HEMENDRA SANGHANI,MUMBAI vs. I.T.O.WD 20(1)(3), MUMBAI

The facts of the case are that the assessee filed the return of income of Rs.1,86,272/- for A.Y.2006-07 on 30.10.2006 The return was accompanied with the computation of income, Trading Profit and Loss Account, Balance Sheet and Tax Audit Report u/s.44AB of the Income Tax Act, 1961 ( in short “the Act”) in form No.3CB and 3CD along with its enclosures. The return was processed u/s.143(1) of the Act. The case was selected for scrutiny and notice u/s.143(2) of the Act was issued on 08.10.2007 for A.Y. 2006-07 and served upon the assessee. Subsequently notices u/s.142(1) of the Act were issued and served upon the assessee. In enquiry the assessee was found to get the loan from different parties to the tune of Rs.25,10,000/- which was not verified, therefore the said loans was treated as unexplained cash credit u/s.68 of the Act. The Assessing Officer assessed the income of the assessee by holding his tax liability to the tune of Rs.61,74,427/-. Thereafter the assessee challenged the said assessment order before the CIT(A), who also confirmed the said unexplained cash credit u/s.68 of the Act. Therefore, the assessee has filed the present appeal before us.

The assessee has raised the following issued in the assessment year 2006-07:-

The assessee has challenged the order of CIT(A) who confirmed the disallowance of unsecured loan of Rs.25,10,000/-treated as unexplained cash credit u/s.68 of the Act. The contention of the assessee is that he took loan from the nine person who were his relatives and were residing at Ahmadabad, Gujarat and proved their identities, creditworthiness, genuineness of the transaction but CIT(A) has wrongly confirmed the addition. However, the details of the said persons are hereby mentioned below:-

The second issue is in connection with the disallowance of purchases of goods to the tune of Rs.1,14,73,072/- treated as unproved as undisclosed income u/s.69 of the Act which has been confirmed by the CIT(A). The contention of the assessee is that the Assessing Officer verified the purchases from wrong addresses i.e. M/s. Arch Pharma Labs Ltd. whereas the assessee purchased goods amounting to Rs.1,14,73,072/- from M/s. Arch Pharma Labs, Prop. Kumarpal Shah, situated at A-9, A.V.Complex, Paldi, Ahmedabad. It is contented that the name of the supplier was wrongly mentioned as M/s. Arch Pharma Labs Ltd. instead of M/s. Arch Pharma Labs. It is not disputed that the Assessing Officer declined the purchases when he received letter from M/s. Arch Pharma Labs Ltd. with regard to the non-transaction with the assessee. The contention of the assessee with regard to the purchases of goods from M/s. Arch Pharma Labs was not verified even at the stage of appeal. The account of the assessee was audited u/s.44AB of the Act and was having sufficient record with regard to the purchases. The assessee has filed copies of purchase bills of M/s. Arch Pharma Labs, Ahemadabad and it’s confirmation of account, transportation receipt, Bank statement confirming payment made to M/s.Arch Pharma A.Y. 2007-08 Labs, copy of VAT returned filed with sales tax department reflecting said purchases. Copy of sales tax registration certificate of M/s.Arch Pharma Ltd. with sales tax department Gujarat State holding Registration No:24073604147 w.e.f. 01.02.2006. It is also observed that M/s.Arch Pharma Labs is situated in Ahmedabad whereas M/s. Arch Pharma Labs Ltd. is situated at Andheri (E), Mumbai. The addresses of both the firm are totally different. In view of the said circumstances we are of the view that this issue needs proper verification at the end the Assessing Officer in view of the evidence produced in the interest of natural justice. In view of the said circumstances we set aside the order passed by the CIT(A) on this issue and restore the issue to the file of the Assessing Officer to decide the matter afresh in view of the evidence produced after giving him an opportunity of being heard in accordance with law. This issue is decided in favour of the assessee and against the revenue.

The facts of the case of the present case are quite similar with the facts mentioned above for the A.Y.2006-07. However, the figure are different. In the said assessment year the assessee has challenged the disallowance of interest claimed to the tune of Rs.3,76,648/- on unsecured loan to the tune of Rs.25,10,000/- of the A.Y.2006-07. The said deletion was confirmed by the CIT(A) vide order dated 11.08.2011, therefore the assessee filed the present appeal before us.

The assessee has raised the following issued in the assessment year 2007-08:- A.Y. 2007-08 “1. The first ground is relating addition made by AO disallowing claim of entire interest expenses of Rs.3,76,648/- stating interest cannot be considered as incurred by assessee as unsecured loans were treated as unexplained cash credit u/s.68 of the Income Tax Act, 1961 in A.Y. 2006-07. The CIT(A)-31 erred in confirming disallowance of interest expenses claimed during the year under consideration. 2. The second point is relating not providing sufficient opportunity of hearing to appellant and Ld. AO failed in making proper enquiry of case. And Ld. CIT(A) erred in confirming action of AO.”

So far as the issue no.1 in the A.Y.2007-08 is concerned, the assessee has raised the issue of disallowance claim of interest expenses of Rs.3,76,648/- on unsecured loan of Rs.25,10,000/-. This interest was claimed by the assessee against the unsecured loans of Rs.25,10,000/- in the A.Y.2006-07. Since in deciding the appeal of the assessee for A.Y.2006-07 the issue of unsecured loan of Rs.25,10,000/- has been remanded before the Assessing Officer to re-examine the matter afresh in the light of evidences adduced by the assessee, therefore in the said circumstances the interest upon the unsecured loan has became uncertain no doubt the same would be consequential and would came into in existence after the decision taken by the Assessing Officer while deciding the assessment of the A.Y.2006-07. Accordingly, the finding of the CIT(A) on this issue is also is hereby set aside which would be consequential on account of finding of the assessment A.Y. 2007-08 for the year A.Y.2006-07. Accordingly this issue is decided in favour of assessee.

In the result both the appeals filed by the assessee is hereby allowed for statistical purposes.