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Income Tax Appellate Tribunal, DELHI
Before: SH. N.K.BILLAIYA & SH. ANUBHAV SHARMA
The appeals are preferred by the Assessee and Revenue against the order dated 19.08.2021 of CIT(A)-29, New Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in Appeal No. 10111/2018-19 arising out of an appeal before it against the order dated 06.12.2018 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the ACIT, Circle 28, New Delhi (hereinafter referred as the Ld. AO).
The facts in brief are that the assessee company stated to have been incorporated with an objective to carry on the business of the manufacturing and trading of gold and diamond jewellery, their ornaments and other articles. During the year under consideration assessee company filed return declaring loss of Rs. 5,15,45,351/-. Ld. AO observed that during the year assessee company has shown loan against property from other parties under the head ‘short term borrowings’ amounting to Rs. 3,76,33,541 which was Rs. 1,89,54,980/- during the previous financial year. The assessee was asked by notice u/s 142(1) to justify the same however, failing to provide evidence addition of Rs. 1,86,78,560/- was made by Ld. AO which has been deleted by the ld. CIT(A) with following relevant findings ; “7.3 Vide letter dated 12.02.2020, the appellant further submitted that in respect of increase in the short-term borrowings from Rs. 1,89,54,980.48 to Rs.3,76,33,541.18., that there was no increase in the liability on account of loan, against property, however the increase shown in the liability was on account of change in classification of long-term borrowings into short term borrowings. A comparative chart showing the same in comparison, to previous year is as under:
Note of Particulars 31.03.2016 31.05.2015 Difference Balance Sheet Note 4 Short Term Borrowings 3,76,33,541.18 1,89,54,980.48 1,86,78,560.70 Note 3 Long Term Borrowings 4,53,57,847.71 8,11,85,323.41 -3,58,27,475.70 Repayment of loan during the year 1,71,48,915.00 8,29,91,388.89 10,01,40,303.89 Nil In substantiation of the same the appellant enclosed a copy of audited financials through which it can be observed that there was net decrease in total borrowings from Rs. 10,01,40,303.89 to Rs. 8,29,91,388.89. However, the increment shown on in the short-term borrowings from previous year to current year was on account of re classification of Long term borrowing into short term borrowings. Further it can be seen that the liabilities were reduced and not increased on account of payments made by the assesses company in respect of loan instalments. In view of the same, no addition is sustainable on account of increase in liability on account of short-term borrowings. 7.4 On careful consideration of the above issue it is noted that the sole basis for making the addition in the assessment order is the increase in the amount of short term borrowings taken from Reliance Capital Ltd. in the Balance Sheet of the appellant company. The assessing officer treated the increase of Rs. 1,86,78,560/- (Rs. 3,76,33,541/- balance as on 31.03.2016 (-) Rs. 1,89,54,980/- balance as on 31.03.2015} as unexplained and added the same. In support of the loan against property taken from Reliance Capital Ltd., the appellant has furnished the repayment schedule of the loan and account statement. Thus, the genuineness of the loan is established. Another, point to be noted is that this loan was taken from Reliance Capital Ltd. in A.Y. 2013-14 vide agreement dated 01.11.2012 and thereafter periodic repayments have been made through monthly installments. Thus, during A.Y. 2016-17 no fresh loan has been taken by the appellant. Regarding the increase in the outstanding balance of short term borrowings from Rs. 1,89,54,980/- as on 31.03.2015 to Rs. 3,76,33,541/- as on 31.03.2016, the appellant has demonstrated on the basis of its audited Balance Sheet as on 31.03.2016 that the same is due to re-classification of a part of the loan from long term liability to short term liability. The table submitted by the appellant in this regard is reproduced below and found to be correct. Note of Particulars 31.03.2016 31.05.2015 Difference Balance Sheet Note 4 Short Term Borrowings 3,76,33,541.18 1,89,54,980.48 1,86,78,560.70 Note 3 Long Term Borrowings 4,53,57,847.71 8,11,85,323.41 -3,58,27,475.70 Repayment of loan during the year 1,71,48,915.00 8,29,91,388.89 10,01,40,303.89 Nil Since no fresh loan has been taken during the year under appeal the question of making any addition by treating it as unexplained would not arise. It is also noted that no show case notice was issued on this issue during the course of assessment, proceedings. Looking to the facts and circumstances of the case and in the interest of justice the application for admission of additional evidence was allowed and the assessing officer was provided an opportunity to furnish the remand report. In the remand report dated 01.02.2019, the A.O has not been able to controvert, the above material. Certain observations made in the remand report on this Ground of appeal are not relevant. The same are as under :- (i) Short term borrowings under the head current liabilities Loan from Reliance Capital was taken against property plot No-5, Block
12. Karol Bagh, New Delhi which ownership is not known. No supporting documents of the property as well as the loan security paper duly signed and verified have been furnished. (ii) Perusal of list of guarantors reveals that companies which have taken loans for their own are made guarantors and conversely. With regard to the above observations in the remand report the appellant vide its rejoinder dated 27.01.2020 has explained the names of the persons whose personal guarantees have been given for availing the loans from various banks/NBFC have been furnished by way of additional evidence. Further, all the personal guarantors are family members of the directors or the directors themselves or group entitles. As regards the loan from Reliance Capital Ltd.is concerned the same has been taken against immovable property owned by Bhavya Gold Pvt. Ltd. which is a group concern. Peripherial request made by A.O. for loan security documents is irrelevant once it is established that the secured loans have emanated from a listed NBFC. In view of the above .the addition of Rs. 1,86,78,560 /- is hereby deleted. The appellant gets relief on this ground.”
3. Then Ld. AO observed from the audited balance sheet that during the year assessee has shown other current liabilities under the head “current liabilities” amounting to Rs. 1,93,79,173/- which was Rs. 37,17,219/- during the previous financial year for which explanation was sought for filing evidences but no evidence was filed therefore, current liabilities of Rs. 1,56,61,954/- were considered to be unexplained and unverifiable for which addition was made by Ld. AO. In appeal the Ld. CIT(A) has deleted the same with following relevant findings in para 8.4; “8.4 On careful consideration of the above issue it is noted that the sole basis for making the addition in the assessment order is the increase in other current liabilities. The assessing officer treated the increase of Rs. 1,56,61,954/- as unexplained and added the same. It is also noted that no show case notice was issued on this issue during the course of assessment proceedings. Looking to the facts and circumstances of the case and in the interest of justice the application for admission of additional evidence was allowed and the assessing officer was provided an opportunity to furnish the, remand report. It has been explained by the appellant that die increase of Rs. 1,56,61,954/- is on account of increase in ’’Other Current Liabilities” due to increase in VAT payable, TDS payable, Advance from Individual and Bank Overdraft. The aforesaid increase in ’’Other Current Liabilities” is also reflected in the audited Balance Sheet as on 31.03.2016, Details of increase in "Other Current Liabilities” is tabulated below :- S. No. As at March 31, As at March 31, 2016 (Amount in 2015 (Amount in Rs.) Rs.) 1. TDS Payable 13,90,427.00 19,59,248.00 2. D-VAT Payable 28,79,937.00 17,57.971.00 3. Bank Overdraft 31,08,809.50 Balance 4. Advance from individual 1,20,00,000.00 Total 1,93,79,173.50 37,17,219.00 From the above it can be seen that there is an increase in statutory liabilities such as VAT payable and TDS payable and also increase in Bank overdraft and Advance has been received from an Individual against sale of immovable property. In support of the increase in “Other Current Liabilities”, the appellant has brought on record substantiating documents in the form of Ledger account of VAT payable 2014-15 along with the copies of (i) payment challans substantiating the payment of liability and VAT payable 2015-16 along with quarter wise sales summaries substantiating and cross verifying the VAT liability for the year ; (ii) Copy of TDS summary showing TDS liability for the year booked by the appellant along with the respective TDS ledger accounts under which TDS has been, deducted and payment have been made during the year; (iii) Copy of bank statement of Bank GD bearing number 13178640000175 with HDFC Bank alongwith the bank reconciliation statement showing overdraft balance ; (iv) Copies of ledger accounts of Jasmine Sapra and Sanjeev Sapra showing the transactions towards advance received alongwith the copy of sale deed highlighting therein the above said payments and clarifying that the sale of property against this advance materialized in April, 2016. These evidences and material were duly forwarded to the A.O. for comments if any. In the remand report the A.O has not been able to controvert the above material. The observations made in the remand report dated 01.02.2019 regarding this ground are reproduced as under:- To substantiate the claim, of TDS payable of Rs. 13,90,427/ under (i) Other Current Liabilities, the assessee has submitted challans for payment of TDS. However, after due verification, it is found that no payment of TDS has been found. To substantiate the claim of Rs, 1,20,00,000/- as Advance from (ii) individual, assessee has furnished sale deed of property to Jasmine Sapra and Sanjeev Sapra which is stated to be materialized in April 2016. Therefore, the claim of liability on this count is allowable. To substantiate the claim of Other Current Liabilities, the Ledger Account (iii) of D-VAT (Annexure F) is being furnished alongwith payment challan for D- VAT. On the basis of this document, assessee has claimed total payment of D- VAT tax of Rs. 28,79,937/- and the same has been shown as other current liabilities. However, actual payment as per the challan is Rs. 22,57,971/- only. Therefore, out of total addition of Rs. 1,56,61,954/- on account of other current liabilities, only Rs. 22,57,971 /- is found to be substantiated, Even with regard to the above observations the Appellant has explained that the fact that total D-VAT liability of Rs, 28,79,937/- was outstanding as on 31.03,2016 , is not being disputed. The point to be considered is that on. the basis of the statutory records and documents it has been established that the D-VAT liability outstanding is genuine and hence cannot be taxed u/s 68 of the Act. Same would be the position with regard to the TDS payable liability and the Bank overdraft for which substantiating documents have been furnished. As regards the Advance of Rs. 1,20,00,000/- received from individuals it has been conceded in the remand report that the genuineness of the- advance stands established. In view of the above taking into account totality of facts and circumstances of the case, the addition of Rs. 1,56,61,954/- is hereby deleted. The appellant gets relief on this ground.
4. Revenue is in appeal raising following grounds ; “1. That on the facts and in the circumstances of the case, the Ld. CIT (A) has erred and on facts in deleting the addition of Rs. 1,86,78,560 /- made on account of unexplained liability as loan taken from Reliance Capital Ltd. ignoring the fact that assessee has failed to produce any concrete and also additional evidences in support of its contention.
2. That on the facts and in the circumstances of the case, the Ld. CIT (A) has erred and on facts in deleting the entire addition of Rs. 1,56,61,954/- made on account of unexplained current liability ignoring the fact that assessee has failed to produce any concrete and additional evidences in support of its contention to the extent Rs. 1,34,03,983/-.
That the order of the CIT (A) is perverse, erroneous and is not tenable on facts and in law.
4. That the grounds of appeal are without prejudice to each other. 5.That the appellant craves leave to add, amend, alter or forgo any ground(s) of appeal either before or at the time of hearing of the appeal.”
4.1 Assessee is in appeal raising following grounds ;
“1. That on the facts and circumstances of the case and in law, the order passed by CIT(A) is contrary to facts and bad in law. 2. That on the facts and circumstances of the case and in law, the CIT(A) was not justified in enhancing the income of the appellant by Rs. 41,28,435/- being 30 percent of Rs. 1,37,61,447/- by proposing addition for non-deposit of TDS u/s 40(a)(ia) by introducing a completely new source of income contrary to the settled proposition of law laid down by jurisdictional High Court in the case of Commissioner of Income tax v. Union tyres 107 taxman 447. 2.1 That on the facts and circumstances of the case and in law, the CIT(A) was not justified in invoking section 251(l)(a) of the Act and enhancing the income of the appellant for a completely new source of income.
3. That on the facts and circumstances of the case and in law, the CIT(A) was not justified in upholding the disallowance of Rs. 4,28,759/- for non-deposit of the job work expenses of Rs. 14,29,193/-. 3.1 That on the facts and circumstances of the case and in law, the CIT(A) was not justified in upholding the addition of Rs. 14,78,174/- on account of increase in liabilities towards interest payable under section 43B of the Income tax Act,1961. 3.2 That on the facts and circumstances of the case and in law, the CIT(A) was not justified in making the addition under section 43B of the Act, since the provisions of the said section are not applicable to NBFCs i.e. Reliance Capital for assessment yea under consideration.
4. That the appellant craves leave to add, alter, amend, modify any of the ground of appeal during the appeal proceedings.”
5. Heard and perused the record.
At the outset, it is pertinent to mention that Ld. AR had stated at Bar not pressing ground no. 3 with sub grounds raised in the appeal of assessee.
Ld. DR has supported the findings of Ld. AO and submitted that Ld. CIT(A) has relied the additional evidences and submissions without calling remand report. Ld. AR however supported the findings of Ld. CIT(A) in regard to grounds raised by the Revenue however, in regard to ground no.2 in the appeal of assessee it was submitted that the Ld. CIT(A) has made addition from a completely new source of income which is not permissible u/s 250 r.w.s. 251 of the Act.
8. Now giving thoughtful consideration to the matter on record and submissions the ground wise findings are as follows :-
Revenue’s appeal Ground no. 1
9. It can be observed that before Ld. CIT(A) additional evidences were filed on behalf of assessee in the form of repayment schedules of Reliance Capital Ltd. and the accounts statement. In para 4.3 Ld. CIT(A) mentions the after considering the remand report that if the source of loan being established, the question of disputing identity and creditworthiness of the same can obviously not be raised. The loan from Reliance Capital was taken against property belonging to the party other than the assessee company but that does not make the transaction tainted. Ld. CIT(A) has duly taken into consideration the explanation of the assessee that the alleged addition that the increase in outstanding balance of short term borrowings was merely due to reclassification of part of loan from long term liability to short term liability. The findings of ld. CIT(A) requires no interference the ground is decided against the Revenue.
Ground no. 2
10. In regard to this ground it can be observed that before Ld. CIT(A) it was duly explained by the assessee as to what were the heads under which other current liability had increased. The increased were due to VAT payable, TDS payable, advance from individual and bank overdraft. As with regard to 1st three there can be no dispute and only with regard to advances from individual 1,20,00,000/- there could have beed suspicion which has been taken care of by the assessee by putting explanation by furnishing of sale deeds of property sold to Jasmine Sapra and Sanjeev Sapra. In fact in the remand report genuineness of this advances has been accepted, thus, the findings of Ld. CIT(A) require no interference.
Ground no. 2;
11. As with regard to ground no. 2 in the appeal of assessee it can be observed that Ld. CIT(A) has made an addition of Rs. 40,28,435/- on the basis of following findings in para 11 ; “11. Enhancement :
During the course of appellant proceedings it was noted that the amount of Rs. 13,90,427/- outstanding on account of TDS payable pertained to the assessment year under appeal i.e. F.Y. 2015-16. Therefore, provisions of section 40(a)(ia) of the Act would be applicable to such outstanding TDS amount. In case the TDS was not deposited within the prescribed time i.e. before the filing of tax return 30% of the corresponding expenditure would have to be disallowed. Accordingly, the appellant was issued a notice dated 05.08,2021 u/e 251(2) to explain why ito income should not be enhanced by making an addition u/s 40(a)(ia) df Rs. 1,51,90.640/- for non-deposit of TDs within the prescribed period. The contents of the said enhancement notice are reproduced below “2. Ground No. 4 of the appeal is with regard to addition of Rs. 1,56,61,594/- made in the assessment order by treating the increase in other current liabilities as unexplained and unverified. Vide letter dated 10.01.2018 an application has been made for 3. admission of additional evidence. In the said application it has been submitted that out of the total increase and other liabilities one amount refers to the increase in TDS payable as on 31.03.2016 vis-a-vis the position as on 31.03.2015. The table submitted by the appellant in this regard is reproduced below: S. As at March 31, As at March 31, No. 2016 (Amount in 2015 (Amount in Rs.) Rs.) 1. TDS Payable 13,90,427.00 19,59,248.00 2. D-VAT Payable 28,79,937.00 17,57,971.00 3. Bank Overdraft 31,08,809.50 -- Balance 4. Advance from 1,20,00,000.00 -- individual Total 1,93,79,173.50 37,17,219.00
It has been submitted in the Written Submissions as well as application for additional evidence that no addition is required on this issue since the increase in other liabilities is on account of the increase in statutory liabilities. From the details submitted it is noted that the outstanding amount of TDS payable as on 31.03.2015 has been paid during F.Y. 2015-16. However, the TDS payable pertaining to F.Y. 2015-16 aggregating Rs. 13,90,427/- has not been deposited till the close of the financial year. The details of the same are as under:-
S. No. T.D.S. Amount Amount of (1) (2) (3) Expenses corresponding to Column 3 (4) 1. Contractor 14,293/- 14,29,300/- 2. Interest 13,58,134/- 1,35,81,340/- 3. Professional 18,000/- 1,80,000/- Total Rs. 13,90,427/- Rs. 1,51,90,640/-
In view of the above you are given an opportunity to explain why your income should not be enhanced by making an addition u/s 40 (a)(ia) of Rs.1,51,90,640/-for non-deposit of TDS within the prescribed period. As such, this notice of enhancement is being issued to you. You may file your written submissions electronically in e-proceedings facility through your account in e- filing website www.incometaxindiaefilina.aov.inj on or before 12.08.2021.”
It comes up from the order of Ld. CIT(A) that assessee had raised objection on the assumption of jurisdiction for enhancement which was not accepted by observing that Section 251(1) of the Act empowers CIT(A) to enhance the income of appellant during the course of appellate proceedings.
Hon’ble jurisdictional High Court in the case of Commissioner of Income tax v. Union tyres 107 taxman 447 has dealt with the powers of ld First Appellate authority qua the enhancement qua new source and observed as follows;
“7. The question for consideration is whether the directions by the Appellate Assistant Commissioner to the Income-Tax Officer to conduct enquiry and furnish information on the aforenoted four points fell within the ambit of his powers under Section 251(1)(a) of the Act?.
Section 251 of the Act prescribes the power of the Appellate Assistant Commissioner, now Commissioner (Appeals). Section 251(1)(a) of the Act empowers the Appellate Assistant Commissioner in disposing of an appeal by the assessee against an order of assessment to confirm, reduce, enhance or annul the assessment or to set aside and refer the case back to the Income Tax Officer for making fresh assessment in accordance with the directions given by the Appellate Assistant Commissioner. "Explanation" to Section 251 provides that the Appellate Commissioner may hear and decide any matter arising out of the proceedings in which the order appealed against was passed notwithstanding that such a matter was not raised before the Appellate Commissioner by the appellant.
The issue with regard to the scope of powers of the first Appellate Authority in disposing of an appeal has come up before the Courts umpteen times but we do not propose to burden the judgment by making reference to all the decisions on the point. We will notice a few decisions which we consider are relevant to answer the question referred. In CIT, Bombay Vs. Shapoor ji Pallonji Mistry (1962) 44 ITR 891, while construing the corresponding provisions of the Indian Income-Tax Act, 1922, relating to the jurisdiction of the Appellate Commissioner in such an appeal, the Supreme Court held that, in an appeal filed by the assessee, the Appellate Assistant Commissioner has no power to enhance the assessment by discovering a new source of income, not considered by the Income-tax Officer in the order appealed against. Similar views were expressed by the Apex Court in CIT (Central) Calcutta Vs. Rai Bahadur Hardutory Motilal Chamaria (1967) 66 ITR443. It was held that the power of enhancement under Section 31(3) of the 1922 Act was restricted to the Subject-matter of the assessment or the source of income which had been considered expressly or by clear implication by the ITO form the point of view of taxability and that the Appellate Commissioner had no power to assess a source of income which had been processed by the Assessing Officer.
In Jute Corporation of India Ltd. Vs. CIT & Anr. (1991) 187 ITR 688, heavily relied upon by learned counsel for the Revenue, the Supreme Court, while considering the question whether the Appellate Commissioner had the jurisdiction to allow the assessee to raise an additional ground in assailing the order of assessment before it, referred to Shapporji's case (supra) but drew a distinction between the power to enhance tax on discovery of new source of income and granting of deduction on the admitted facts, supported by the decision of the Supreme Court. Relying on the observations of the Apex Court in CIT, U.P. Vs. Kanpur Coal Syndicate (1964) 53 ITR 225, the Court, however, held that powers of the Appellate Commissioner are coterminous with that of the Income-tax Officer and the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter.
A question regarding powers of the first Appellate Authority came up for consideration before the Supreme Court recently in CIT Vs. Nirbheram Daluram (1997) 224 ITR 610. Following their earlier decisions in Kanpur Coal Syndicate and Jute Corporation of India's cases (supra) though their Lordships reiterated that the appellate powers conferred on the Appellate Commissioner under Section 251 could not be confined to the matter which had been considered by the ITO, as the Appellate Commissioner is vested with all the plenary powers which the Income Tax Officer may have while making the assessment, but did comment on the issue whether these wide powers also include the power to discover a new source of income. Therefore, the principle of law laid down in Shapoorji and Chamaria's cases (supra) still holds the field. 12. Thus, the principle emerging from the aforenoted pronouncements of the Supreme Court is, that the first Appellate Authority is invested with very wide powers under Section 251(1)(a) of the Act and once an assessment order is brought before the authority, his competence is not restricted to examining only those aspects of the assessment about which the assessee makes grievance and ranges over the whole assessment to correct the Assessing Officer not only with regard to a matter raised by the assessee in appeal but also with regard to any other matter which has been considered by the Assessing Officer and determined in the course of assessment. However, there is a solitary but significant limitation to the power of revision, viz. that it is not open to the Appellate Commissioner to introduce in the Assessment a new source of income and the assessment has to be confined to those items of income which where the subject-matter of original assessment.”
Ld. AR has also relied judgments in Toffee Agricultural Farms Pvt. Ltd. v. Income Tax Officer 141 taxmann.com 429 (ii) Hari Mohan Sharma v. Asstt. Commissioner of Income Tax 110 taxmann.com 119 in support of the contention that the Ld. CIT(A) cannot change the provisions of law qua the item of which assessment was made. Since in the case in hand , the Appellate Authority has made enhancement in the assessment by discovering a new source of income, not considered by the Assessing Officer in the order appealed against the ground as raised deserves to be allowed.
In the light of aforesaid determination of the grounds, the appeal of 15. Revenue is dismissed and that of assessee is allowed, with consequences to follow as per the grounds determined.
Order pronounced in the open court on 22nd September, 2023.