SHRI SHRI SUSHIL KUMAR AGRAWAL, KORBA,KORBA(CG) vs. THE JOINT COMMISSIONER OF INCOME TAX,RANGE KORBA, KORBA(CG)

आदेश / ORDER

PER RAVISH SOOD, JM:

“1. That on the facts and circumstances of the case the order of the Ld. AO is bad in law. 2. That the Ld. CIT(A) has erred in confirming the disallowance of finance charges of Rs.1262678/- u/s.40(a)(ia). 3. The Ld. CIT(A) has erred in confirming addition u/s.68 of Rs.12000000/- on suspicious basis and without any concrete evidence. 4. That the Ld. CIT(A) has erred in confirming addition of notional interest of Rs.286300/- u/s.14A of the I.T Act, 1961.

3 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017

5. The Ld. CIT(A) has erred in confirming addition of Rs. 86795/- on account of unexplained credit of Rs.86795/- on account of bank interest.

6. The Ld. CIT(A) has erred in confirming addition of Rs.982649/- on account of maturity of LIC. 7. The CIT(A) has erred in confirming addition of Rs.500000/- on account of notional rental income. 8. The Ld. CIT(Appeals) has erred in confirming the addition of Rs.200000/- on account of law household expenses. 9. The Ld. CIT(A) has erred in confirming addition of Rs.142000/- on account of interest free loan given by the assessee. 10. The interest charged u/s.234B is bad in law and unjustified. 11. That the assessee craves leave to add, alter, and amend modify, substitute, delete and or rescind all or any of the grounds of appeal on or before the final hearing.”

Sr. No. Particulars Amount

4 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017

1. Disallowance u/s.14A r.w.r 8D Rs.2,86,300/- 2. Addition made on account of bank Rs.86,795/- interest 3. Addition made on account of Rs.9,82,649/- maturity of LIC 4. Addition made on account of rental Rs.5,00,000/- income 5. Addition made on account of low Rs.2,00,000/- house hold expenses 6. Addition made u/s.68 of the Act Rs.1,20,00,000/- 7. Addition made u/s.40(a)(ia) of the Rs.12,62,678/- Act 8. Addition made on account of Rs.1,42,000/- interest free loan

6 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 investment of Rs. 20,42,426/- in exempt dividend income yielding shares of different companies and was in receipt of exempt dividend income, but he had not disallowed on a suo motto basis any part of the interest expenditure for earning of such exempt income. The CIT(Appeals) finding no infirmity in the disallowance made by the A.O u/s.14A of the Act, thus, upheld the same.

8 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017

14. The Ld. Authorized Representative (for short “A.R”) for the assessee at the very outset of the hearing of the appeal submitted that he is not pressing the ground of appeal No.1. Considering the concession of the Ld. AR the Ground of appeal No.1 raised by the assessee is dismissed as not pressed.

9 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 not be obtained in the course of the proceedings before the lower authorities, therefore, the same in all fairness be admitted. The ld. Departmental Representative (for short “D.R”) did not raise any objection to the seeking of admission of the aforesaid CA certificate by the assessee’s counsel. We have given a thoughtful consideration and are of the considered view that as the CA certificate under consideration will have a strong bearing on the adjudication of ground of appeal no. 2, therefore, in all fairness the same merits admission.

16. Although the CA certificate refers to the fact that the payee, viz. M/s Magma Fincorp Limited had included the interest charges of Rs. 1,04,473/- [Rs. 77,410/- (+) Rs. 27,063/-] received from M/s Shrikrishna & Company (i.e a proprietary concern of the assessee) in its taxable income and had paid the tax on its declared income, but, as the same is not in the prescribed form i.e “Form 26A” as provided in the “1st proviso” to Sec. 201(1) r.w. Section 40(a)(ia) of the Act, therefore, the same cannot be acted upon for concluding that the assessee is not to be treated as being in default as regards deduction of tax at source u/s 194A of the Act on the interest charges of Rs.1,04,773/- paid to M/s Magma Fincorp Limited. Considering the technical lapse on the part of the assessee in not furnishing the accountant certificate in the prescribed form i.e “Form 26A”, we, thus, in all fairness restore the issue to the file of the A.O with a liberty

10 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 to the assessee to furnish the same in the prescribed form in the course of the set-aside proceedings. In case the assessee furnishes the certificate in the prescribed form i.e “Form 26A” with the A.O in the course of the set- aside proceedings, then, the disallowance u/s 40(a)(ia) to the said extent shall be vacated by him.

11 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017

(ii) Punabhai G Pardava Vs. ITO, (iii) Amruta Quarry Works Vs. ITO, ITA No.1481/Ahd/2013 dated 19.07.2016 (iv) Neena Kaul Vs. Asst. CIT, ITA No.1386/Mum/2017 dated 21.05.2019

, had after exhaustively deliberating on the issue in hand observed that unlike the amendment to Section 40(a)(ia) of the Act as was made available on the statute by way of insertion of the “1st Proviso” vide the Finance Act, 2010, which being curative in nature was required to be given retrospectively operation i.e. from the date of insertion of the said statutory provision i.e. w.e.f. 01.04.2005, it was preposterous to draw an analogy from the same for arriving at a similar view qua the amendment made to 12 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 Section 40(a)(ia) of the Act vide Finance (No.2) Act, 2014 wherein the disallowance under the said statutory provision was scaled down to 30% of the sum applicable. To sum up, it was observed by the Hon’ble Apex Court that the benefit of the amendment made available in Section 40(a)(ia) of the Act vide Finance (No.2) Act 2014 was available on the statute w.e.f. 01.04.2015 and not prior thereto. For the sake of clarity the relevant observations of the Hon’ble Apex Court are culled out as under:

“19. In yet another alternative attempt, learned counsel for the appellant has argued that by way of Finance (No.2) Act, 2014, disallowance under Section 40(a)(ia) has been limited to 30% of the sum payable and the said amendment deserves to be held retrospective in operation. This line of argument has been grafted with reference to the decision in Calcutta Export Company (supra) wherein, another amendment of Section 40(a)(ia) by the Finance Act of 2010 was held by this Court to be retrospective in operation. The submission so made is not only baseless but is bereft of any logic. Neither the amendment made by the Finance (No.2) Act, 2014 could be stretched anterior the date of its substitution so as to reach the assessment year 2005-2006 nor the said decision in Calcutta Export Company has any correlation with the case at hand or with the amendment made by the Finance (No.2) Act of 2014. 19.1. By the amendment brought about in the year 2014, the legislature reduced the extent of disallowance under Section 40(a)(ia) of the Act and limited it to 30% of the sum payable. On the other hand, by the Finance Act of 2010, which was considered in the case of Calcutta Export Company (supra), the proviso to Section 40(a)(ia) of the Act was amended so as to provide relief to a bonafide assessee who could not make deposit of deducted tax within prescribed time. In fact, even before the year 2010, the said proviso was amended by the Finance Act 2008 and that amendment of the year 2008 was provided retrospective operation by the legislature itself. For ready reference, we may reproduce in juxtaposition the main part of Section 40(a) (ia) of the Act as it would read after the amendments of 2008, 2010 and 2014 respectively, as under13:- (i) After the amendment by Finance Act, 2008 “40. Amounts not deductible. - Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”,- (a) in the case of any assessee-

13 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 *** *** *** (ia) any interest, commission or brokerage, rent, royalty 14, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid,- (A) in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub-section (1) of section 139; or (B) in any other case, on or before the last day of the previous year: Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted – (A) during the last month of the previous year but paid after the said due date; or (B) during any other month of the previous year but paid after the end of the said previous year, 13 The Explanation part of the provision is omitted, for being not relevant for the present purpose.

14 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 (iii) After the amendment by Finance (No.2) Act, 2014 “40. Amounts not deductible. - Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”,- (a) in the case of any assessee- *** *** *** (ia) thirty per cent. of any sum payable to a resident, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139: Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, thirty per cent. of such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid15: Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso.16 *** *** ***” 19.2. The aforesaid amendment by the Finance (No.2) Act of 2014 was specifically made applicable w.e.f. 01.04.2015 and clearly represents the will of the legislature as to what is to be deducted or what percentage of deduction is not to be allowed for a particular eventuality, from the assessment year 2015-2016. 19.3. On the other hand, in the case of Calcutta Export Company (supra), this Court noticed the aforesaid two amendments to Section 40(a)(ia) of the Act by the Finance Act, 2008 and by the Finance Act, 2010, which were intended to deal with procedural hardship likely to be faced by the bonafide tax payer, who had deducted tax at source but could not make deposit within the prescribed time so as to claim deduction. In paragraph 17 of judgment in Calcutta Export Company, this Court took note of the case of genuine hardship, particularly of the assessees who had deducted tax at source in the 15 This proviso was substituted in the year 2008 and again in the year 2010; and then, was amended by the Finance (No. 2) Act, 2014.

15 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 in the next year only; and, after finding that the amendment of the year 2010 was intended to remedy this position, held that the said amendment, being curative in nature, is required to be given retrospective operation that is, from the date of insertion of Section 40(a)(ia). 19.4. Learned counsel for the appellant has only referred to the concluding part of the decision in Calcutta Export Company but, a look at the entire synthesis by this Court, of the reasons for the amendments of 2008 and 2010, makes it clear as to why this Court held that the amendment of the year 2010 would be retrospective in operation. We may usefully reproduce the relevant discussion and exposition of this Court in Calcutta Export Company as under:- (at pp. 663-666 of ITR):- “19. The above amendments made by the Finance Act, 2008 thus provided that no disallowance under section 40(a)(ia) of the Income-tax Act shall be made in respect of the expenditure incurred in the month of March if the tax deducted at source on such expenditure has been paid before the due date of filing of the return. It is important to mention here that the amendment was given retrospective operation from the date of April 1,2005, i.e., from the very date of substitution of the provision.

20. Therefore, the assesses were, after the said amendment in 2008, classified in two categories namely: one, those who have deducted that tax during the last month of the previous year and two, those who have deducted the tax in the remaining eleven months of the previous year. It was provided that in the case of assessees falling under the first category, no disallowance under section 40(a)(ia) of the Income-tax Act shall be made if the tax deducted by them during the last month of the previous year has been paid on or before the last day of filing of return in accordance with the provisions of section 139(1) of the Income-tax Act for the said previous year. In case, the assessees are falling under the second category, no disallowance under section 40(a)(ia) of Income-tax Act where the tax was deducted before the last month of the previous year and the same was credited to the Government before the expiry of the previous year. The net effect is that the assessee could not claim deduction for the TDS amount in the previous year in which the tax was deducted and the benefit of such deductions can be claimed in the next year only.

16 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017

17 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 that the principles adopted by this Court in the case of Calcutta Export Company (supra) dealing with curative amendment, relating more to the procedural aspects concerning deposit of the deducted TDS, be applied to the amendment of the substantive provision by the Finance (No.2) Act, 2014. 19.6. We may in the passing observe that the assessee-appellant was either labouring under the mistaken impression that he was not required to deduct TDS or under the mistaken belief that the methodology of splitting a single payment into parts below Rs. 20,000/- would provide him escape from the rigour of the provisions of the Act providing for disallowance. In either event, the appellant had not been a bonafide assessee who had made the deduction and deposited it subsequently. Obviously, the appellant could not have derived the benefits that were otherwise available by the curative amendments of 2008 and 2010. Having defaulted at every stage, the attempt on the part of assessee-appellant to seek some succor in the amendment of Section 40(a)(ia) of the Act by the Finance (No.2) Act, 2014 could only be rejected as entirely baseless, rather preposterous. 19.7. Hence, Question No.3 is also answered in the negative, i.e., against the assessee-appellant and in favour of the revenue.”

On the basis of the aforesaid settled position of law as had been laid down by the Hon’ble Apex Court in the case of Shree Choudhary Transport Co. Vs. ITO (supra), we are of the considered view that the issue in hand is no more res-integra and the amendment made vide the Finance (No.2) Act, 2014 restricting the disallowance to 30% of the sum payable could not be given a retrospective effect. We, thus, in terms of our aforesaid observations reject the claim of the Ld. AR that the disallowance u/s. 40(a)(ia) of the Act was liable to be restricted only to the extent of 30% of the sum payable by the assessee. Thus, the Ground of appeal No.2 raised by the assessee is partly allowed in terms of our aforesaid observations.

18 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 Pvt. Ltd. : Rs. 30 lac, it was submitted by the Ld. AR that though notice(s) u/s.133(6) of the Act were issued by the Jt. CIT, Bilaspur to both the aforementioned companies, therein calling upon them to furnish certain information in respect of unsecured loans that were claimed by the assessee to have been raised from them, but as Shri. Mahendra Goenka, director of both the abovementioned companies at the relevant point of time was out of station, therefore, for the said reason necessary compliance to the said notice(s) could not be made. As regards the balance loans of Rs.30 lac, it was the claim of the ld. A.R that as the other three lenders, viz. Shri Pawan Garg, Smt. Mohini Garg and Smt. Sharda Devi had gone out of station to attend a family function, therefore, they also could not comply with the notice(s) issued to them u/s.131 of the Act by the Joint Director (Inv.), Bhubaneswar. Further, it was submitted by the Ld. AR that in support of the genuineness of the transactions in question the assessee had produced all the documents/evidence, viz. (i) names, addresses and PAN No(s). of the lenders; (ii) confirmation of account of all the lenders a/w copies of their respective bank accounts; and (iii) copies of the returns of income of the lenders. It was averred by the Ld. AR that as the assessee had raised an unsecured loan of Rs.60 lac from M/s. MRA Global Private Ltd. out of which Rs.30 lac was repaid through banking channel during the year itself, therefore, the loan transaction in question could not be held as bogus. It was also submitted by the Ld. AR that both

19 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 the above mentioned companies had also given loans to the assessee in the immediately succeeding year i.e A.Y 2011-12. It was submitted by the ld. A.R that in the course of the scrutiny assessment proceedings for A.Y 2011-12 the DCIT, Circle-Korba had issued notice u/s.131 to the aforementioned companies in response to which Shri Mahendra Goenka (supra) had appeared and in his statement recorded by the A.O under oath admitted the loan transactions. It was submitted by the ld. A.R that the A.O had accepted the loans advanced by the aforementioned companies while framing the assessment for the succeeding year i.e A.Y 2011-12. It was further submitted by the Ld. AR that the assessee had filed PAN cards of the lenders in order to substantiate their identity; confirmations from the lenders a/w. their bank statements to justify the genuineness of transactions; and copies of the returns of income of the lenders to justify their creditworthiness. The Ld. A.R in support of his contention that now when the assessee had discharged the primary onus that was cast upon him as regards proving the authenticity of the loan transactions then the A.O without dislodging the same could not have drawn adverse inferences as regards the said transactions, relied on the following judicial pronouncements:

(i) G.M Overseas Vs. ACIT, dated 21.03.2022 (ii) CIT Vs. Ayachi Chandrashekhar Narsangi, 42 Taxmann. Com ( Guj. HC)

20 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017

(iii) Pr. CIT Vs. Sky Lark Build, TIOL-2323-HC-Mum. (iv) Shree Samruddhi Overseas Trading Company Vs. DCIT, and 910/Ahd/2018 dated 19.04.2021.

21. We have deliberated at length on the contentions advanced by the ld. Authorized representatives of both the parties in the backdrop of the orders of the lower authorities as regards the aforesaid issue in hand, i.e, sustainability of the additions made by the A.O u/s 68 of the Act. As observed by us at length hereinabove, it is the claim of the ld. A.R that both the lower authorities had erred in making/sustaining the additions aggregating to Rs. 1.20 crore (supra) u/s. 68 of the Act. As is discernible from the records the assessee in order to substantiate the authenticity of the respective loan transactions had placed on record supporting

21 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 documentary evidences, viz. (i) names, addresses and PAN Nos. of the lenders; (ii) confirmations of account of all the lenders; and (iii) copies of the returns of income of the lenders, Page 111 to 122 of APB. It is the claim of the ld. A.R that as the assessee had on the basis of clinching documentary evidences duly substantiated the authenticity of the loan transactions in question, therefore, the treating of the same as unexplained cash credits u/s 68 of the Act by the A.O was liable to be vacated. We shall hereinafter deal with the re-characterizations of the respective loans raised by the assessee during the year under consideration as unexplained cash credits u/s 68 of the Act by the A.O, as under : (A). Loans raised by the assessee from the companies: (i). Admittedly, it is a matter of fact that the A.O in order to verify the authenticity of the loans that were claimed by the assessee to have been raised from the aforesaid companies, viz. (i) M/s. MRA Global Pvt. Ltd.; and (ii). M/s. Maa Samleshwari Steels Pvt. Ltd. had issued to them notice(s) u/s 131 and u/s 133(6) of the Act, which however had remained uncomplied with. Ostensibly, the A.O in the backdrop of the aforesaid fact had held both the loans as fictitious and added the same as an unexplained cash credit u/s 68 of the Act. On appeal the CIT(Appeals) had upheld the view taken by the A.O for the reason that despite the summons issued by the A.O u/s 131(1)(d) no one had preferred to appear before him.

22 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 (ii). The ld. A.R explaining the reasons for non-compliance of the aforesaid notice(s) u/s 131 and u/s 133(6) by the aforementioned companies, had submitted that the same was for the reason that the director of the said companies, viz. Shri. Mahendra Goenka (supra) at the relevant point of time was out of station and the notice(s) were served upon his staff member. It is the claim of the ld. A.R that Shri. Mahendra Goenka (supra) on returning back had forwarded the requisite information as was called for by the A.O as regards the transactions of both the companies with the assessee concern i.e M/s Shrikishan & Co., Korba, vide Speed Post acknowledgement No. EC907168504IN and EC907168623IN, dated 28.03.2013, Page 61 of APB. However, as stated by the ld. A.R and, rightly so, as the aforesaid postal communication was received by the A.O after passing of the assessment order u/s 143(3), dated 28.03.2013 i.e on 01.04.2013, Page 62-63 of APB, therefore, there was no occasion for the A.O to consider the same. On a perusal of the records it transpires that the aforementioned companies had vide Speed Post acknowledgement No. EC907168504IN and EC907168623IN, dated 28.03.2013, Page 61 of APB forwarded to the A.O their respective confirmations of the loans that were advanced by them to the assessee, Page 64-65 of APB. On a perusal of the postal receipts, Page 61 of APB and postal tracking results, Page 62-63 of APB, we find substance in the claim of the assessee that both the 23 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 respective companies, viz. M/s. MRA Global Pvt. Ltd. and M/s. Maa Samleshwari Steels Pvt. Ltd. had forwarded their respective confirmations of the loans that were advanced by them to the assessee during the year under consideration i.e A.Y 2010-11, Page 64-65 of APB, but the same were received by the A.O only as on 01.04.2013 i.e after the assessment order was passed by him u/s 143(3), dated 28.03.2013. We are of the considered view that though there was justifiable reason for the A.O in not considering the respective confirmations of the aforementioned companies, for the reason that the same were not there before him in the course of the assessment proceedings, but are unable to comprehend as to why no cognizance of the same was drawn by the ld. CIT(Appeals). Be that as it may, it is a matter of fact borne from record that both the aforesaid lender companies had confirmed of having advanced the respective loans to the assessee during the year under consideration.

(iii). As stated by the ld. A.R and, rightly so, we find that both the abovementioned companies, viz. M/s. MRA Global Pvt. Ltd. and M/s. Maa Samleshwari Steels Pvt. Ltd. had also given loans to the assessee concern in the immediately succeeding year i.e. A.Y 2011-12. On a perusal of the records it transpires that the A.O of the assessee i.e the DCIT, Circle-Korba while framing the assessment in the case of the assessee for the immediately succeeding year i.e A.Y 2011-12 had recorded on oath the 24 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 statement of Shri. Mahendra Goenka (supra). In his statement Shri. Mahendra Goenka (supra) had in his reply to Query No. 9 on being queried as to whether the aforesaid companies had in the past advanced any loans, answered in the affirmative. It was categorically stated by Shri. Mahendra Goenka (supra) that both the aforesaid companies had in the F.Y 2009-10 through cheques advanced loans to the assessee concern. It was stated by him that M/s Maa Samleshwar Steels Pvt. Ltd had in the aforesaid preceding year advanced a loan of Rs. 30 lac to the assessee, while for M/s MRA Global Pvt. Ltd during the said preceding year had in two tranches of Rs. 30 lac each advanced a loan aggregating to Rs. 60 lac to the assessee out of which an amount of Rs. 30 lac was received back during the said year itself. Relevant extract of the statement of Shri. Mahendra Goenka (supra) as was recorded by the A.O in the course of the assessment proceedings for A.Y 2011-12 is culled out as under :

25 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 On a perusal of the records to which our attention was drawn by the ld. A.R, it transpires that the authenticity of both the loans received by the assessee during the said succeeding year i.e AY 2011-12 was accepted by the A.O while framing the assessment for the said year vide his order passed u/s 143(3) of the Act, dated 26.03.2014, Page 66 – 72 r.w Page 8 – 11 of APB.

(iv). We further find that out of the unsecured loan of Rs.60 lac that was raised by the assessee from M/s. MRA Global Private Limited an amount of 26 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 Rs.30 lac was repaid by him through banking channel to the lender company during the year itself. Considering the fact of part repayment of loan during the year itself further fortifies the genuineness of the loan raised by the assessee from the lender company.

(v). Considering the reasons which had resulted to non-compliance of the notices issued by the A.O u/s 131 and u/s 133(6) to both the aforementioned companies, coupled with the fact that the said lender companies had duly confirmed the loan transactions; and also that the loans that were advanced by both the said companies to the assessee concern in the immediately succeeding year i.e A.Y 2011-12 had been accepted by the A.O while framing the assessment u/s 143(3), dated 26.03.2014 we find no justification in treating the loans raised by the assessee from the said companies as unexplained cash credits u/s 68 of the Act. Apart from that the part-repayment of loan by the assessee to one of the lender, i.e, M/s MRA Global Pvt. Ltd further fortifies the authenticity of the loan transaction under consideration. Considering the aforesaid facts, we are of the considered view that now when the assessee had duly substantiated the authenticity of the loan transactions under consideration and the same had not been dislodged by the department, therefore, the treating of the same as unexplained cash credits u/s 68 cannot be sustained. We, thus, on the basis of our aforesaid observations

27 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 vacate the addition of Rs. 90 lac made by the A.O u/s 68 of the Act, viz. (i). M/s. MRA Global Pvt. Ltd. : Rs. 60 lac; and (ii). M/s. Maa Samleshwari Steels Pvt. Ltd. : Rs. 30 lac.

(B). Loans raised by the assessee from certain individuals : Sr. No. Particulars Amount 1. Smt. Mohini Garg Rs. 8,00,000/- 2. Shri Pawan Garg Rs. 12,00,000/- 3. Smt. Sharda Devi Rs. 10,00,000/- (i). The A.O in order to verify the authenticity of the loans that were claimed by the assessee to have been received from the aforementioned persons who were residents of Orissa, had issued a commission to the Jt. DIT (Inv.), Bhubaneswar for carrying out necessary enquiry as regards the identity and creditworthiness of the lenders as well as the genuineness of the loan transactions under consideration. The ADIT(Inv.), Unit-1(1), Bhubaneswar vide his report dated 26.03.2013 informed the A.O that though notice(s) u/s 131 of the Act were served on all the aforementioned parties but neither of them had complied with the same. On the basis of the aforesaid fact the A.O held the loans aggregating to Rs. 30 lac (supra) that were claimed by the assessee to have been raised from the aforementioned three parties as bogus and treating the same as his

28 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 undisclosed income made an addition of the same to his returned income. On appeal the CIT(Appeals) finding no infirmity in the view taken by the A.O upheld the same.

(ii). It is the claim of the ld. A.R that as at the relevant point of time when notice(s) u/s 131 were issued by the Jt. DIT (Inv.), Bhubaneswar all the three parties were out of station to attend a family function, therefore, for the said reason they could not make a necessary compliance to the same. Apart from that, it is the claim of the ld. A.R that now when all the aforementioned three parties were residing at Rourkela where the office of the Commissioner of Income-tax was based, therefore, they had been subjected to undue hardship by the A.O who had issued a commission to Jt.DIT(Inv.), Bhubaneswar i.e a town which was 317 kms far from Rourkela. It is the claim of the ld. A.R that the assessee in order to substantiate the authenticity of the respective loan transactions had placed on record supporting documentary evidences, viz. (i). Names, addresses and PAN Nos. of the lenders (ii). Confirmations of all the aforesaid three lenders; (iii). Copies of the income-tax returns of the lenders; and (iv). Copies of the bank account of the assessee. It is the claim of the ld. AR that now when the complete details of the lenders a/w supporting documents had been filed by the assessee in the course of the assessment proceedings, then, there was no justification for him to have 29 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 held the loans received from the said lenders as unexplained cash credits for the solitary reason that they had failed to comply with the notice issued u/s.131 of the Act by the ADIT(Inv.), Bhubaneswar. It was further averred by the ld. A.R that as the assessee had repaid the respective loans to all the lenders in F.Y 2015-16 and the same had been accepted by the department, therefore, no adverse inferences as regards the veracity of the said respective loan transactions was liable to be drawn.

(iii). Admittedly, it is a matter of fact borne from record that neither of the aforesaid three lenders had complied with the notice(s) issued by the ADIT (Inv.), Bhubaneswar, as a result whereof the authenticity of the respective loan transactions could not be proved. At the same time, we find substance in the claim of the ld. A.R that as at the relevant point of time the aforesaid lenders had gone out of station to attend a family function, therefore, for the said reason the respective notice(s) could not be complied with by them. Also we concur with the contention of the ld. A.R that now when all the lenders were residents of Rourkela, a city where all the office of the Income-tax department including that of the Commissioner of Income-tax were based, therefore, there was no justification for the A.O to have issued a commission to the ADIT(Inv.), Bhubaneswar whose office was situated 317 kms far from Rourkela. Be that as it may, it is the claim of the ld. AR that as the assessee had in the course of the assessment

30 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 proceedings, inter alia, submitted confirmations of the lenders and copies of the returns of income a/w PAN Nos. of the lenders, therefore, the primary onus that was cast upon him as regards proving the authenticity of the loan transactions stood duly discharged. On a perusal of the paper book to which our attention was drawn by the ld. AR, it transpires that the assessee had in the course of the assessment proceedings placed on record documentary evidences to substantiate the authenticity of the aforesaid loan transactions, viz. confirmations of the lenders, copies of returns of income and PAN no(s) of the respective lenders, and had discharged the primary onus that was cast upon him as regards proving the authenticity of the loan transactions in question, Page 111-119 of APB. Apart from that it transpires that the assessee in his attempt to dispel all doubts as regards the veracity of the loan transactions had filed before us the “affidavits”, dated 18.07.2022 of the respective lenders wherein they had admitted of having advanced the interest bearing loans to the assessee a/w the reasons for doing so, Page 50-57 of APB.

(iv). Although the assessee by filing the aforesaid supporting documentary evidences had duly discharged the primary onus that was cast upon him as regards proving the authenticity of the interest bearing loans that were claimed to have been raised from the aforementioned parties, viz. (i). Shri. Pawan Garg; (ii). Smt. Sharda Devi; and (iii). Smt. Mohini Garg, however,

31 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 the said material aspect had not been considered by the lower authorities. On a perusal of the records, we find that the fact that the aforementioned parties had failed to comply with the notice(s) issued u/s. 131 of the Act by the ADIT(Inv.), Bhubaneswar had weighed in the mind of the lower authorities for dubbing the loan transactions as bogus. We are unable to persuade ourselves to the summarily stamping of the loan transactions as bogus by the lower authorities. Our aforesaid conviction that a mere non- compliance by the lenders of the summons issued u/s 131 of the Act by the ADIT(Inv.), Bhubaneswar will not be sufficient to draw adverse inferences as regards the authenticity of the loan transactions in question is supported by the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Orissa Corporation Pvt. Ltd. (1986) 159 ITR 78 (SC), wherein the Hon’ble Apex Court had held as under: “In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index number was in the file of the Revenue. The Revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee had discharged the burden that lay on him then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises.”

32 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 Be that as it may, we are of the considered view that as the lower authorities had neither considered the aforesaid supporting documentary evidences that were filed by the assessee in order to fortify his claim of having raised genuine loans from the aforementioned parties, nor had the occasion to taken cognizance of the respective “affidavits” of the lenders that have been filed for the very first time before us, therefore, the matter in all fairness requires to be restored to the file of the A.O. We, thus, in terms of our aforesaid observations restore the matter to the file of the A.O for re-adjudication after considering the aforesaid supporting documents that have been filed by the asssssee in order to drive home his claim of having raised genuine loans from the aforementioned three parties. Needless to say, the A.O shall in the course of the set-aside proceedings afford a reasonable opportunity of being heard to the assessee who shall remain at a liberty to substantiate his claim of having raised genuine loans from the aforementioned three persons, viz. (i). Shri. Pawan Garg; (ii). Smt. Sharda Devi; and (iii). Smt. Mohini Garg. The Ground of appeal No.3 is allowed/allowed for statistical purposes in terms of our aforesaid observations.

22. Apropos the disallowance of expenditure made by the A.O u/s 14A of the Act of Rs. 2.86 lac the same comprises of two parts, viz. (i). disallowance of interest expenditure u/s 14A r.w Rule 8D(2)(ii) : Rs.

33 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 2,65,610/-; and (ii). disallowance of administrative expenditure u/s 14A r.w Rule 8D(2)(iii) : Rs. 20,790/-. As regards the disallowance of interest expenditure, it was submitted by the Ld. AR that as the assessee had sufficient self-owned funds and had not used any interest-bearing funds for earning of exempt dividend income, therefore, no disallowance of any part of interest expenditure u/s 14A r.w Rule 8D(2)(ii) was warranted in his case. It was submitted by the Ld. AR that the very fact that the assessee had earned interest income of Rs.73.81 lac from bank during the year under consideration in itself proved that he was having sufficient interest free funds to make investment in exempt income yielding shares. It was further submitted by the Ld. AR that the A.O had failed to deal with the claim of the assessee that he had sufficient self owned funds to make an investment of Rs.4,83,430/- (Rs.3,20,000/- (+) Rs.1,63,430/-) in shares of Union Bank of India. It was averred by the ld. A.R that as per “Schedule 1” of the audited balance sheet of the assessee it was apparent that he had an opening capital of Rs.6.63 crore (approx.) i.e substantial amount of interest free funds available with him. Alternatively, it was submitted by the Ld. AR that now when the assessee had categorically claimed that he had not incurred any expenditure towards earning of exempt income during the year, therefore, the A.O was duty bound to record a satisfaction as to why the explanation furnished by the assessee was incorrect. In 34 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 support of his aforesaid contention the Ld. AR had relied on the following judicial pronouncements: (i) Voltas Ltd. Vs. Asstt. CIT (2009) 125 TTJ (Mum.) 601 (ii) K.J Arora Vs. Dy. CIT (2009) 180 Taxman 131 (Delhi) (iii) DIT (International Taxation) Vs. BNP Paribas SA (2013) Taxman 548 (Bom.) (iv) CIT Vs. L & T Infrastructure Development Projects Ltd. (2013) 357 ITR 763 (Mad.) (v) CIT Vs. Taikisha Engineering India Ltd. (2015) 370 ITR 338 (Del) (vi) CIT Vs. Gujarat Industrial Development Corporation Ltd. (2013) 37 Taxman 142(Guj.)

35 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 no disallowance was warranted u/s 14A of the Act. On the other hand, the A.O after exhaustively discussing Sec. 14A of the Act a/w the mechanism for working out the disallowance as contemplated in Rule 8D of the Income Tax Act, Rules 1963, and the law pertaining to the said statutory provision as had developed over the time, therein, without recording his satisfaction as to why the assessee‘s claim that no expenditure could be attributed for earning of the exempt dividend income had in a mechanical manner worked out the disallowance as per the mechanism contemplated in Rule 8D of the Income Tax Rules, 1963. On appeal, the CIT(A) merely on the basis of his general observations that the incurring of expenditure for earning of exempt income could not be ruled out had upheld the disallowance made by the A.O. In our considered view, neither of the lower authorities had recorded their satisfaction as to why the assessee‘s claim that no part of the expenditure pertaining to his proprietary business could be attributed to earning of the exempt dividend income was not to be accepted. In our considered view the issue as to whether it is obligatory on the part of the A.O to record his satisfaction as to why the claim of the assessee in respect of the expenses incurred for earning of the exempt dividend income, if any, was not to be accepted is no more res integra and has been settled by the Hon‘ble Supreme Court in the case of Godrej & Boyce Manufacturing Company Ltd. Vs. DCIT & Anr. (2017) 394 ITR 449 (SC). The Hon‘ble Apex Court in its aforesaid

36 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 order, had observed, that it is obligatory on the part of the A.O to record his satisfaction that having regard to the accounts of the assessee, as placed before him, it was not possible to generate the reasonable satisfaction with regard to the correctness of the claim of the assessee. It was observed by the Hon‘ble Apex Court that it was only after the A.O had recorded his dissatisfaction as regards the correctness of the claim of the assessee that the provisions of Sec.14A(2) and (3) r.w Rule 8D could be invoked. It was observed by the Hon’ble Apex Court, as under:

“37. We do not see how in the aforesaid fact situation a different view could have been taken for the Assessment Year 2002-2003. Sub-sections (2) and (3) of Section 14A of the Act read with Rule SD of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable.” Also, a similar view haa been taken by the Hon‘ble Supreme Court in the case of Maxopp Investment Ltd. Vs CIT (2018) 402 ITR 640 (SC). In the case before us it is a matter of fact borne from the record that though the A.O had discussed at length the rationale behind introduction of Sec.14A and Rule 8D that contemplates the mechanism for computing the 37 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 disallowance under the aforementioned statutory provision, as well as had exhaustively dealt with the aspect as to how the law in so far the aforementioned statutory provision had developed over the time, but there is no whisper on his part that having regard to the accounts of the assessee, it was not possible for him to generate the requisite satisfaction with regard to the correctness of the assessee’s claim that no part of expenditure pertaining to his proprietary business could be attributed to earning of exempt dividend income. As observed by us hereinabove, the state of affairs qua dissatisfaction as regards the claim of the assessee that no part of the expenses incurred by him with respect to his regular business could be attributed to earning of the exempt dividend income remained more or less the same before the CIT(A). We find that the CIT(Appeals) too had failed to record his satisfaction that having regards to the accounts of the assessee it was not possible to accept the correctness of the assessee‘s claim that no disallowance of any expenditure was called for u/s 14A of the Act. In case the A.O or the CIT(A) in exercise of his powers which are coterminous with that of an A.O, sought to have disallowed the assessee’s claim that no expenses could be attributed to earning of the exempt dividend income by him, then, there was an innate obligation cast upon them to have recorded the requisite satisfaction that having regard to the accounts of the assessee as were placed before them, it was not possible to generate the requisite satisfaction with regards to the 38 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 correctness of the said claim. We may herein observe that the Hon’ble High Court of Bombay in the case of CIT Vs. Sociedade De Fomento Industrial (P). Ltd. (2020) 429 ITR 358 (Bom.) had observed that the A.O before rejecting the disallowance offered by the assessee remains under a statutory obligation to give a clear finding with reference to the accounts of the assessee that the other expenditure which were being claimed qua the non-exempt income were in fact related to its exempt income. A similar view had also been taken by the Hon’ble High Court of Delhi In the case of H.T. Media Ltd. Vs. Pr. CIT (2017) 399 ITR 576 (Delhi.).

It was the claim of the Ld. AR that as the credit in the assessee’s capital account of Rs.86,795/- (Cr.) was only a contra entry which was passed in the backdrop of the aforesaid facts, therefore, both the lower authorities had grossly erred in making/sustaining an addition qua the said amount.

41 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017

42 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017

43 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 were exempt u/s.10(10D) of the Act, therefore, the addition so made/sustained by the lower authorities without rebutting the claim of the assessee were liable to be vacated.

45 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 Thus, the Ground of appeal No.6 is allowed for statistical purposes in terms of our aforesaid observations.

31. We shall now deal with the grievance of the assessee that both the lower authorities had erred in confirming the addition of Rs.5 lac on account of notional lettable value of the residential houses owned by the assessee. The facts relevant to the issue are that A.O in the course of the assessment proceedings, had observed, that as per the fixed assets statement of the assessee’s proprietary business, viz. M/s. Shrikishan & Co. the assessee was owner of few house properties whose valuation amounted to Rs.90,30,715/-. The assessee despite specific direction by the A.O had failed to come forth with the bifurcated details of the aforesaid properties. The A.O considering the fact that the assessee had not claimed any depreciation on either of the properties thus, was of the view that the same were not being used for any purpose other than residential purpose. As the assessee had failed to come forth with the requisite details, therefore, the A.O on an estimate basis determined the “Annual Lettable Value” (ALV) of the aforesaid properties at Rs.5 lac (net of deductions u/s.24).

36. We shall now take up the grievance of the assessee that both the lower authorities had erred in making/sustaining an addition of Rs.2 lac on account of low house hold withdrawals. Succinctly stated, the assessee had during the year under consideration made a withdrawal of Rs.1.7 lac towards house hold expenses. On being called upon to explain the source of his share of expenses of Rs.76,275/- that were incurred towards stamp papers and other miscellaneous charges pertaining to acquisition of land at Telibandha, Raipur, it was the claim of the assessee that the same was borne out of his drawings. Considering the aforesaid fact it was observed by the A.O that the assessee was left with a net drawings of Rs.99,725/- [ Rs.1,76,000/- (-) Rs.76,275/-]. The A.O taking cognizance of the fact that the assessee had paid LIC premium of Rs.14.36 lac (approx.) and club subscription charges of Rs.1 lac during the year under consideration and was also owner of a number of properties, thus, was of the view that he was leading a high standard of living. It was further observed by the A.O that the assessee’s family consisted of his wife, mother and two school going children. The A.O observing that the household withdrawals of the assessee were substantially insignificant i.e. @ Rs.1662/- per month per

50 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 member, thus, on an estimate basis adopted the same @ Rs.5000/- per month per head and recasted the household withdrawals of the assessee at Rs.3 lac. The A.O considering the fact that the assessee had net withdrawals of Rs.1 lac (approx.) available with him, thus, made an addition of Rs.2 lac towards household expenses that would have been incurred by him out of his unexplained sources.

42. We shall now take up the grievance of the assessee that both the lower authorities had erred in making/sustaining the disallowance of interest expenditure of Rs.1.42 lac corresponding to interest free loans/advances given by the assessee. On a perusal of the orders of the 53 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 lower authorities it transpires that the assessee had advanced interest free loans/advances to two persons viz. (i) loan advanced to Shri Rohit Kumar Agrawal (friend of the assessee) : Rs. 5 lac ; and (ii) loan advanced to Smt. Sarita Devi Agarwal (wife of the assessee) : Rs. 21,29,137/-. As the assessee had borrowed interest free funds, therefore, the A.O holding a conviction that the assessee had diverted the aforesaid loans for non- business purposes, thus, disallowed the corresponding interest @13% of the amount so advanced.

43. On appeal the CIT(Appeals) finding no infirmity in the view taken by the A.O upheld the disallowance of interest expenditure of Rs.1.42 lac (supra) so made him.

44. The assessee being aggrieved with the upholding of the disallowance of his claim for deduction of interest expenditure of Rs.1.42 lac (supra) has carried the matter in appeal before us.

54 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 pertaining to the aforesaid interest free loans advanced to the aforementioned persons was called for in his hands. In order to buttress his aforesaid claim the Ld. AR had taken us through the ‘balance sheet’ of the assessee concern, viz. M/s. Shrikishan & Co. for the year under consideration, Page 138-140 of APB. It was, thus, the claim of the Ld. AR that now when the assessee was having sufficient interest free self-owned funds, therefore, no disallowance of interest expenditure as regards the interest free loans advanced by him was liable to be made.

55 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 the view taken by the Hon’ble High Court, had observed, that in case the interest free funds available with the assessee were sufficient to meet its investment, then, it could be presumed that the investments were made by the assessee from the interest free funds available with it. We, thus, in the backdrop of the facts involved in the case before us read with the aforesaid settled position of law are of the considered view that no disallowance of any part of the assessee’s claim for deduction of interest expenditure u/s.36(1)(iii) was called for in his hands. Resultantly, the disallowance of Rs.1.42 lac made by the A.O is deleted. The Ground of appeal No.9 is allowed in terms of our aforesaid observations.

56 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017

2. The Ld. CIT(A) has erred in enhancement in gross profit of Rs.36,77,935/-which is without any concrete evidence.

3. The Ld. CIT(A) has erred in confirming the disallowances of Rs.10,00,000/-on Adhoc basis.

4. The Ld. CIT (A) has erred on facts and in law while confirming the addition u/s.40 (a) (ia) of Rs.7,89,386/-.

5. The learned CIT(A) has erred on facts and in law in confirming addition of Rs.12,48,617/- on account of so-called short receipt shown by the assessee.

6. The appellant craves leave to add, urge, alter, modify or withdraw any ground/s before or at the time of hearing.

Also the assessee has raised additional grounds of appeal before us which reads as under:

7. That the Ld. CIT(A) erred in enhancement of income of Rs.1,56,000/- on account of interest on impugned cash credit of Rs. 1,20,00,000/- added back in the income of the assessee in preceding Assessment Year.

57 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017

8. That the Ld. CIT(A) erred in enhancement of income of Rs.1,42,000/- on account of interest free loan given to outsiders as it was added back in the income of the assessee in preceding Assessment Year.

9. That the Ld. CIT(A) erred in enhancement of income of Rs.5,00,000/- on account of notional rental income as it was added back in the income of the assessee in preceding Assessment Year. 10. That the Ld. CIT(A) erred in enhancement of income of Rs.2,86,300/- invoking section 14A, as it was added back in the income of the assessee in preceding Assessment Year i.e. 2010-11.”

53. We shall now deal with the grievance of the assessee that the CIT(Appeals) had grossly erred in law and facts of the case in enhancing the assessee’s income by an amount of Rs.36,77,935/-. As the aforesaid enhancement is interwoven with the ad-hoc disallowance of Rs.10 lac made by the A.O, therefore, we shall deal with both the issues together.

59 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 maintained and the thumb impressions of the recipient labour against the amounts stated to have been received by them was beyond recognition and verification. Also it was observed by the A.O that some of the expenses which were incurred in cash were not cross-verifiable. Considering the aforesaid facts the A.O made a lumpsum disallowance of Rs.10 lac.

60 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 addition made by the A.O : Rs.10 lac ; and (ii) enhancement of income by the CIT(Appeals) : Rs.36,77,935/-(net).

61 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 who had conducted the statutory audit had not adversely commented on the assessee’s claim for deduction of the labour expenses. The Ld. AR in support of his contention that no ad-hoc disallowance is permitted to be made had relied on certain case laws, as under: (i) ACIT Vs. Shri Sai Vihar (2016) 28 ITJ 158 (ii) ACIT Vs. M/s. MangilalPagaria Raipur, dated 16.12.2014 (iii) DCIT 2(1), Raipur Vs. Shri Santosh Jain ITA No.177/RPR/2014 dated 11.05.2017. On the basis of his aforesaid contentions, it was submitted by the Ld. AR that as there was neither any justification nor basis for making of the impugned ad-hoc disallowance of Rs.10 lac (supra) by the A.O, therefore, the same could not be sustained and was liable to be struck down.

62 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 charges, depreciation, interest on unsecured loans had also witnessed an increase but the turnover had considerably declined from 52.20 crore to 32.15 crore; (v) that the payments made by the assessee to labour (which were included in contract work expenses) were not fully verifiable as the muster rolls were poorly maintained and the thumb impressions of the recipient labour against the amounts stated to have been received by them were beyond recognition; and (vi) there were some expenses which were not cross-verifiable as those were stated to have been incurred in cash. We find that though the A.O had given multiple reasons for justifying the ad- hoc disallowance of Rs.10 lac (supra) but he has not referred to a single instance of expenditure which as per him was either not verifiable; or was not found to be in order; or was not found to have been incurred wholly and exclusively for the purpose of business. In our considered view the aforesaid ad-hoc disallowance of Rs.10 Lac (supra) made by the A.O was merely haunted by his general observations and not on the basis of any concrete material or any specific instance of an expenditure which as per him was for cogent reasons liable to disallowed. In the backdrop of the aforesaid facts we find substantial force in the claim of the ld. A.R that in absence of pointing out of any specific infirmity qua the assesse’s claim for deduction of the aforesaid expenditure by the lower authorities, the disallowance of a part of the same in a most arbitrary manner on an ad- hoc basis could by no means be held to be justified. Our aforesaid view is 63 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 fortified by the order of the ITAT, Kolkata in the case of Animesh Sadhu Vs. ACIT, Circle-1, Hoogly, dated 12.11.2014 and that of the ITAT, Delhi in the case of ACIT, New Delhi Vs. M/s Modi Rubber Ltd. ITA No. 1952/Del/2014, dated 15.05.2018. Also, our aforesaid view that an assessee’s claim for deduction of an expenditure u/s.37 of the Act cannot be arbitrarily disallowed by the A.O on a ad-hoc basis is supported by the order of the ITAT, Raipur in the case of M/s. Sunita Finlease Limited Vs. Income Tax Officer, ITA No.244/RPR/2017 dated 30.03.2022. We are of the considered view that a disallowance of an expenditure claimed by the assessee as a deduction as per the mandate of section 37 of the Act can only be disallowed in case of satisfaction of either of the conditions set out in the said section, viz. (i) the expenditure is in the nature of a capital expenditure or personal expenditure of the assessee; or (ii) that the expenditure had been incurred for any purpose which is an offence or which is prohibited by law. As the A.O had failed to place on record any material which would prove to the hilt that the assessee had either raised a bogus claim of expenditure; or that the said expenditure was not incurred wholly and exclusively for the purpose of business; or that the expenditure so claimed as a deduction did not fall within the four parameters of Section 37 of the Act, therefore, we are unable to persuade ourselves to subscribe to the disallowance to the said effect so made by the A.O. We, thus, in terms of our aforesaid observations vacate the 64 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 disallowance of Rs.10 lac made by the A.O. The Ground of appeal No.3 is allowed in terms our aforesaid observations.

60. We shall now take up the grievance of the assessee that the CIT(Appeals) had grossly erred in enhancing the gross profit of the assessee by an amount of Rs.36,77,935/- (net amount). At the very outset of the hearing of the appeal, it was, inter alia, submitted by the Ld. AR that the CIT(Appeals) had carried out the aforesaid enhancement at the back of the asssessee, i.e., without giving any opportunity to him to show cause that no such enhancement was called for in his case. It was submitted by the Ld. AR that the failure of the CIT(Appeals) to afford an opportunity to the assessee to explain that no enhancement was called for in his case was in clear contravention of the mandate of sub-section (2) of Section 251 of the Act. Our attention was drawn by the Ld. AR to the observation of the Ld. CIT(Appeals) at Page 3 of his order, wherein there was no whisper of having put the assessee to show cause about the impugned enhancement of his gross profit. In order to fortify his aforesaid claim the Ld. AR had taken us through the copy of the “Order sheet” of the CIT(Appeals) in appeal No.102/2014-15 for the year under consideration, Page 94 of APB. The Ld. AR took us through the noting of the CIT(Appeals) in the order sheet on 29.03.2016, and submitted that the mention by him that the assessee’s counsel was asked for enhancement of income of GP was not 65 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 available at the time when the same was signed by the counsel. It was, thus, the claim of the Ld. AR that the words “- Asked for enhancement of income by GP” were interpolated by the CIT(Appeals) in the order sheet noting that was earlier prepared by him and was got signed from the assesee’s counsel on 29.03.2016. Apart from that, it was submitted by the Ld. AR that the fact that the CIT(Appeals) has disposed off the appeal vide his order dated 29.03.2016, i.e., on the same date on which the order sheet noting was made proved beyond doubt that no reasonable opportunity was provided to the assessee to show cause as to why the impugned enhancement was not called for in his hands. In sum and substance, it was the claim of the Ld. AR that the impugned enhancement of the assessee’s gross profit had been carried out by the Ld. CIT(Appeals) in clear contravention of the provisions of sub-section (2) of Section 251 of the Act. On the basis of his aforesaid contention, it was the claim of the Ld. AR that as the impugned enhancement had been made without affording any opportunity to the assessee to put forth an explanation that the same was not called for in his hands, therefore, the same on account of the said serious legal infirmity was liable to be struck down. The Ld. AR in support of his aforesaid contention had relied on the following judicial pronouncements: (i) CIT Vs. Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443 (SC) (ii) Gedore Tools Pvt. Ltd. Vs. CIT (1999) 238 ITR 268 (Del.)

66 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017

(iii) C. Anitha Vs. CIT (2017) 88 Taxmann.com 53 (Mad.) (iv) Saheli Synthetics P. Ltd. Vs. CIT (2008) 302 ITR 126 (Guj.)

“251. (1) In disposing of an appeal, the Commissioner (Appeals) shall have the following powers— (a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment; (aa) in an appeal against the order of assessment in respect of which the proceeding before the Settlement Commission abates under section 245HA,he may, after taking into consideration all the material and other information produced by the assessee before, or the results of the inquiry held or evidence recorded by, the Settlement Commission, in the course of the proceeding before it and such other material as may be brought on his record, confirm, reduce, enhance or annul the assessment; (b) in an appeal against an order imposing a penalty, he may confirm or cancel such order or vary it so as either to enhance or to reduce the penalty;

67 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017

(c) in any other case, he may pass such orders in the appeal as he thinks fit. (2) The Commissioner (Appeals) shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction. Explanation.—In disposing of an appeal, the Commissioner (Appeals) may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the Commissioner (Appeals) by the appellant.”

(emphasis supplied by us) On a perusal of sub-section (2) of Section 251, it transpires that the CIT(Appeals) prior to enhancing the assessment remains under a statutory obligation to afford a reasonable opportunity to the assessee for showing cause as to why such enhancement is not called for in his hands. In our considered view a failure on the part of CIT(Appeals) to afford a reasonable opportunity to an assessee to show cause as to why enhancement may not be carried out in his case would have a material bearing on the sustainability of the enhancement so made by the said appellate authority. Our aforesaid view is fortified by the judgment of the Hon’ble High Court of Delhi in the case of Gedore Tools Pvt. Ltd. Vs. CIT (1999) 238 ITR 268 (Del.), wherein the following substantial question of law was, inter alia, raised before the Hon’ble High Court: “(6) Whether the Tribunal rightly held that the powers of enhancement by the commission of income tax (Appeals) being subjected to the constraints and limitation as provided under section251(2) of the Income Tax Act, 1961, the question of 68 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 enhancement could be considered only if a notice was given in that regard?”

The Hon’ble High Court by drawing support from the judgment of the Hon’bel Apex Court in CIT Vs. Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443 (SC) therein had observed that the power for enhancement by the Commissioner of Income-tax is subject to limitation as provided in sub-section (2) of Section 251 of the Act, and such question would be considered only if a notice was given in that regard. On the basis of the aforesaid settled position of law it is clear beyond doubt that an enhancement by the CIT(Appeals) can validly be made only after the assessee had been given a reasonable opportunity to show cause against the enhancement that is proposed to be made in his hands.

70 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 opportunity to the assessee to show cause as to why enhancement to the said effect may not be carried out in his hands. We, thus, in terms of our aforesaid observations restore the matter to the file of the CIT(Appeals). Resultantly, the Ground of appeal No. 2 is allowed for statistical purposes in terms of our aforesaid observations.

64. We shall now take up the grievance of the assessee that both the lower authorities had erred in law and facts of the case in confirming the disallowance of Rs.7,89,386/- u/s.40(a)(ia) of the Act. The assessee had filed before us an application seeking permission for placing on record “additional evidence” under Rule 29 of the ITAT Rules, 1963, i.e., a certificate from a Chartered Accountant in an incomplete format in which it was mentioned that M/s. Religare Finvest Ltd., i.e. the payee, had while computing its taxable income for A.Y.2011-12 taken into account finance charges of Rs.1,41,751/- that was received from Sushil Kumar Agrawal, Prop. of ShriKishan & Co. Also, the assessee had filed before us as an “additional evidence” certificate from a Chartered Accountant which is not in the prescribed format, wherein it is stated that M/s.Magma Fincorp Limited, i.e. the payee, had included the finance charges of Rs.4,221/- in its income tax return for A.Y.2011-12. We have given a thoughtful consideration and are of the considered view that as the aforesaid CA

71 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 certificates will have a strong bearing on the adjudication of the ground of appeal No.4, therefore, in all fairness the same merits admission.

66. We shall now deal with the grievance of the assessee that both the lower authorities had erred in making/sustaining an addition of Rs.12,48,617/- on account of short receipts shown by the assessee.

S. No. Name of the deductor Amount as per Amount shown Difference ( the TDS by the assessee short certificate shown) 1. SEPCO 1,43,65,652/- 1,37,97,207/- 5,68,445 2. SEPCO 1,71,89,222/- 1,65,09,050/ 6,80,172 The A.O called upon the assessee to explain/reconcile the above difference in receipts. However, as the assessee failed to come forth with any explanation, therefore, the A.O added the impugned difference i.e. short receipts of Rs.12,48,617/- to his returned income.

73 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017

74 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 separate accounts) and payment to the authorities concerned are debited in the same account, then, they would not be included in the turnover.

The Ground of appeal No.6 being general in nature is dismissed as 71. not pressed.

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75. We shall now take up the grievance of the assessee that the CIT(Appeals) had erred in enhancing his income by an amount of Rs.1,42,000/- on account of disallowance of the assessee’s claim for deduction of interest component corresponding to the interest free loans that were given by him to outsiders. On a perusal of the order of the CIT(Appeals), it transpires that the aforesaid enhancement by way of disallowance of the assessee’s claim for deduction of interest expenditure pertaining to interest free loans advanced to two parties, viz. (i) Shri Rohit

78 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 Kumar Agarwal (friend of the assessee); and (ii) Smt. Sarita Devi Agarwal (wife of the assessee) had been carried out by him only for the reason that the disallowance to the said effect was made by the A.O in the immediately preceding year i.e. A.Y.2010-11. As we have while disposing off the assessee’s appeal for the immediately preceding year i.e. A.Y.2010-11 in vacated the impugned disallowance of the assessee’s claim for deduction of interest expenditure of Rs.1,42,000/- u/s. 36(1)(iii) of the Act, therefore, the very basis for making of the impugned enhancement by the CIT(Appeals) during the year under consideration does not survive any more and is accordingly vacated. The additional Ground of appeal No.8 is allowed in terms of our aforesaid observations.

76. We shall now take up the grievance of the assessee that the CIT(Appeals) had erred in enhancing his income by an amount of Rs. 5 lac on account of ALV of the residential properties owned by him. On a perusal of the order of the CIT(Appeals) it transpires that the aforesaid enhancement by way of addition of Rs. 5 lac towards ALV/notional lettable value of the houses owned by the assessee was made by the CIT(Appeals) for the reason that an addition on the said count was made by the A.O while framing the assessment for the immediately preceding year i.e. A.Y.2010-11. As we have while disposing off the assessee’s appeal for the immediately preceding year i.e. A.Y.2010-11 in set-

79 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017 aside with specific directions the addition of Rs.5 lac that was made on an estimate basis by the A.O, therefore, on the same footing, the enhancement of Rs.5 lac made by the CIT(Appeals) during the year under consideration is restored to the file of the A.O with same directions. The additional Ground of appeal No.9 is allowed for statistical purposes in terms of our aforesaid observations.

80 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba & 94 /RPR/2017