP/2024 fu/kZkj.k o"kZ@Assessment Years : 2013-14 cuke Ram Ratan Jangir Income Tax Officer, Vs. Vill and Post Rampura Dabri, Ward-7(2), Ward No. 4, Amer Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AANPJ 9614 L vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Anoop Bhatiya, CA jktLo dh vksj ls@ Revenue by : Smt. Monisha Choudhary (Addl. CIT) lquokbZ dh rkjh[k@ Date of Hearing : 03/07/2024 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 22/07/2024 vkns'k@ ORDER

PER: RATHOD KAMLESH JAYANTBHAI, AM

This appeal filed by assessee is arising out of the order of the Commissioner of Income Tax, Appeal, Kolkata dated 20/03/2024 [here in after (ld. CIT(A)] for assessment year 2013-14 which in turn arise from the order dated 30.03.2016 passed under section 143(3) of the Income Tax Act, by DCIT, Circle-07, Jaipur.

2 ITA No. 550/JP/2024 Ram Ratan Jangir vs. ITO “1. On facts and in circumstance of the matter Ld. CIT (A) has grossly erred in holding the re- assessment proceedings initiated u/s 147 of the Act as being a valid exercise. Appellant prays that notice u/s 148 issued in the case merely to re-examine certain issues, when the original assessment was completed u/s 143(3) of the Act, being invalid and unjustified, the entire proceeding deserves to be held void-ab-initio,

1.1 That Ld. CIT(A)- NFAC has further grossly erred in not passing a speaking order, re-butting the contentions raised by appellant against the validity of the reopening proceedings. Appellant prays that such act being in violation of principles of natural justice, the order of Ld.CIT(A) deserves to be set aside and quashed and the re-assessment proceedings deserves to be annulled.

Without prejudice to above and on merits: -

2.2 That Ld. CIT(A) has further grossly erred in confirming the addition made on account of interest paid on unsecured loans, without in any manner verifying or considering the submissions made during appellate proceedings. Appellant prays that such act being in complete violation of the duties of a judicial authority, the addition made deserves to be deleted.

3 ITA No. 550/JP/2024 Ram Ratan Jangir vs. ITO

assessee filed his Return of income for the A.Y.2013-14 electronically on

27.09.2013 declaring a total income of Rs. 9,77,610/-. The case was

selected for scrutiny under CASS and Notice u/s 143(2) was issued to the

assessee on 25/09/2014 and served upon the assessee. On change of

office incumbent, fresh notice u/s 142(1) along with questionnaire was

issued on 22/12/2015. During the year under consideration, the assessee

was engaged in the business of Manufacturing of Agricultural Equipments.

Turnover of Rs. 1,31,23,932/- and gross profit of Rs. 17,35,794/- and the

GP rate of 13.23% declared by the assessee during the year. The

4 ITA No. 550/JP/2024 Ram Ratan Jangir vs. ITO assessment was completed u/s. 143(3) of the Act on 30.03.2016 accepting

the returned income of the assessee at Rs. 9,77,610/-.

3.1 Thereafter assessment proceedings under section 147 of the Income

Tax Act for the assessment year under consideration was initiated on the

basis of the information that the assessee claimed interest on unsecured

loans paid wrongly therefore after recording of reasons and after obtaining

prior approval of additional commissioner of income tax, Range-7, Jaipur

the notice under section 148 of the Income Tax Act was issued on

30.08.2017 which got served upon the assessee through registered post on

31.08.2017. In compliance with the notice the assessee filed the return of

income on 04.09.2017 declaring the same income as it was filed and

assessed as such. The reasons recorded were as requested provided to

the assessee, the assessee filed the objection to the said reasons recorded

and the same was disposed off by passing a order dated 15.10.2018. In the

reassessment proceeding the ld. AO noted that the assessee did not

produce the books of accounts in the earlier scrutiny assessment

proceeding and therefore based on the observations written in the order the

re-assessment was completed by passing an order u/s 143(3)/ 147 on

5 ITA No. 550/JP/2024 Ram Ratan Jangir vs. ITO 24.12.2018 wherein the total income was assessed at Rs. 15,46,560/- by

making the following additions/ disallowances:-

Particulars Rs. Interest paid on unsecured loans 2,40,000 Unverified creditors 40,418 Adhoc disallowance out of expenditures 2,88,534 Total addition 5,46,950

appeal before the ld. CIT(A)/NFAC. Apropos to the grounds so raised the

relevant finding of the ld. CIT(A)/NFAC is reiterated here in below:

Decision “The appellant was given fresh opportunity of being heard vide letters dated 07.10.2023 and 11.03.2024. The submission of the appellant has been considered and the appeal is decided below: Ground No. 1: Upon perusal of the ground raised by the assessee and reasoning given by the AO in the assessment order, it is found that the assessment proceedings u/s. 147 of the Income Tax Act, 1961 was initiated after duly recording of reasons and obtaining prior approval of the Addl. Commissioner of Income Tax, Range-7, Jaipur. Hence, it is held that under the facts and circumstances of the case the AO had not erred in passing the order u/s 147/143(3) of the Income Tax Act, 1961. Moreover, the appellant has neither filed any satisfactory explanation on the issue nor he filed any documentary evidence in this regard. Therefore the ground No. 1 is dismissed. Ground No. 2: Upon perusal of the ground raised by the assessee and reasoning given by the AO in the assessment order, it is found that during the year under consideration, the assessee had paid the interest of Rs.2,40,000/- on the unsecured loans but the same was not received from the concerned persons to whom the loans were

6 ITA No. 550/JP/2024 Ram Ratan Jangir vs. ITO given by the assessee. It shows that giving interest free loans does not reflect any commercial expediency or prudency. During the course of the assessment proceedings for the assessment year under consideration, the assessee was asked to explain the same but the assessee could not explain the reasonable cause. Similarly, the assessee failed to justify the same during the appellate proceedings. Hence, the amount of interest of Rs 2,40,000/- has been rightly disallowed and added back to the total income of the assessee.

Therefore the Ground No. 2 raised by the assessee is dismissed.

Ground No. 3:

Upon perusal of the ground raised by the assessee and reasoning given by the AO in the assessment order, it is found that during the course of assessment proceedings for the assessment year under consideration, the assessee was asked to produce the confirmations of the creditors shown in liability side of balance sheet as on 31.03.2013 for verification of the same but the assessee could not produce the same in the case of Shri Ashok Kumar Jangir and M/s. Atul Enterprises which could not be verified by the assessee. The assessee failed to verify the genuineness, worthiness of the above creditors. Similarly, the assessee failed to satisfactory explain the same during the appellate proceedings. Hence, the same were rightly treated by the AO as unverified and added to the total income of the assessee amounting to Rs. 40,418/-,

Therefore the Ground No. 3 raised by the assessee is dismissed.

Ground No. 4:

Upon perusal of the ground raised by the assessee and reasoning given by the AO in the assessment order, it is found that

(i) The assessee was asked to verify the depreciation of Rs. 3,09,552/- in the profit and loss account for the year ending on 31.03.2013 during the year under consideration, by submitting the relevant evidences/documents but the assessee failed to verify the same. It was held, the assessee used the respective vehicle for personal use alongwith the business purpose. Therefore, the 20% of the total depreciation i.e. Rs. 61,920/- was disallowed and added back to the total income of the assessee.

(ii) The assessee was asked to verify the machinery expenses of Rs. 6,418/- in the profit and loss account for the year ending on 31.03.2013 during the year under consideration, by submitting the relevant evidences/documents but the assessee failed to verify the same. It was held that the assessee used the respective vehicle in personal use. Therefore, the same i.e. Rs. 6,418/- was disallowed and added back to the total income of the assessee.

7 ITA No. 550/JP/2024 Ram Ratan Jangir vs. ITO (iii) The assessee was asked to verify the office and general expenses of Rs. 22,430/- in the profit and loss account for the year ending on 31.03.2013 during the year under consideration, by submitting the relevant evidences/documents but the assessee failed to verify the same. Therefore, the 20% of the total expenses ie. Rs. 4,486/- was disallowed and added back to the total income of the assessee. (iv) The assessee was asked to verify the salary & wages of Rs. 2,04,000/- in the profit and loss account for the year ending on 31.03.2013 during the year under consideration, by submitting the relevant evidences/documents and producing the concerned persons but the assessee could not get the same verified. Therefore, the same i.e. Rs. 2,04,000/- was disallowed and added back to the total income of the assessee. (v) The assessee was asked to verify the Miscellaneous expenses to Rs. 8,000/-, Telephone expenses to Rs. 5,400/- and Travelling expenses of Rs. 25,602/- in the profit and loss account for the year ending on 31.03.2013 during the year under consideration, by submitting the relevant evidences/documents but the assessee failed to verify the same. Therefore, the 30% of the total expenses i.e. Rs. 11,710/- was disallowed and added back to the total income of the assessee. Considering the above facts, it is held that the AO had rightly and reasonably made the addition of Rs. 2,88,534/- on account of disallowance of various expenditure as the assessee could not get the expenses verified and personal use could not be ruled out. Moreover, the appellant has neither filed any satisfactory explanation on the issue nor he filed any documentary evidence in this regard. Therefore the Ground No. 4 raised by the assessee is dismissed. Ground No. 5: General in nature Hence, the appeal is dismissed.”

before the ld. CIT(A), the assessee has preferred the present appeal before

this Tribunal on the ground as reproduced hereinabove. To support the

various grounds so raised by the ld. AR of the assessee, has filed the

written submissions in respect of the various grounds raised by the

assessee and the same is reproduced herein below:

8 ITA No. 550/JP/2024 Ram Ratan Jangir vs. ITO “The assessee is an individual engaged in the business of manufacturing and trading of agricultural implements. Return for the relevant year was first assessed u/s 143(3) of the Act, wherein the returned income was accepted vide order dated 30.03.2016 [PB page 20-21]. Later a notice u/s 148 of the Act was served upon by recording the reasons as under:- [PB page 25-26] “ As per audited balance sheet in liabilities side there were unsecured loan shown at Rs. 36,78,804/- and in assets side there were loans and avances shown at Rs. 20,53,750/- It was noticed that on one side the assessee had given huge amounts of loan and avances where no interest had been received and on the other hand the assessee had loans on which he had paid interest of Rs. 240,000/- Hence interest paid by assessee of Rs. 240,000/- was not reasonable and was not allowable. The omission has resulted in incorrect allowances of business expenditure and under computation of income of Rs. 240,000/- with the tax effect of Rs. 1,00,058/- including interest u/s 234 B of Rs. 26,698/- Hence I have reason to believe that this is a fit case to be re-opened u/s 148 of the Act. On account of failure on the part of the assessee to disclose fully & truly all material facts necessary for his assessment. “ The assessee filed his return in response to the said notice and also filed timely details required for the re-assessment. He also filed his objections against the issuance of notice t/s 148 of the Act. An order u/s 143(3)/ 147 was then passed on 24.12.2018 wherein the total income was assessed at Rs. 15,46,560/- by making the following additions/ disallowances:- Particulars Rs. Interest paid on unsecured loans 2,40,000 Unverified creditors 40,418 Adhoc disallowance out of expenditures 2,88,534 Total addition 5,46,950

The assessee again challenged the validity of re-opening before the AO [PB page 27-35] as well as Ld. CIT(A) along with the additions made and submitted his contentions before Ld. CIT(A). However the appeal filed was dismissed and now the assessee is before Your Honors challenging the appeal so dismissed by Ld. CIT(A). The ground wise submissions are as under:- Ground of Appeal no. 1 In this ground the assessee has challenged the validity of re-opening initiated by issuing notice u/s 148 of the Act, merely on the

9 ITA No. 550/JP/2024 Ram Ratan Jangir vs. ITO basis of some information or Audit objection raised, without application of individual mind on the information so received in the form of audit objection. The assessee has further challenged the initiation of re-assessment proceedings being merely for making roving enquiries without any material on records suggesting escapement of income, especially when the original proceedings were completed u/s 143(3) of the Act. 1. It is humbly submitted that the reasons recorded (as reproduced supra ) suggests that the only ground for issuing notice u/s 148 of the Act was the audit objection raised questioning allowability of interest paid on unsecured loans when no interest income was shown on unsecured loans given by the asseseee. Ld. AO without verifying anything from the records already placed with him both while filing of original ITR as well as during original assessment proceedings, merely on the basis of borrowed satisfaction recorded reasons seeking approval for issuing notice u/s 148 of the Act. It is a well settled preposition of law that re-opening cannot be initiated based on suspicions, there needs to be some material in possession of AO to suggest escapement of income and based on such material the AO needs to frame his opinion/ satisfaction before issuing notice u/s 148 of the Act. Ld. AO cannot issue re-opening notice merely on information received and borrowed satisfaction. Such act of AO vitiates the legislative purpose of providing such vast powers to the AO. If the original assessment is processed under Section 143(3) of the Act, the proviso to Section 147 will apply. In order to assume jurisdiction under Section 147 where assessment has been made under sub-section (3) of section 143, two conditions are required to be satisfied; (i) The Assessing Officer must have reason to believe that the income chargeable to tax has escaped assessment; and (ii) Such escapement occurred by reason of failure on the part of the assessee either (a) to make a return of income under section 139 or in response to the notice issued under sub-section (1) of Section 142 or Section 148 or (b) to disclose fully and truly all the material facts necessary for his assessment for that purpose. In the present case the assessee during the original assessment had filed various details as requisitioned by ld. Ao and only after examining the same ld. AO had accepted the income as returned. Thus there was no failure on the part of the assessee to disclose fully and truly all the material facts nor any such failure was established by way of recording satisfaction by ld.AO while recording reasons for re-opening. Hence the proceedings initiated u/s 147 of the Act are absolutely illegal based merely on suspicions and presumptions and therefore as per the proviso to sec 147 the entire proceeding deserves to be held invalid and the subsequent order passed deserves to be quashed and the assessee prays accordingly.

10 ITA No. 550/JP/2024 Ram Ratan Jangir vs. ITO • Umacharan Shaw& Bros vs. CIT 37 ITR 271 (SC) : There are many surmises and conjectures, and the conclusion here is the result of suspicion which cannot take place of proof. • Dhiraj lal Girdharilal vs. CIT 26 ITR 736 (SC) : The mere existence of suspicion would not tantamount to evidence. Satisfaction should not be based on mere suspicion, conjecture or guess work. • CIT vs. Anupam Kapoor (2008) 299 ITR 179 (P&H) : It is a settled law that suspicion however strong cannot take the place of legal proof. Consequently, no question of law, much less a substantial question of law arises for jurisdiction.

2 It is further submitted that the re-opening in the present case has been proposed in the most mechanical manner based on some random observation merely for conducting roving enquiries or verification of facts and details already placed on records. Such re-opening sought merely to verify details, is not contemplated in the legislative purpose of introducing section 147 into the Act – ABCAUS case law citation – 939 2016 (06) ITAT (June 2016) Inductotherm ndia Pvt Ltd vs. CIT (Special Civil application No. 858 of 2006) (GUJ HC), it has been held that The assessing officerin the guise of power to reopen an assessment cannot seek to undertake a fishing or roving enquiry and seek to verify claims as if it were a scrutiny assessment. Based on above it is humbly submitted that the re-opening sought merely on observation that, the assessee had paid interest on borrowed funds when no interest has been shown on loans advanced by the assessee, without considering the fact that the assessee had ample balance as his capital as also that there were ample Interest free unsecured loans which were much higher than the interest free loans advanced by the assessee, is most illegal, unjustified and such re-opening initiated on the basis of such invalid reasons being most unwarranted deserves to be held bad in law and the consequent assessment so framed deserves to be quashed and the assessee prays accordingly. Ground of Appeal no. 2.:- In this ground the assessee has challenged the disallowance of Rs. 240,000- made on account of Interest expenditure debited in the profit and loss account. Ld. Ao had disallowed the Interest payment of Rs. 240,000/- paid to two parties as under:- Particulars Interest Loan amount Ritesh Agarwal HUF 1,68,000 7,00,000 Nitesh Agarwal HUF 72,000 3,00,000 Total 2,40,000 10,00,000

11 ITA No. 550/JP/2024 Ram Ratan Jangir vs. ITO While disallowing the Interest paid ld. has alleged that since the assessee had not received any interest on the loans advanced by him to other parties, the interest paid on unsecured loans were not allowable. Also Ld. CIT(A) while concurring with the observation of ld. AO merely reproduced the findings of ld. AO without in any manner considering and re-butting the contention made before him during the appellate proceedings. The assessee humbly submits that, while making the above observation Ld. CIT(A) as well as ld. AO have grossly erred in not considering the financial statements in its entirety. The total Unsecured loans received by the assessee as at the beginning of the year was Rs. 77,08,383/-, out of which only Rs. 10 lacs _ was interest bearing [page 58 filed with submissions] . Further the loans and advances made as at the beginning of the year amounted to Rs. 10,28,688/- [page 59 filed with submissions] and as at the end amounted to Rs. 15,40,250/-. Similarly the opening Capital balance of the assessee was Rs. 53,00,865/- [page 60 filed with submissions] which amounted to Rs. 1,14,38,095/- as at the end of the year. Thus, where it is factually correct that that the assessee had not charged any interest on the Advances made by him, it is also factually correct and clearly evitable that the assessee had ample amount of unsecured loans which were interest free as also the Capital balance of the assessee was more than sufficient to easily accommodate such Interest free advances made. Also the prudence of a business man to give advances/ loan as interest-free does not deserve to be questioned or the genuineness and need of obtaining certain interest bearing funds cannot be doubted / disallowed merely on the ground that no interest was received on certain advances made by the assessee, especially when the assessee had ample amount of interest free funds available with him, as well as his capital was more than enough to cover such Interest free loans advanced. It is also submitted that the said loans on which interest was paid were fully utilized for the purpose of business. The loans on which interest has been paid by assessee are opening balances, which were fully repaid with interest during the relevant year, on which due TDS was fully deducted by the assessee [PB page 23-24]. Thus the genuineness and allowability of interest paid by assessee cannot be doubted merely on the basis that no interest was received on loans advanced by assessee, especially when he had ample amount of unsecured loans which were interest free as well as the fact that the capital balance of the assessee was also enough to make such interest free loans. It is a settled preposition that unless otherwise proven, the balance available in capital account and other interest free loans shall be presumed to have been used for making such interest free loans, and therefore the interest paid on genuine business loans taken by the assessee, which are well substantiated by the fact that due TDS have been made on such payment and the confirmations of the parties have been duly filed, deserve to be fully allowed and the assessee prays acoordingly. The contention of the assessee derives support from the following judicial pronouncements:-

12 ITA No. 550/JP/2024 Ram Ratan Jangir vs. ITO • CIT v/s M/s. Vijay Solvex Ltd. (2015) 274 CTR 384 (Raj.) "The AO un- wantedly stressed over the alleged absence of the commercial expediency behind giving of the subjected loans & advances in as much as, such a consideration was relevant only in a case where the interest free funds were given out of the interest bearing funds only and there was admittedly no availability of the interest free funds. In our case, such facts are not available and even otherwise the utilization of the funds was for commercial expediency in as much as the major utilization of the funds was towards capital investment in building for coaching, and partly in the mutual funds but income from both were duly taxed. It was not the case of AO that assessee diverted the funds to relatives etc. for personal purposes. " o SP Jaiswal Estate P Ltd vs ACIT (2013) 29 taxmann.com 221 (Kolkata Trib) (TM)(DPB 36-39) "It was also noted that in the current year itself, the assessee has earned a profit of Rs. 3,50,51,698, and when amounts of Rs. 5,10,399 towards prior period expenses as also of Rs. 1,86,44,232 towards non-cash expenses in the nature of depreciation is added thereto, the total cash profitsaggregate to Rs. 5,31,85,591. This amount is far more than the total advances of Rs. 3,55,25,833. On this factual matrix, and applying the presumption as laid down by the High Court in Reliance Utilities & Powers Ltd. (supra) one has to proceed on the basis that the entire interest free advances were given out of the interest bearing funds available to the assessee. No part of the borrowed funds could be said to have been diverted as non- interest bearing advances to the subsidiary companies. For this short reason alone, there is no room for any disallowance of interest paid on borrowings, on account of grant of interest free advances to the subsidiary companies, on the facts of this case. The Commissioner (Appeals) was indeed in error in holding that the assessee not have sufficient own funds to advance the interest free advances to the sister concerns. [Para 9] " • CIT v/s Ram Kishan Verma (2016) 132 DTR 107 (Raj.)/[2015] 64 taxmann.com 358 (RAJ HC) (DPB40-43) holding as under: "12. As far as the disallowance of interest is concerned, admittedly the assessee had an opening capital of Rs. 5,70,74,967/- of his own and the advances, if at all, being interest free, is to the extent of Rs. 98,93,950/- which is far below the capital of the assessee and, therefore, the tribunal has rightly come to the conclusion that to the extent of his own capital the assessee could advance money without interest for business expediency or/and relatives, and none can be forced to charge interest. It is also noticed by the lower authorities that assessee earned bank interest to the extent of Rs. 24,48,843/- out of which he paid total amount of Rs. 10,99,099/- to the bank against loan and over draft, and it is out of the amount which has been paid by the assessee at 10,99,099/- that the AO has disallowed the interest.

13 ITA No. 550/JP/2024 Ram Ratan Jangir vs. ITO 13. Taking into consideration the fact as noticed hereinabove, in our view as well, when there was no agreement to charge interest from the persons to whom the assessee advance short term loan/advance, the AO could not disallow part of interest. It is also an admitted fact, as observed by the tribunal, that the AO was not able to pin pointedly come to a definite conclusion that how interest bearing loans has been diverted towards interest free advances and since the AO was not able to prove nexus between interest bearing loans vis-à-vis interest free loans/advances, therefore, in our view as well, once the AO was not able to come to a definite conclusion as to nexus having been established about interest bearing loans having been diverted towards interest free loans/advances, and such being a finding of fact based on application of evidence, in our view no substantial question of law arise on this question as well. It can be observed that this court in similar circumstances and on identical facts, when the capital of the partner/proprietor being more than the interest free short term advances, has in the case of CIT v/s M/s. Vijay Solvex Ltd. (2015) 274 CRT (Raj.) 384 while relying on the judgments rendered in (a) S.A. Builders Ltd. V/s CIT (2007) 288 ITR 0001 (SC); (b) Munjal Sales Corporation v/s CIT (2008) 298 ITR 298 (SC) ; (c) CIT V/s Radico Khaitan Ltd. (2005) 274 ITR 354; (d) CIT v/s Dalmia Cement (Pvt.) Ltd. (2002) 254 ITR • Godrej & Boyce Manufacturing Co. Ltd. v/s DCIT & Anr. (2017) 151 DTR 0089 (SC) /[2017] 81 taxmann.com 111 (SC) (DPB 44-46) CIT Vs Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Mum)/ [2009] 178 Taxman 135 (Bombay)(DPB 34-35), "The facts of that case were that the Assessee viz. M/s Reliance Utilities and Power Ltd. had invested certain amounts in Reliance Gas Ltd. and Reliance Strategic Investments Ltd. It was the case of the Assessee that they themselves were in the business of generation of power and they had earned regular business income therefrom. The investments made by the Assessee in M/s Reliance Gas Ltd. And M/s Reliance Strategic Investments Ltd. were done out of their own funds and were in the regular course of business and therefore no part of the interest could be disallowed. It was also pointed out that the Assessee had borrowed Rs.43.62 crores by way of issue of debentures and the said amount was utilised as capital expenditure and inter-corporate deposit. It was the Assessee's submission that no part of the interest bearing funds (viz. Issue of debentures) had gone into making investments in the said two companies. It was pointed out that the income from the operations of the Assessee was Rs.313.53 crores and with the availability of other interest free funds with the Assessee the amount available for investments out of its own funds were to the tune of Rs.398.19 crores. In view thereof, it was submitted that from the analysis of the balance-sheet, the Assessee had enough interest free funds at its disposal for making the investments. The CIT (Appeals) on examining the said material, agreed with the contention of the Assessee and accordingly deleted the addition made by the Assessing Officer and directed him to allow the same under the provisions of the Income Tax Act, 1961. The Revenue being aggrieved by the order preferred an Appeal before the ITAT who upheld the

14 ITA No. 550/JP/2024 Ram Ratan Jangir vs. ITO order of the CIT (Appeals) and dismissed the Appeal of the Revenue. From the order of the ITAT, the Revenue approached this Court by way of an Appeal."

Ground of Appeal No. 3 In this ground the assessee has challenged the addition confirmed amounting to Rs. 40,418/- made by alleging certain purchases as unverifiable.

At the outset the assessee humbly submits that while framing the grounds of appeal in the memorandum of appeal filed before Your Honor, it has been wrongly stated that the addition confirmed by Ld. CIT(A) was on account of unsecured loans credited in the books of assessee. It is humbly requested that the ground may kindly be modified as under and considered as such.

“Ground of Appeal no. 3 On facts and in circumstance of the case Ld. CIT(A)- NFAC has grossly erred in confirming addition of Rs. 40,418/- made by alleging certain sundry creditors shown in the balance sheet as being unverified. Appellant prays that the same being most genuine and fully explainable the addition made deserves to be deleted”

Ld. AO has held the following creditors as being unverified: -

Ashok Kumar Jangir Rs. 34000/-

M/s Atul Enterprises Rs. 6418/-

Total – Rs. 40418/-

The creditors have been held unverified merely on the ground that the confirmations of the above two creditors could not be produced before ld. AO. It is submitted that the assessee had filed details like complete Names and addresses of both these creditors during assessment proceedings, and no further details were asked and the addition was made known to the assessee directly in the assessment order. However during the appellate proceedings the assessee had duly filed ledger copies of both the creditors[page 61-63 filed with submissions]. CIT(A) have confirmed the additions without in any manner considering or rebutting the details filed, which is against the principles of natural justice and the assessee prays that the addition made deserves to be deleted.

It is submitted that the amount standing credited as sundry creditors in the name of Shri Ashok kumar Jangir Rs. 34,000/- was on account of salaries outstanding for two months, this salary was duly paid in the next financial year through bank and the same is verifiable from the ledger copy [page 61 filed with submissions]. Also further that the entire salary amounting to Rs. 2,04,000/- paid to Shri Ashok Kumar Jangir in the relevant year has already been disallowed by ld. AO, thus disallowing again the amount due included in sundry creditors amounts to double

15 ITA No. 550/JP/2024 Ram Ratan Jangir vs. ITO

addition and therefore the addition made deserves to be completely deleted and the assessee prays acordngly.

As regards the creditor of Rs. 6418/- in the name of Atul Enterprises, it is further submitted that said expense was incurred for Machine repair and is merely 0.54% of the total turnover. Also the same being most genuine the same may please be allowed as also the books of the assessee are duly audited and no adverse remarks are made by the auditors. The addition made deserve to be deleted in toto and prayed accordingly.

Ground of Appeal nos. 4 to 8 In these grounds the assessee has challenged adhoc disallowances made from various expenses debited in the profit and loss account during the year, confirmed by Ld. CIT(A)

Ld. Ao while completing the re-assessment proceedings, which were initiated after the original assessment was framed u/s 143(3) of the Act, where the returned income was duly accepted after scrutinizing the ITR and documents filed by the assessee, has made the following adhoc disallowances, merely on suspicion by presuming element of personal use, without pointing any specific instances or without having any material in hand to doubt the genuineness of expenses debited in the audited books of the assessee.

Particulars Amount % Exp. % of Turnover Disallowed disallowed claimed (131.24lacs)

Depreciation 61,920 20% 309552 2.35% Machinery expenses 6418 100% 6418 0.04% General expenses 4486 20% 22430 0.12% Salary 204000 100% 204000 1.55% Misc, Telephone,Travel 11710 30% 39002 0.29%

Total 288534 581408

Perusal of the above table amply shows that the maximum expenses claimed by assessee are less than 1% of the Total turnover and there is no ground for disallowing the same and moreso on adhoc basis. The books of the assessee are duly audited with no adverse remarks and the same were fully allowed in the scrutiny assessment completed originally. Thus where there is no specific material in possession of ld. AO to doubt the allowability and genuineness of expenses which were fully allowed in the original assessment, the same cannot be disallowed in the re-assessment proceedings and on an adhoc basis merely based on presumptions. The disallowance made deserves to be fully deleted and the assessee prays accordingly.

16 ITA No. 550/JP/2024 Ram Ratan Jangir vs. ITO The above disallowances made without any specific defect and arbitrary, absolutely unwarranted, erroneous and deserves to be deleted. The assessee also relies on the following case laws to support his contentions: - (i) Kailash Chand Gupta Vs. DCIT 35 Tax world 36 (Jaipur ITAT) It has been held that depreciation is a statutory provision and on account of personal use, no disallowance can be made. (ii) ACIT Vs Ganpati Enterprises Ltd. (2013) 142 ITD 118 (Delhi)(Trib). (iii) CIT Vs Oracle India (P) Ltd. 199 Taxman 181 (Del)(HC)(Mag). (iv) Arthur & Anderson & Co. Vs. ACIT 2010-TIOL-416-ITAT- Mum. 12 (v) Seasons Catering Services (P) Ltd. Vs. DCIT 43 DTR 397 (Del)(Trib). (vi) DCIT Vs M/s Art Asia

It has been held in all the cases that without pointing out any specific de

As regards disallowance of depreciation claimed on vehicles by alleging presence of personal element, it is humbly submitted that the Hon’ble ITAT Jaipur bench Jaipur has held in the case of Shri Kailash Chand Gupta Vs. Deputy Commissioner of Income Tax 35 Taxworld 36 that depreciation is allowed under a statutory provision, no part of it can be disallowed even if the assets is used partly for personal purposes. In view of these facts the Learned Assessing Officer was not justified in making disallowance out of depreciation by merely presuming use of vehicles for personal use.

Also submitted further that, disallowance of depreciation on vehicles is patently incorrect. The disallowances of expenditure on building and machinery not exclusively used for business is done u/s 38(2). The section is reproduced below :- "38(2) Where any building, machinery, plant or furniture is not exclusively used for the purposes of the business or profession, the deductions under sub-clause (ii) of clause (a) and clause (c) of section 30, clauses (i) and (ii) of section 31 and clause (ii) of sub-section (1) of section 32 shall be restricted to a fair proportionate part thereof which the Assessing Officer may determine having regard to the user of such building, machinery, plant or furniture for the purposes of the business or profession."

Thus the aforesaid section 38(2) under which disallowance can be made refers to deduction available section 32(1) (ii) only for making the proportionate disallowance. Now section 32(1)(ii) is quoted below : " 32 (1) ( ii) In respect of depreciation of – (ii) know-how, patents, copyrights, trade marks, licenses, franchises or any other business or commercial rights or similar nature, being intangible assets acquired on or after the 1st day of April, 1998"

The position of Income tax provisions being such it is abundantly clear that the proportionate disallowance of depreciation for partial use of assets can be made only u/s 38(2) read with section 32(1)(ii). In other words, disallowance of

17 ITA No. 550/JP/2024 Ram Ratan Jangir vs. ITO depreciation can be made only in respect of intangible assets, whereas building, plant, machinery, furniture etc. are tangible assets and fall u/s 32(1)(i) which is not covered u/s 38(2). In view of these facts, the learned Assessing Officer was not legally competent to make disallowance of depreciation of car. The addition deserves to be quashed.

Based on above it is humbly submitted that the adhoc disallowance made out of expenses claimed by the assessee being most arbitrary and unwarranted deserves to fully allowed and the assessee claims accordingly.”

was placed on the following evidence / records / decisions:

• State Bank of India vs. ACIT [MUM] (Petition No. 278 of 2018) dated 15.06.2018 • ITO vs. Krish Homes (P) Ltd [ITAT Jaipur] in ITA no. 237/JP/2019 dated

23.12.2019.

Sr. No List of Documents Page No.

22 4. Copy of Ledger account Interest paid

Copy of Confirmation of accounts of parties to whom interest was paid 23-24 5.

Copy of Objection against notice dated 31-03-2018 u/s 148 27-35 7.

Copy of speaking order passed against objection raised by assessee 36-44 8.

18 ITA No. 550/JP/2024 Ram Ratan Jangir vs. ITO 7. The ld. AR of the assessee submitted that the case of the assessee

already subjected to scrutiny based on the CASS reasons. The assessment

is already completed u/s. 143(3). The ld. AO without bringing on record any

new material recorded the reasons for the same set of fact is not permitted

as it is nothing but a change of opinion. To drive home to this contention he

relied upon the decision of Bombay High Court in the case of State Bank of

India Vs. ACIT. Thus, the reasons recorded is nothing but a reasons to

suspicions on the same very records which were already subjected to

scrutiny. As regards the issue of allowability of interest the same was

replied and the ld. AO applied his mind on the issue while passing the

assessment order. Thus, same is again cannot be taken up in the

proceeding u/s. 148 of the Act when the other alternative remedy is

available as per provision of section 263 of the Act.

and more particularly advanced the similar contentions as stated in the

order of the ld. AO and ld. CIT(A). The ld. DR relied upon the decision of

the apex court in the case of Phool Chand Bajrang Lal Vs. ITO [ 69 Taxman

627 ] wherein the court held that if the assessee do not disclose the primary

fact the reassessment can be done. She also relied upon the decision of

19 ITA No. 550/JP/2024 Ram Ratan Jangir vs. ITO the Kerala high court in the case of Sree Narayana Guru Memorial

Educational and Cultural Trust Vs. ACIT [ 160 taxmann.com 727 ( Kerala) ]

wherein it was also held that 148 notice can be issued even the audit party

objected to claim of the assessee and that was not considered the change

of opinion. She also relied upon the decision of Calcutta high court in the

case of PCIT Vs. ITC Ltd., and decision of Rajasthan High Court in the case

of CIT Vs. Uttam Chand Nahar [ 295 ITR 403 (Rajasthan) ] wherein it was

held that failure on the part of the assessee to disclose sufficiency of

material would lead to proceeding u/s. 148.

assessee filed a distinguishing note to that decision relied with the facts of

the case of the assessee and the same is reproduced here in below :

“In continuation of hearing held on 03.07.2024 is further submitted that the case laws cited by ld. DR during the hearing do not apply in the facts of the case and are clearly distinguishable. The cases cited are as under :-

20 ITA No. 550/JP/2024 Ram Ratan Jangir vs. ITO such a case - Held, yes - Whether, in view of abovementioned facts reassessment proceedings on basis of subsequent information were justified- held yes. Whereas in the case under consideration there was no further information available with ld. AO that triggered him to issue notice u/s 148 of the Act. Complete details about loans and advances made by the assessee and the fact of availability of interest free unsecured loans was duly made available during the original assessment proceedings [PB page 38- 43] Thus there was no new material in possession of AO, and the re- opening sought to review the same material as already filed and examined during the original proceeding is nothing but re-visiting his order by the AO in the guise of re- assessment, which is beyond the scope of provisions of sec 147. The re-assessment proceedings being without jurisdiction the subsequent order passed deserves to be quashed and the assessee prays accordingly. 2. [2024] 160 taxmann.com 727 (Kerala) HIGH COURT OF KERALA Sree Narayana Guru Memorial Educational and Cultural Trust v. Assistant Commissioner of Income-tax WP(C) NO. 11891 OF 2023 FEBRUARY 19, 2024, Here the question before Hon’ble Kereala High Court was, “Whether with effect from 1-4-2022, audit objection is one of reasons for reopening assessment as per clause (ii) of Explanation 1 to section 148 - Held, yes - Whether therefore, where revenue audit raised an objection that assessment was not completed in accordance with provisions of Act, it could not be treated as a change of opinion because this was statutory prescription and statutory ground/reason for reopening assessment as Assessing Authority had proceeded strictly in accordance with provisions of clause (ii) of Explanation 1 to section 148 - Held, yes [In favour of revenue

It is humbly submitted that the re-opening in the current case was initiated vide notice dated 31.08.2017 and thus was governed by the old provisions of sec 147 and the settled premises that re-opening cannot be allowed merely on the basis of audit objections. The AO has to form his own opinion based on the information received by him, before recording reasons for re-opening a particular case. The re-opening so sought on the basis of borrowed satisfaction without application of individual mind being unjustified, the order passed deserves to be quashed.

21 ITA No. 550/JP/2024 Ram Ratan Jangir vs. ITO assessment order was non-speaking and cryptic and, therefore, reassessment proceedings initiated by Assessing Officer under section 147 was not based on change of opinion – Held, yes – Whether, therefore, impugned order passed by Tribunal was unsustainable in law – Held, yes

Whereas in the present case, the AO during the original proceedings had raised and examined exactly the issue for which reasons were recorded for re-opening the matter. And only after due verification and examination the claim of Interest on unsecured loans was duly allowed as claimed. Thus the above case law does not in any way apply to the facts of the assessee and therefore the same deserves to be ignored.

• As already submitted in the earlier submission, the decision of the Mumbai High Court in the case of State Bank of India vs. ACIT [MUM]( PETITION NO. 278 OF 2018) dated 15.06.2018 and the decision of this bench Hon’ble ITAT, Jaipur bench in the case of ITO vs. Krish Homes (p) ltd [ITAT Jaipur] in ITA no. 237/JP/19 dated 23.12.2019 squarely apply to the facts of the assessee. It is therefore humbly requested that the same may please be considered and the assessment order so passed without valid proceedings initiated u/s 147 of the Act may please be directed to be deleted and the assessee prays accordingly.”

on record. Ground no. 1 raised by the assessee is challenging the re-

opening of the assessment by issue of notice u/s. 148. The brief facts

related to the dispute are that the assessee filed his Return of income for

the A.Y.2013-14 electronically on 27.09.2013 declaring a total income of

Rs. 9,77,610/-. The case was selected for scrutiny under CASS and the

assessment was completed u/s. 143(3) of the Act on 30.03.2016 accepting

the returned income of the assessee at Rs. 9,77,610/-. Thereafter

assessment proceedings under section 147 of the Income Tax Act for the

assessment year under consideration was initiated on the basis of the

22 ITA No. 550/JP/2024 Ram Ratan Jangir vs. ITO information that the assessee claimed interest on unsecured loans paid

wrongly therefore after recording of reasons and after obtaining prior

approval of additional commissioner of income tax, Range-7, Jaipur the

notice under section 148 of the Income Tax Act was issued on 30.08.2017

which got served upon the assessee through registered post on

31.08.2017. In compliance with the notice the assessee filed the return of

income on 04.09.2017 declaring the same income as it was filed and

assessed as such in the first round of litigation. The reasons recorded were

provided to the assessee, the assessee filed the objection to the said

reasons recorded which was disposed off by passing a order dated

15.10.2018. In the reassessment proceeding the ld. AO noted that the

assessee did not produce the books of accounts in the earlier scrutiny

assessment proceeding and therefore based on the observations written in

the order the re-assessment was completed by passing an order u/s 143(3)/

147 on 24.12.2018 wherein the total income was assessed at Rs.

15,46,560/- by making the additions of Interest paid on unsecured loans of

Rs. 2,40,000/-, Unverified creditors for an amount of Rs.40,418/- and Adhoc

disallowance out of expenditures for an amount of Rs. 2,88,534/- making

total addition of Rs. 5,46,950/-. The assessee challenged the order of the

ld.AO before the ld. CIT(A) who has confirmed the addition on merits and

23 ITA No. 550/JP/2024 Ram Ratan Jangir vs. ITO dismissed the legal ground raised by the assessee. The bench noted that

the case of the assessee was selected for scrutiny under CASS. The issue

which is raised in the reasons recorded for re-opening of the case of the

assessee is arise from the same set of records which were already

subjected to scrutiny. The bench further noted that the issue of allowability

of interest of Rs. 2,40,000/- raised in the reasons recorded for opening of

the case [ paper book page 25] has already been replied vide submission

dated 22.01.2016 vide point no. 16 [ paper book page 42 ]. Thus, it is

evident that the issue which was raised in the reasons recorded for re-

opening of the cash has already been examined and the ld. AO has applied

his mind while considering the claim of the assessee in first round of the

assessment. The case law cited by the ld. DR are having on different facts

as distinguished by the ld. AR of the assessee and therefore, considering

the facts of the case and the case law relied upon by the ld. AR of the

assessee in the case of State Bank of India Vs. ACIT in write petition no.

278 of 2018 squarely applicable to the facts of the present case wherein the

Hon’ble High Court held that “In this case, prima facie the petitioner has

shown absence of new facts or no coming to the notice of the assessing

officer after passing of assessment order in regular assessment

proceedings. In the present facts, (particularly the claim made in

24 ITA No. 550/JP/2024 Ram Ratan Jangir vs. ITO computation of income) prima facie if the stand of the revenue is to be

accepted, the sanctity / finding attached to the proceedings under section

143(3) of the act would be done away with and it would be open to the

revenue to do piecemeal assessment by reopening the same. Therefore,

the reasons in support of the notice, primacies indicates a change of

opinion.”, As the facts of the case relied upon by the assessee and that of

the cash on hand being similar respectfully following the finding of the

Bombay High Court we hold that the ld. AO erred in reassessing the income

from the same material and that change of opinion is permitted and

therefore, the assessment order passed u/s. 147 r.w.s. 143(3) dated

24.12.2018 stands quashed. In the result ground no. 1 raised by the

assessee is allowed.

the legal ground raised by the assessee and ground no. 3 to 10 deals with

the disallowance or addition made in the reassessment proceeding. Since

we have allowed the appeal on the technical ground these grounds become

educative in nature and therefore, the same are not decided. Ground no. 11

being general in nature does not require adjudication of it.

In the result, the appeal of the assessee is allowed.

25 ITA No. 550/JP/2024 Ram Ratan Jangir vs. ITO Order pronounced in the open court on 22/07/2024.

Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member

Tk;iqj@Jaipur fnukad@Dated:- 22/07/2024 *Ganesh Kumar, Sr. PS आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- Ram Rathan Jangir, Jaipur izR;FkhZ@ The Respondent- ITO, Ward-7(2), Jaipur 2. vk;dj vk;qDr@ The ld CIT 3. 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 6. xkMZ QkbZy@ Guard File (ITA No. 550/JP/2024) vkns'kkuqlkj@ By order,

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