ARPITKUMAR DIPAKKUMAR GABHAWALA,UMRETH vs. ACIT, ANAND CIRCLE, ANAND , ANAND

The above appeal has been filed by the assessee against order passed by the Ld.Commissioner of Income-Tax(Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “ld.CIT(A)] dated 7.2.20224 under section 250 of the Income Tax Act, 1961 ("the Act" for short) pertaining to Assessment Year 2017-18.

The grounds raised in the appeal read as under:

Short issue in the present appeal for our consideration relates to the addition made to the income of the assessee on account of unsecured loans to the tune of Rs.7,05,31,860/- found to be not genuine, and added to the income of the assessee in terms of provision of section 68 of the Act.

Solitary argument of the ld.counsel for the assessee before us was that the ld.CIT(A) had confirmed the addition made of the unsecured loans without waiting for the remand report of the AO, which was sought by him. He therefore pleaded that the matter needs to be re-adjudicated by the ld.CIT(A) after considering remand report of the AO.

The ld.DR on other hand objected to this contention of the ld.counsel for the assessee, stating that the ld.CIT(A) had waited for considerable period of time for the submission of the remand report by the AO, and since the same was not submitted by the AO, he proceeded to examine the documents before him, and found them to be not establishing genuineness of the loan creditors; that in terms of Rule 46A of the Income Tax Rules, 1962, it was not necessary for the ld.CIT(A) to compulsorily seek report from the AO and he is free to examine the documents himself and take a view on them, and the

Having noted so the arguments of the both the sides, we shall now proceed to adjudicate the issue after bringing out the facts of the case.

Briefly put, the assessee was noted to be in the business of retail trading of jewellery. During assessment proceedings carried out for the impugned assessment year, the assessee was noted to have taken unsecured loan amounting to Rs.7,05,31,860/- from 81 parties. The assessee was asked to establish genuineness of the same, but no response was elicited from the assessee during the assessment proceedings. Accordingly, the AO went on to hold all the unsecured loans in-genuine and added the same to the income of the assessee under section 68 of the Act.

Before the ld.CIT(A), the assessee contended that he was unable to participate in the assessment proceedings since he was not present in India during that particular period of time. He pleaded the ld.CIT(A) to obtain necessary confirmation and conduct necessary inquiries from all the parties from whom the assessee had taken unsecured loans. The ld.CIT(A) found merit in the contention of the assessee, and accordingly called for information under section 133(6) of the Act from 28 of the loan creditors, who accounted for a major portion of the total unsecured loans taken by the assessee. These 28 loan creditors had, in all, given unsecured loans to the tune of Rs.5,32,16,013/- to the assessee, out of total unsecured loan of Rs.7,05,31,860/- taken by the assessee. Out of 28 such loan creditors, 24 responded to the notice issued under section 133(6) of the Act and filed their confirmations, ITRs., bank pass book, copy of 4 ledger account with the assessee etc. Only in the case of four of them, notices issued under section 133(6) of the Act were returned. The ld.CIT(A) thereafter forwarded all this information to the AO directing him to call for information from the remaining four loan creditors giving them another opportunity and to send his comment thereafter accordingly. All these facts are divulged from the communication of the ld.CIT(A) to the AO dated 22.1.2020, seeking his remand report in the case of the assessee accordingly,the contents of which are reproduced hereunder:

What is evident from the above is that the ld.CIT(A) records a finding, on the examination of the documents received from the loan creditors ,that their credit-worthiness is not established from the 8 same. This is the only finding recorded by him. No factual basis for arriving at this finding is recorded in the order of the ld.CIT(A). The ld.CIT(A) further notes that the balance sheet of the assessee is not on record before him, and therefore, it is not clear what purpose, the unsecured loans were taken for and how they were utilized. But subsequently, the ld.CIT(A) notes that the assessee’s balance-sheet and profit & loss account were available in another appeal, from where he noted that the unsecured loans were utilized mainly in the inventory and investment in loans. Having noted so, he goes to note that the utilization is not shown and the purpose of such loans, and accordingly, he holds that the unsecured loans are bogus, and confirms the addition made by the AO.

A bare perusal of the order of the ld.CIT(A) reveals that there is absolutely no application of mind by him while confirming the order of the ld.AO. Even if we leave aside the fact that he has not waited for the remand report from the AO on the documents submitted by the loan creditors, and has gone on to examine the documents itself, we find that he has only given his conclusive finding based on these documents, without mentioning the basis for arriving at this finding. As noted above, in one line the ld.CIT(A) states that the documents submitted by loan creditors did not establish the credit-worthiness of the loan creditors. The basis for arriving at that conclusion finds no mention in the order of the ld.CIT(A). The copy of the remand report mentioning all the documents submitted by the loan creditors records that the loan creditors have submitted their confirmation, ITRs., bank statement, and in some cases even ledger account of the assessee in response to the notice issued to them by the ld.CIT(A) under section 133(6) of the Act. In some cases, even the copy of the Revenue land record i.e. form no.7/12 and 8A was filed. The ld.CIT(A) has not 9 mentioned what exactly he noted from these documents which led him to conclude that the credit-worthiness of the loan creditors was not established. The finding of the ld.CIT(A), therefore, we hold is without any basis and needs to be rejected.

The ld.CIT(A), we find, thereafter notes contradictory finding from the financials of the assessee. Though, he notes that it is evident from the financial statements that the unsecured loans have been utilized for investment in the inventory of the assessee’s business, and for giving further loans, yet he goes on to record that the utilization is not showing any purpose. There appears to be no coherence in the findings of the ld.CIT(A) in this regard.

Having stated so, we agree with the ld.counsel for the assessee that the matter needs to be restored back to the ld.CIT(A) to adjudicate the issue afresh after seeking necessary report from the AO as demanded for in the first place.

In the result, the appeal of the assessee is allowed for statistical purpose.