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: The captioned appeals filed by the assessee are directed against the respective orders passed by the CIT(Appeals), Bilaspur dated 29.03.2016, which in turn arises from the respective orders passed by the A.O under Sec.143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated 28.03.2013 and 26.03.2014 for assessment year(s) 2010-11 & 2011-12. As certain common issues are involved in the aforementioned appeals, therefore, the same are being taken up and disposed off by way of a consolidated order.

“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.

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Sr. No. Particulars Amount

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regards proving the authenticity of the loans raised from the aforementioned companies, viz. (i). M/s. MRA Global Private Limited; and (ii). M/s Maa Samleshwari Steels Pvt. Ltd., thus sustained the addition of Rs. 90 lac [Rs. 60 lac (+) Rs. 30 lac]. Adverting to the balance addition of Rs.30 lac [Rs.8 lac + Rs.12 lac + Rs.10 lac] the CIT(Appeals) observed that not only the summons issued by the A.O to the said respective parties were returned back unserved but also the assessee had failed to produce either of the said parties for examination before the A.O. It was further observed by him that though the A.O in the course of the assessment proceedings in order to verify the authenticity of the loan transactions had issued a commission the Joint Director (Inv.), Bhubaneswar for conducting an enquiry, however, the said respective lenders had failed to comply with the summons that were issued to them. Considering the aforesaid facts, the A.O was of the view that the assessee in guise of the abovementioned loan transactions had in fact routed his unaccounted income in his books of accounts. Accordingly the CIT(Appeals) on the basis of his aforesaid observations sustained the addition of Rs. 1.20 crore made by the A.O under Sec. 68 of the Act.

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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.

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CIT(Appeals) was of the view that as the assessee had at no stage requested the A.O to issue summons to LIC from where the amount was stated to have been received, therefore, in absence of any such request no obligation was cast upon the A.O to call for the said details.

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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.

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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.

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(ii) Punabhai G Pardava Vs. ITO, ITA No.219/RJT/2018 (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

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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-

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*** *** *** (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. The expressions “rent, royalty” were inserted in the year 2006. such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. *** *** ***” (ii) After the amendment by Finance Act, 2010 “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) any interest, commission or brokerage, rent, royalty, 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 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, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid: *** *** ***”

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(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. 16. This proviso was inserted by Act No. 23 of 2012 last month of previous year; and observed in paragraph 18 that the said amendment of the year 2008 was brought about with a view to mitigate such hardship. After reproducing the said amendment of the year 2008 and after noticing its retrospective operation, this Court delved into the position obtaining after 2008, where still remained one class of assessees who could not claim deduction for the TDS amount in the previous year in which the tax was deducted and who could claim benefit of such deduction

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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.

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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.

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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

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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, ITA No.1891/Del/2020 dated 21.03.2022 (ii) CIT Vs. Ayachi Chandrashekhar Narsangi, 42 Taxmann. Com ( Guj. HC)

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(iii) Pr. CIT Vs. Sky Lark Build, TIOL-2323-HC-Mum. (iv) Shree Samruddhi Overseas Trading Company Vs. DCIT, ITA No. 909 and 910/Ahd/2018 dated 19.04.2021.

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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.

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(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

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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

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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 :

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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

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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

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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

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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 ITA Nos. 93 & 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 ITA Nos. 93 & 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 ITA Nos. 93 & 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 ITA Nos. 93 & 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.

33 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba ITA Nos. 93 & 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 ITA Nos. 93 & 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 ITA Nos. 93 & 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 ITA Nos. 93 & 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 ITA Nos. 93 & 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 ITA Nos. 93 & 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.).

39 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba ITA Nos. 93 & 94 /RPR/2017

appeal No.4 raised by the assessee is allowed in terms of our aforesaid observations.

40 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba ITA Nos. 93 & 94 /RPR/2017

profit and loss account of his proprietary concern, viz. M/s. Shrikishan & Co.. It was the claim of the assessee that as the entire amount of interest received/accrued from bank was credited in the profit and loss account of his proprietary concern i.e. M/s. Shrikishan & Co., therefore, the interest of Rs.86,795/- on the FDR’s which were held by him in his personal capacity having been included in the aforesaid amount was not separately offered for tax by him in his computation of income. It was stated by the Ld. AR that the assessee had only with a purpose to tally the account between the proprietorship concern i.e. M/s. Shrikishan & Co. and his personal capacity passed a contra entry in his personal capacity, as under (Page 21 of APB) : “Shri Kishan & Co. DR 86,795/- Sushil Kumar Agrawal Capital A/c CR 86,795/- (Being contra entry passed for FDR Interest of proprietor Credited in firm’s account)”

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 ITA Nos. 93 & 94 /RPR/2017

42 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba ITA Nos. 93 & 94 /RPR/2017

43 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba ITA Nos. 93 & 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.

44 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba ITA Nos. 93 & 94 /RPR/2017

aforesaid claim of the assessee but we find that he had at no stage in the course of the assessment proceedings or even before the CIT(Appeals) made any request that the requisite details be called for from the LIC. As it was for the assessee to substantiate his aforesaid claim that the amount in question was non-taxable which he had failed to do, therefore, no infirmity could be attributed to the A.O who had held the same as the unexplained income of the assessee. In so far the claim of the assessee that the A.O ought to have carried out necessary verifications, from LIC before rejecting his aforesaid claim, we are of the considered view that as no such request was made by the assessee in the course of the assessment proceedings, therefore, on the said count also the order passed by the A.O does not suffer from any infirmity. At the same time, we are of the considered view that in all fairness and interest of justice in order to avoid any exempt income being subjected to tax the matter requires to be restored to the file of the A.O with an opportunity to the assessee to substantiate his aforesaid claim on the basis of supporting documentary evidence. In case the assessee in the course of the set-aside proceedings is able to substantiate that the amounts aggregating to Rs.9,82,649/- (supra) were the LIC maturity proceeds that were exempt within the meaning of section 10(10D) of the Act, then, the addition so made by the A.O by dubbing the same as the unexplained income of the assessee shall stand vacated.

45 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba ITA Nos. 93 & 94 /RPR/2017

Thus, the Ground of appeal No.6 is allowed for statistical purposes in terms of our aforesaid observations.

46 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba ITA Nos. 93 & 94 /RPR/2017

the said claim of the assessee was found to be false by the CIT(Appeals). Accordingly, the CIT(Appeals) finding no infirmity in the view taken by the A.O upheld the estimation of the ALV by him.

47 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba ITA Nos. 93 & 94 /RPR/2017

the case of the assessee that on the one hand the annual value of the house which was being used for residential purpose i.e. at Darri Road, Korba as per section 23(2)(a) was to be taken as nil; while for in the case of the other house i.e. HIG-101, M.P Nagar, Korba which was being used for the purposes of business the annual value was not chargeable to income tax as provided in section 22 of the Act. Also, it was the claim of the assessee that as the house at Jal vihar Colony, Raipur was under construction, therefore, the ALV of the same could not be determined. Alternatively it was the claim of the Ld. AR before us that as the ALV of the properties in question is to be determined as per the prevailing market rate of the rents of the properties falling in the immediate vicinity, therefore, the determination of the same on an estimate basis at Rs.5 lac by the A.O being totally erroneous and bad in law was liable to be struck down.

48 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba ITA Nos. 93 & 94 /RPR/2017

not filed by the assessee in the course of the assessment proceedings. At the same time we are unable to comprehend that while for the letter/reply is dated 11.03.2013 but the same is stated to have been filed in reference to a questionnaire issued by the A.O on 12.03.2013. The veracity of the aforesaid letter/reply dated 11.03.2013 that has been filed before us at Page 103-109 of APB requires to be verified. In case the aforesaid reply is available on the assessment record, then, the view taken by both the lower authorities that the assessee had failed to furnish the bifurcated details of the residential properties would be held as incorrect. At the same time we are of the considered view that as the assessee had failed to place on record any material which would prove to the hilt that his residential property i.e. HIG-101. M.P Nagar, Korba was being used for the purpose of business, therefore, his said unsubstantiated claim that was raised in the thin air cannot be accepted. Also the claim of the assessee that his another residential house at Jal vihar Colony, Raipur was under construction during the year under consideration cannot be summarily accepted and would require to be verified. At the same time, we find substance in the claim of the Ld. AR that the determination of the ALV of the aforesaid residential properties could not have been arrived at by the A.O on an estimation basis. As the methodology for determining the ALV of a property is provided in section 23(1) of the Act, therefore, we herein direct the A.O to determine the same strictly as per the mandate of law. Accordingly, the

49 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba ITA Nos. 93 & 94 /RPR/2017

matter is restored to the file of the A.O for giving effect to our aforesaid observations. The Ground of appeal No.7 is allowed for statistical purposes in terms of our aforesaid observations.

50 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba ITA Nos. 93 & 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.

51 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba ITA Nos. 93 & 94 /RPR/2017

regards the heavy LIC premium paid by him during the year, it was the claim of the assessee before the lower authorities that the same was in order to secure his family in case of any casualty. Apropos the availability of funds for household expenses it is the claim of the assessee that both his wife and his mother, viz. S/Smt. Sarita Devi Agrawal and Murti Devi Agrawal were also contributing towards the same and the said fact was brought to the notice of the A.O vide rely dated 11.03.2013, Page 103 of APB. It is the claim of the Ld. AR that both the lower authorities brushing aside the aforesaid facts had most arbitrarily not only worked out the household expenses at a high pitched amount but had also lost sight of the material fact which were duly brought to his notice i.e. S/Smt. Sarita Devi Agrawal (wife) and Murti Devi Agarwal (mother) who were regular income tax payees had duly contributed towards the household expenses.

52 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba ITA Nos. 93 & 94 /RPR/2017

considered view that the claim of the assessee that S/Smt. Sarita Devi Agrawal (wife) and Murti Devi Agarwal (mother) had during the year under consideration contributed towards the household expenses had been lost sight of by the A.O despite the fact that the same in the course of the assessment proceedings was brought to his notice by the assessee vide his letter dated 11.03.2013 (supra), Page 105-Sr. No.8 of APB. However, as noticed by us hereinabove, the fact that the aforesaid letter/reply dated 11.03.2013 was filed by the assessee in the course of the assessment proceedings requires to be verified. In case the aforesaid letter/reply dated 11.03.2013 (supra) of the assessee is found available on the assessment record, then, the A.O shall verify the respective contributions made towards household expenses by S/Smt. Sarita Devi Agrawal (wife) and Murti Devi Agarwal (mother) during the year under consideration and shall scale down the addition to the said extent in the hands of the assessee. We, thus, restore the matter to the file of the A.O to give effect to our aforesaid observations. The Ground of appeal No.8 is allowed for statistical purposes in terms of our aforesaid observations.

53 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba ITA Nos. 93 & 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.

54 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba ITA Nos. 93 & 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 ITA Nos. 93 & 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 ITA Nos. 93 & 94 /RPR/2017

ITA No.94/RPR/2017 A.Y.2011-12 51. We shall now take up the assessee’s appeal for A.Y.2011-12 in ITA No.94/RPR/2017. The assessee has assailed the impugned order on the following grounds of appeal before us: “1. That on the facts and circumstances of the case the order of the Ld. A.O. is bad in law. 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 ITA Nos. 93 & 94 /RPR/2017

58 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba ITA Nos. 93 & 94 /RPR/2017

profit rates was primarily attributable to the reason that during the year under consideration maximum work was given by him on a sub-contract basis and the same constituted about 72.83% of the total contract receipts of Rs.32.15 crore. It was submitted by the assessee that since the payment of sub-contract amount was inclusive of the profit margin of the sub- contractors, therefore, the same had substantially resulted to a comparative decline in the NP rate during the year. It was also submitted by the assessee that expenses had increased in terms of percentage as in comparison to the preceding assessment year. On examination of the contentions advanced by the assessee, it was found by the A.O that contract work expenses had increased from 16.38% to 28.20%, while for the sub-contract expenses had gone up from 44.50% to 72.83%. It was observed by the A.O that some of the expenses i.e. bank commission charges, depreciation, interest on unsecured loans had increased in terms of percentage despite the fact that the turnover had considerably declined from 52.20 crore to 32.15 crore. It was observed by the A.O that the expenses like sub-contract work expenses, bank commission and charges, depreciation, interest on unsecured loans were verifiable from the records and supporting material. However, it was observed by the A.O that the payments to the labour which formed part of the contract work expenses were not fully verifiable. Elaborating further, it was observed by the A.O that a verification of the muster rolls revealed that they were poorly

59 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba ITA Nos. 93 & 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 ITA Nos. 93 & 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 ITA Nos. 93 & 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, ITA No.54/RPR/2011 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.

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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

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fortified by the order of the ITAT, Kolkata in the case of Animesh Sadhu Vs. ACIT, Circle-1, Hoogly, ITA No. 11/Kol/2013, 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

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disallowance of Rs.10 lac made by the A.O. The Ground of appeal No.3 is allowed in terms our aforesaid observations.

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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.)

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(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;

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(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

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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.

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disposed off the appeal vide order dated 29.03.2016, i.e., on the same date on which the aforesaid order sheet noting making a reference of the enhancement of income was made, therein instills confidence in the claim of the Ld. AR that the enhancement of the assessee’s income was carried out without affording a reasonable opportunity to the assessee to show cause against the enhancement that was proposed to be made in his hands. We, say so, for the reason that now when the CIT(Appeals) had on 29.03.2016 called upon the assessee’s counsel (though in no clear terms) about the enhancement of income as regards his gross profit, then, disposing off the said appeal on the same date i.e. 29.03.2016 without even waiting for the reply of the assessee qua such enhancement can by no means be held to be justified within the meaning of sub-section (2) of Section 251 of the Act. In our considered view there is substance in the claim of the Ld. AR that the CIT(Appeals) had carried out the impugned enhancement without validly putting the assessee to show cause as to why the same may not be made in his hands. At the same time, we are unable to concur with the Ld. AR that merely for the said failure on the part of the CIT(Appeals) the enhancement so made is liable to be quashed. We are of the considered view that as the CIT(Appeals) while carrying out the enhancement had failed to comply with the mandate of sub-section (2) of Section 251 of the Act, therefore, the matter in all fairness requires to be restored to his file for re-adjudication after affording a reasonable

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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.

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certificates will have a strong bearing on the adjudication of the ground of appeal No.4, therefore, in all fairness the same merits admission.

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40(a)(ia) to the said extent shall be vacated by him. The Ground of appeal No.4 is allowed for statistical purposes in terms of our aforesaid observations.

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.

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74 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba ITA Nos. 93 & 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.

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the file of the A.O for fresh adjudication. Accordingly, we set aside the order of the CIT(Appeals) and restore the matter to the file of the A.O for fresh adjudication, wherein he is directed to re-adjuciate the matter after considering the reconciliation statement of the assessee explaining the impugned discrepancies in the gross receipts shown in his books of accounts as against those reflected in the TDS certificates. Needless to say, the A.O shall adjudicate the aforesaid issue after affording a reasonable opportunity of being heard to the assessee. Thus, the Ground of appeal No.5 raised by the assessee is allowed for statistical purposes.

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

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77 Shri Sushil Kumar Agrawal Vs. Joint Commissioner of Income Tax, Range, Korba ITA Nos. 93 & 94 /RPR/2017

assessee on the said loans cannot be sustained and are consequentially vacated. Apropos the assessee’s claim for deduction of interest paid on the balance amount of loans aggregating to Rs.30 lac (supra) that was raised by him from three partners, viz. (i) Smt. Mohini Garg; (ii) Shri Pavan Garg; and (iii) Smt. Sharda Devi, as we have while disposing off the appeal of the assessee for A.Y.2010-11 in ITA No.93/RPR/2017 had set-aside the additions made on the said count by the A.O u/s.68 of the Act and restored the matter to the file of the A.O with a direction to re-adjudicate the issue after carrying out certain verifications, therefore, on the same terms the disallowance of the assessee’s claim for deduction of interest of Rs.39,000/- on the said amount is restored to the file of the A.O. The additional Ground of appeal No.7 is partly allowed/allowed for statistical purposes in terms of our aforesaid observations.

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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 ITA No.93/RPR/2017 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.

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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 ITA Nos. 93 & 94 /RPR/2017

Sd/- Sd/- ARUN KHODPIA RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायपुर/ RAIPUR ; �दनांक / Dated : 27th March, 2023 SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant. 2. ��यथ� / The Respondent. 3. The CIT(Appeals), Bilaspur (C.G) 4. The CIT, Bilaspur (C.G) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण,रायपुर ब�च, रायपुर / DR, ITAT, Raipur Bench, Raipur. गाड� फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // True Copy // �नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur.