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Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH
Before: MS. SUCHITRA KAMBLE & SHRI WASEEM AHMED
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER & SHRI WASEEM AHMED, ACCOUNTANT MEMBER आयकरअपीलसं./I.T.A. No. 591/Ahd/2020 (निर्धररवरध/ Assessment Years : 2014-15)
The Deputy Shri Chimanbhai Joitram बि्म/ Commissioner of Income- Patel Vs. tax B-68, Anmol Park society, Circle-1(1)(1), Vadodara Laxmipura Gorwa Road, Gorwa, Baroda स््यीलेख्सं./जीआइआरसं./PAN/GIR No. : ALRPP7573K (Appellant) (Respondent) .. Shri Ashok Kumar Suthar, Sr. DR अपील्््ओरसे/Appellant by : Shri Hemant Suthar, A.R. प्य््कीओरसे/Respondent by : Date of Hearing 27/02/2024 Date of Pronouncement 10/04/2024 ORDER PER WASEEM AHMED - AM: The appeal has been preferred by the Revenue against the order of the Commissioner of Income Tax (Appeal), Vadodara-5 (‘CIT(A)’ in short) dated 16.03.2020 arising in the assessment order dated 30.12.2016 passed by the DCIT, Circle-1(2), Baroda (‘The AO’ in short) under s. 143(3) of the Income Tax Act, 1961 (‘the Act’) concerning AY 2014-15.
2 ITA No. 591/Ahd/2020 (DCIT vs. Shri Chimanbhai Joitram Patel) A.Y. 2014-15 2. The Revenue has raised following grounds of appeal:
“1. "On the facts and in the circumstances of the case and in law, whether the Ld. CIT(Appeals) erred in deleting the addition made of Rs.56,95,814/-on account of estimation of profit after rejecting books of accounts under section 145(3) of the act?" 2. "On the facts and in the circumstances of the case and in law, whether the Ld. CIT(Appeals) erred in deleting the addition made on account of unexplained unsecured loans under section 68 of the Act.?" 3. "On the facts and in the circumstances of the case and in law, whether the Ld. CIT(Appeals) erred in deleting the disallowance made on account of unpaid VAT liability under section 43B of the Act.?"
The Ld. DR at the outset brought to our notice that there is a delay in filing the appeal by the Revenue for 141 days which is falling during the covid-19 period, therefore, the same should be condoned. On the other hand, the Ld. AR did not raise any objection to the condonation of delay in filing the appeal by the Revenue. Accordingly, we condone the delay in filing the appeal by the Revenue in pursuance to the judgment of Hon’ble SC in the case of Cognizance for Extension of Limitation, In reported in 125 taxmann.com 151 where it was held as under: 2. In cases where the limitation would have expired during the period between 15-3-2020 till 14-3-2021, notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 15-3-2021. In the event the actual balance period of limitation remaining, with effect from 15-3-2021, is greater than 90 days, that longer period shall apply.
3.1 In view of the above, we condone the delay in filing the appeal by the Revenue and proceed to adjudicate the issue on merit.
The first issue raised by the Revenue is that the Ld. CIT(A) erred in rejecting the addition made by the AO for Rs. 56,95,814/- on estimated basis after rejecting the books of accounts under Section 145(3) of the Act.
3 ITA No. 591/Ahd/2020 (DCIT vs. Shri Chimanbhai Joitram Patel) A.Y. 2014-15 4.1 The assessee in the year under consideration has shown gross receipts amounting to Rs. 5,69,58,148/- and declared a total income of Rs. 17,02,240.00 only. As such, the assessee has claimed the expenses against such gross receipt as detailed below: Sl. No. …….. Amount 1. material purchased Rs.2,44,51,292/- 2. Construction expenses Rs.3,06,77,690/- 3. Indirect expenses Rs.27,73,339/- Total Rs.5,51,28,982/- 5. The AO during the assessment proceedings sought from the assessee to furnish the supporting details with respect to the aforesaid expenses but the assessee failed to furnish the same. In the absence of the same, AO rejected the same and estimated the profit at Rs. 56,95,814/- being 10% of Rs. 5,69,58,148/- and added to the total income of the assessee.
Being aggrieved, the assessee preferred an appeal before the Ld. CIT(A) and submitted that the assessee has been showing net profit since last four financial years ranging from 2.66% to 2.84% of the turnover, which was also accepted by the Revenue in the immediately preceding A.Y. 2013-14 in the assessment framed under Section 143(3) of the Act. As per the assessee, the profit made in the year under consideration is 2.8% of the turnover, which is like the earlier four years. The assessee has also furnished the necessary supporting details with respect to the expenses claimed in the P&L account. The Ld. CIT(A) called for the remand report and the rejoinder from the assessee and finally deleted the addition made by the AO by observing as under:
“5.1 Gr. No. 1(a) pertains to rejection of books of account u/s.145(3) of the Act and estimated Profit @ 10% of the gross receipts of Rs. 5,69,58,148/-. During the assessment proceedings, AO asked the appellant to produced entire bill/voucher pertain to expenses debited in P&L A/c. Due to paucity of time, appellant did not produce the same.
4 ITA No. 591/Ahd/2020 (DCIT vs. Shri Chimanbhai Joitram Patel) A.Y. 2014-15 Following which, AO rejected books of account u/s. 145(3) of the Act. During the appellate proceedings, AR submitted ledger copies of expenses, confirmation, bank statement and also offered the AO for verification/examination of books of account. Subsequently, remand report was called for AO vide this letter dated 27-09-2017. AO did not comment on merits but instituted on not to rely on additional evidence U/R 46A. Since the comment of the A.O. was not a speaking one, again Remand Report was called from AO vide this office letter dated 06-08-2019 with a specific request to offer comment on merits after examining the bank statement filed by appellant. Vide letter dated 10-10-2019, AO again failed to comment anything on merits, so far as rejection of books are concerned. Undisputedly, AO was given ample opportunity to examine the books of accounts, bill/voucher pertaining to expenses debited in P/L A/c filed during appellate proceedings. It is seen that the appellant's books have been audited since AY 2010-11 to 2014-15 regularly and even in after AYs also. It is also a fact that AO has carried out regular scrutiny assessment for AY 2013-14 wherein, AO has accepted its books of accounts. Admittedly, N.P rate declared by appellant for AY 2010-11 to AY 2014-15 has been maintained on around @ 2.66% to 2.84% every year. Hence, the N.P. rate@2.80% for the present assessment year are in commensurate with earlier years Overlooking all these facts, AO proceeded to reject books account merely on non-production of bills/voucher in time and that too not shown any interest in verifying the same during remand report. In fact, the AO should have carried out detailed verification and pointed out specific defects in bills/voucher during remand report proceedings, which AO has failed to do so. Given these facts, I am unable to concur with AO's conclusion in invoking sec. 145(3) of the Act. Hence, AO is directed to delete the addition of Rs. 56,95,8147-. Appellant success on Gr.No.2.”
Being aggrieved by the order of the Ld. CIT(A), the revenue is before us.
The Ld. DR before us filed a paper book running from pages 1 to 145 and vehemently supported the order of the AO whereas the Ld. AR filed paper book running from pages 1 to 203 and vehemently supported the order of the Ld. CIT(A).
We have heard the rival contentions of both parties and perused the materials available on record. From the preceding discussion, we note that the books of accounts of the assessee were rejected by the AO for the reason that the assessee failed to furnish the supporting documents with respect to expenses claimed in the P&L account. However, the assessee during the remand proceedings submitted the necessary details and no defect was pointed out there during the remand stage by the AO. Furthermore, we note that the profit declared by the assessee in the year under consideration is 2.80% which is consistent with
5 ITA No. 591/Ahd/2020 (DCIT vs. Shri Chimanbhai Joitram Patel) A.Y. 2014-15 the profit declared by the assessee in the earlier years. In the earlier assessment year, a similar profit declared by the assessee was accepted by the Revenue in the assessment framed under Section 143(3) of the Act. Accordingly, we do not find any infirmity in the order of the Ld. CIT(A) and affirm the same. Hence, the ground of appeal of the Revenue is hereby dismissed.
The 2nd issue raised by the Revenue is that the Ld. CIT(A) erred in deleting 10. the addition made by the AO for Rs. 1,52,11,250/- under the provisions of Section 68 of the Act.
The assessee in the year under consideration has shown certain amounts of loan from various parties amounting to Rs. 1,52,11,250/- but failed to justify the identity, creditworthiness, and genuineness of the transaction. Therefore, the AO treated the same as an unexplained cash credit under 68 of the Act. The AO further found that once the principal amount of loan is treated as unexplained cash credit, then the assessee cannot be allowed the deduction of interest expenses on such loan. Thus, the AO also disallowed the interest expenses of Rs. 1,53,000/- only. As such, the AO made the disallowance of Rs. 1,53,64,250/- and added to the total income of the assessee.
Aggrieved assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee furnished necessary details about the loan parties which is summarized as under:
Sr. No. Name Amt (Rs.) Attachment 1 Histeshbhai Mohanbhai Patel 4,83,250/- Confirmation, ITR, bank statement of depositor and assessee 2 Purnimaben N Trivedi 11,31,000/- Confirmation, ITR, bank statement of depositor and assessee 3 Arunbhai V. Gohil 3,48,000/- Confirmation, ITR, bank
6 ITA No. 591/Ahd/2020 (DCIT vs. Shri Chimanbhai Joitram Patel) A.Y. 2014-15 statement of depositor and assessee 4 Ketanbhai S. Bhatt 34,70,000/- Confirmation, ITR, bank statement of depositor and assessee 5 S P instruments & Services 22,79,000/- Confirmation, ITR, bank (Prop. Ketanbhai S. Bhatt) statement of depositor and assessee 6 Aaryavrat Infrastructure Pvt. 75,00,000/- Confirmation of F.Y. – 2012- Ltd. 13 and 2013-14 and bank statement Total 1,52,11,250/-
Subsequently, the Ld. CIT(A) called for the remand report and invited the rejoinder of the assessee and thereafter deleted the addition made by the AO by observing as under: “5.2 Gr. No.1(b) relates to addition u/s. 68 on account of unexplained credit of Rs.1,52,11,250/- in case of six parties. The party-wise discussion is as under;- During the assessment proceedings, AO has asked appellant to substantiate the creditors balance by way of proving identity, creditworthiness and genuineness of transactions in respect of following assessees. Sr. No. Name Amount (Rs.) 1 Hiteshbhai Mohanbhai Patel 4,83,250/-
2 Purnimaben N Triyedi 11,31,000/-
3 Arunbhai V. Gohil 3,48,000/-
4 Ketanbhai S. Bhatt 34,70,000/- 5 S P instruments & Services 22,79,000/- 6 Aaryavrat Infrastructure Pvt Ltd 75,00,000/- Total Rs. 1,52,11,250/-
After considering the assessment order, remand report and appellant's submissions, the party-wise findings are as under:-. 1. M/s. Aarvavrat Infrastructure Pvt. Ltd. Rs. 75,00.000/-.
7 ITA No. 591/Ahd/2020 (DCIT vs. Shri Chimanbhai Joitram Patel) A.Y. 2014-15 It is a fact that no fresh credit has been received by the appellant from M/s Aaryavrat Infrastructure Pvt. Ltd. and this fact has been accepted in remand report dated 19-10-2019 of the AO stating that credit balance of Rs.75,00,000/- appearing in appellant's books pertains to closing balance of AY 2013-14. Since the credit entry pertains to earlier year, the application of section 68 of the Act does not arise for the present assessment year under consideration. Hence, addition u/s. 68 of Rs. 75,00,000/- is deleted. 1. Hiteshbhai Mohanbhai Patel Rs. 4,83,250/- AO's main allegation is that lender has declared total income of Rs. 1,94,550/- in ITR and cash deposited was made in bank a/c. On the other hand, Ld. AR argued that total income of Rs. 1,94,550/- is after deduction of housing loan of Rs. 1,50,0007- from gross total income of Rs. 3,00,185/-. Ld. AR also brought the fact before AO that total credit in bank a/.c during the year was Rs. 17,31,278/- and out of that cash deposit was merely Rs. 1,94,000/-. On verification of bank statement, Ld. AR's argument is found to be correct. Further, the AO has failed to appreciate the fact that the income declared in ITR pertains to only one year and did not conduct any independent enquiry before arriving at the conclusion that the lender does not have creditworthiness. Even if, there was substantial cash deposit, AO was free to reopen the assessment in respect of such lender or pass information to the AO concerned. Therefore, I do not find any reason for invoking section 68 of the Act w.r.t. the lender whose confirmation, bank statement, ITRs, etc. were filed during the assessment proceedings and/or appellant proceedings. Hence, the addition on this count is directed to be deleted. 1. Purnimaben N. Trivedi Rs. 11,31,000/- AO's main allegation was that in lender's bank a/c. there appears frequent credit and debit entry. Lender's income during the year 2013-14 was Rs.3,10,490/- after deduction from her gross total income of Rs.4,17,980/-. in remand report, AO has accepted to have verified bank statement of the lender but could not find any cash deposit. AO also did not call for the lender to investigate frequent credit/debit entry in lender's bank a/.c. Further, the AO in his remand report dated 23.02.2018 cited a reason for such addition that the appellant did not file his bank statement to show the credit entry. This comment itself shows that the AO did not conduct any independent enquiry even for calling bank statement of the appellant. In absence of sufficient enquiry, it is hard to conclude that lender's capacity was in doubt. Moreover, AO was free to reopen the assessment of the concerned assessee if in his opinion there was irregularity observed or pass on the information to the jurisdictional AO of the lender. Therefore, I do not find any reason for invoking section 68 of the Act w.r.t. the lender whose confirmation, bank statement, ITRs etc were filed during the assessment proceedings and/or appellant proceedings and no independent enquiry was conducted by AO. Hence, the addition on this count is directed to be deleted. 1. Arundbhai V. Gandhi Rs. 3,48,000/- In remand report dated 23-02-2018, AO stated that lenders income during AY 2013-14 was Rs. 13,58,860/-. AO has verified lenders HDFC bank a/c. 2049105002912 statement but his only allegation was that appellant did not submit own bank statement to prove that the loan was received from Arun V. Gandhi. During the appellate proceedings and also during assessment proceedings vide letter dated 14-09-2017, appellant has submitted his Corporation Bank and SBI bank statement. AO has not taken cognizance of this fact. AO's conclusion before making addition on this count is unsustainable. Therefore, I do not find any reason for invoking section 68 of the Act w.r.t. the lender whose confirmation, bank statement, ITRs, etc as well as bank statement of the appellant were filed during the assessment proceedings and/or appellant proceedings. Hence, the addition on this count is directed to be deleted. 1. Ketan S. Bhatt Rs.34,70,060/- Appellant submitted PAN, ITR, bank statement & confirmation of the lender before the AO. According to AO, lenders income in the AY 2013-14 was Rs. 19,59,820/- hence he doubted capacity of the
8 ITA No. 591/Ahd/2020 (DCIT vs. Shri Chimanbhai Joitram Patel) A.Y. 2014-15 lender. AO has examined lenders bank A/c. 20008622505 held with Allahabad Bank. AO could not point out unusual credit transaction or cash deposit in bank a/c. In remand report also AO did not bought out any visible discrepancy so as to sustain addition on this count. Further, the AO has failed to appreciate the fact that the income declared in ITR pertains to only one year and did not conduct any independent enquiry before arriving at the conclusion that the lender does not have creditworthiness. Therefore, I do not find any reason for invoking section 68 of the Act w.r.t. the lender whose confirmation, bank statement, ITRs, etc were filed during the assessment proceedings and/or appellant proceedings. Hence, the addition on this count is directed to be deleted. 1. SP Instrument & Services Rs. 22,79,000/- Appellant submitted PAN, ITR, confirmation, lenders bank statement on 14-09-2017 before the AO. According to the Ld. AR, lender is a proprietary concern of Ketan S. Bhatt whose ITR has already been submitted before AO. All the transaction were through a/c. payee cheque. AO has verified Allahabad Bank A/c. 20008609998 in the name of M/s. SP Instruments & Services. In remand report dated 23-02-2018, AO alleged that entire transaction appearing in ledger account produced not matching with bank statement of the depositor. I find that no specific comment on ledger A/c has been made by AO. In case, any transaction did not match then this should have been the trigger point for the AO to make further inquiry. AO's observation is incomplete and inclusive. Despite two rounds of remand reports, AO did not point out specific defects in ledger hence I am unable to concur with AO's conclusion. Thus, addition is deleted. Interest on Loan Rs.1,53,000/-: This issue is consequential in nature. Since all the unsecured loan has been found to be explained hence appellant cannot be denied interest expenses incurred against such loan. Accordingly, this ground is allowed.” 14. Being aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us. Both the Ld. DR & Ld. AR before us vehemently supported the orders of the authorities below as favourable to them.
We have heard the rival contentions of both parties and perused the materials available on record. From the preceding discussion, we note that the assessee during the remand proceedings has furnished all the necessary details with respect to the identity and creditworthiness of the parties and genuineness of the transactions, but the AO has not pointed out any specific infirmity in the details submitted by the assessee except making the general remarks. Furthermore, all the details from the loan parties were available with the AO but no inquiry whatsoever has been carried out from the respective parties. The ld. CIT-A has passed a detailed and speaking order with reasoning. The revenue has also not brought any thing contrary to the findings of the ld. CIT.
9 ITA No. 591/Ahd/2020 (DCIT vs. Shri Chimanbhai Joitram Patel) A.Y. 2014-15
15.1 In the case of an addition made for Rs. 75,00,000/- with respect to the loan from M/s. Aaryavrat Infrastructure Pvt. Ltd., we find that such a loan was obtained in the earlier year and therefore, the same could not be made subject to the addition in the year under consideration. In view of the above, we do not find any infirmity in the order of the Ld. CIT(A) and affirm the same. Hence, the ground of appeal of the Revenue is hereby dismissed.
The last issue raised by the Revenue is that the Ld. CIT(A) erred in deleting the addition made by the AO on account of unpaid VAT liability under the provisions of Section 43B of the Act.
The AO, based on the audit report, found that there is a VAT liability of Rs. 3,93,066/- which was not paid till the due date of filing of return of income and, therefore, the same was added by the AO under the provisions of Section 43B of the Act.
On appeal, the Ld. CIT(A) deleted the same by observing as under:
“5.3 Gr. No. 1(c) pertains to deduction u/s. 43B of Rs.3,93,066/-. Undisputedly, appellant is not registered as a VAT dealer .and so did not have TIN. On the other hand, AO has relied upon auditor's report wherein, unpaid liability u/s. 43B has been reported. Fact is that as per VAT norms, SSNL has deducted VAT from main contractor - M/s. Aaryavrat Infrastructure Pvt. Ltd., which in turn debited the sub-contractor i.e. appellant with the same VAT amount. Hence, VAT liability did not arise in the hands of appellant. These facts were put up before AO on 29-12-2016 during the assessment proceedings but AO could not consider this fact and proceeded to rely upon 3CD report. Further, in e remand report also, AO relied on the Auditor's comment in Tax Audit Report but failed to consider the submission of the appellant and verify the fact from the audited financial statement. I have examined the audited financial statement and find that there is ho outstanding VAT liability as on 31.03.2014 under Schedule 'C' containing "Current Liabilities & provisions”. Therefore, in my considered view, audit report contained factual error and the fact supports of the contention of the appellant. Accordingly, addition u/s 43B of Rs. 3,93,066/- is directed to be deleted.”
10 ITA No. 591/Ahd/2020 (DCIT vs. Shri Chimanbhai Joitram Patel) A.Y. 2014-15 19. Being aggrieved by the order of Ld. CIT(A), the Revenue is in appeal. Both the Ld. DR & Ld. AR before us vehemently supported the orders of the Revenue authorities as favourable to them.
We have heard the rival contentions of both parties and perused the materials available on record. On perusal of the order of the Ld. CIT(A), we note that such liability towards VAT was deducted by the main Director M/s. Aaryavrat Infrastructure Pvt. Ltd. and therefore such liability was not payable by the assessee. The Ld. CIT(A) has given categorically finding about such liability as on 31st March 2014 is not appearing in the financial statement as outstanding which has not been controverted by the Ld. DR. Therefore, we do not find any infirmity in the order of the Ld. CIT(A) and accordingly, we decline to interfere in the order of the Ld. CIT(A). Hence, the ground of appeal of Revenue is dismissed.
In the result, the appeal preferred by the Revenue is dismissed. Order pronounced in Open Court on 10-04-2024
Sd/- Sd/- (SUCHITRA KAMBLE) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad: Dated 10/04/2024