INCOME TAX OFFICER, WARD-3(1)(1), AHMEDABAD., AHMEDABAD V. NEPTUNE OVERSEAS LTD., ASHRAM ROAD

ITA 253/AHD/2024

AI Insights

The case involves an appeal by the Income Tax Officer against Neptune Overseas Ltd., concerning the assessment year 2011-12. The Department challenged the CIT(A)'s decision which had quashed the additions made by the Assessing Officer regarding unexplained loans and increased litigation liabilities under section 68 of the Income Tax Act. The CIT(A) found that the Assessing Officer had not properly considered the evidence and had misinterpreted facts, such as the incorporation date of a lending company. The Tribunal agreed with the CIT(A)'s findings, emphasizing the lack of a remand report from the Assessing Officer and the misapplication of legal provisions in the reassessment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 633247 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHOK KUMAR SUTHAR
• Assessee Lawyers: HARDIK VORA
• Keywords: Additional evidence; Bad and doubtful debts; Corroborative evidences; TDS
• Section: 147; 148; 68

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER & SHRI NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER I.T.A. No.253/Ahd/2024 (Assessment Year: 2011-12) Income Tax Officer, Ward-3(1)(1), Ahmedabad Vs. Neptune Overseas Ltd., 4th Floor, H. K. House, Ashram Road, Ahmedabad-380009 [PAN No.AAACN5163C] (Appellant) .. (Respondent) Appellant by : Shri Ashok Kumar Suthar, Sr. D.R. Respondent by: Shri Hardik Vora, A.R. Date of Hearing 24.04.2025 Date of Pronouncement 10.06.2025 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Department against the order passed by the Ld. Commissioner of Income Tax (Exemptions), (in short “Ld. CIT(E)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 15.12.2023 passed for A.Y. 2011-12. 2. The Department has taken the following grounds of appeal:- “(a) The Ld. CIT(A) has erred in law and on facts in quashing the assessment u/s. 148 on technical grounds. (b) The Ld. CIT (A) has erred in law and on facts in deleting the addition of Rs.5,80,000/- on account of bad debts. (c) The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 1,50,00,000/- on account of Secured Loans u/s 68 of the IT Act. (d) The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 7,17,005/- on account of Unsecured Loans u/s 68 of the IT Act. (e) The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 3,09,79,671/- on account of non-genuine litigation liability u/s 68 of the IT Act. ITA No. 253/Ahd/2024 ITO vs. Neptune Overseas Ltd. Asst. Year –2011-12 - 2– (f) The appellant craves leave to add, alter and / or to amend all or any of the ground before the final hearing of the appeal.” 3. The brief facts of the case are that the Assessing Officer received information that the assesse had purchased units of Mutual Fund amounting to Rs. 3,73,00,000/-. The Assessing Officer observed that the assesse had not filed it’s return of income for the impugned year under consideration. Considering the above facts, the Assessing Officer was of the view that income had escaped assessment for the impugned assessment year to the tune of Rs. 3,73,00,000/-. In response to notice issued by the Assessing Officer the assesse filed return of income declaring current year loss of Rs. 88,016/- which was arrived at by adjustment of past year’s loss of Rs. 2,51,182/- against Short Term Capital Gain capital of Rs. 1,63,166/- in the impugned year under consideration. 4. During the course of assessment proceedings, the Assessing Officer observed that the assessee-company claimed to have received an unsecured loan of ₹1.5 crore from Futuristics Metal Trading Pvt. Ltd. during the financial year ending 31.03.2011. However, the assessee failed to submit proper supporting documents like a signed confirmation with the company’s stamp, proper address, PAN, and proof of the lender’s financial strength etc. Even the pledged shares were not supported by proper depository or pledge documents. Moreover, the lending company was registered only in 2018, long after the transaction date, and its income details did not show any signs of a lending business. Therefore, the Assessing Officer held that the creditor lacked creditworthiness and the transaction was not genuine. As a result, a sum of ₹1.5 crore loan was considered unexplained and added to the income of the assessee under section 68 of the Act. Further, the Assessing Officer noted that the assessee also claimed to have received an unsecured loan of ₹7,17,005/- ITA No. 253/Ahd/2024 ITO vs. Neptune Overseas Ltd. Asst. Year –2011-12 - 3– from Kailash Gupta. Though his PAN and address were provided, the confirmation letter was incomplete and unverified. Further, Mr. Gupta had not filed a tax return for the relevant year and had been accused by the Forward Market Commission of misusing NMCE funds. There was no financial proof or bank statement showing Mr. Kailash Gupta had the capacity to lend such money. Because of this, the loan was also treated as unexplained and added to the income under section 68 of the Act. The Assessing Officer further disallowed a sum of ₹3 lakh paid as legal and professional fees to Prachi Commodities, under section 40(a)(ia)of the Act since the assessee company failed to deduct tax at source as required. Regarding litigation expenses, the Assessing Officer observed that the assessee company had shown a sudden and large increase in its \"litigation account\" from about ₹19 lakh to over ₹3.29 crore without explaining the source or providing supporting documents. No litigation records, breakup, or sub-ledgers were submitted, and the entries were vague. Further, this increase was not routed through the profit and loss account, and there was a mismatch in opening balances between the books and ledger. Due to this lack of explanation, the increase of ₹3.09 crore was treated as unexplained income and added under section 68 of the Act. The Assessing Officer noted that the assessee also claimed ₹5.8 lakh as bad debts written off, but it failed to prove that these debts had been earlier included in the income of previous years or that they were trade-related and not loans or advances. Since necessary details like names, past income recognition, and proof of business linkage were missing, the claim was disallowed. 5. In appeal, the Commissioner (Appeals) held that the AO had passed the assessment order in a mechanical and casual manner, without properly considering the facts and evidence on record. As a result, the order was found to be legally invalid and liable to be quashed. The AO had made ITA No. 253/Ahd/2024 ITO vs. Neptune Overseas Ltd. Asst. Year –2011-12 - 4– various additions, including a sum of ₹1.5 crore under section 68 of the Act, by wrongly stating that certain supporting documents like depository statements were not provided. Moreover, the AO had incorrectly assumed that the lender company M/s. Futuristics Metal was incorporated in 2018, while it was actually established in 2008. This misinterpretation by AO significantly impacted the assessment. CIT(Appeals) noted that the assessee had submitted several additional pieces of evidence, including Supreme Court and High Court judgments and financial documents, which were crucial to establishing the legitimacy of the transactions. However, the AO failed to respond to repeated requests for a remand report on these new evidences. On the issue of reopening the assessment under Section 148, the Commissioner (Appeals) held that since no addition was made on the basis of the original reason for reopening (i.e., purchase of mutual funds for a sum of Rs. 3,73,00,000/-), the reassessment was invalid on this count as well. This was in view of well-established legal precedents, including judgments by the Gujarat High Court and Bombay High Court which have held that if the additions have not been made by the AO on which the case of the assessee was reopened under Section 147 of the Act, then the re-assessment proceedings are liable to be set-aside with respect to other additions. Regarding the merits of individual additions, disallowance of ₹3,00,000/- towards legal and professional fees was upheld as the assessee failed to prove compliance with TDS provisions and the relevant legal proviso did not apply for the assessment year concerned. Further, disallowance of ₹5,80,000/- for bad debts was reversed by Ld. CIT(A), as the debts were found to have been properly recorded and written off as per law. The addition of ₹1.5 crore towards secured loans was deleted by Ld. CIT(A) after the assessee proved that the loan was backed by pledged shares and the creditor's identity and ITA No. 253/Ahd/2024 ITO vs. Neptune Overseas Ltd. Asst. Year –2011-12 - 5– creditworthiness were established. Another addition of ₹7.17 lakh from a Director's unsecured loan was also deleted by Ld. CIT(A) on the ground that, as it was shown to be a routine business transaction and the Director had been acquitted in related litigation. Further, the addition of over ₹3.09 crore under the heading of litigation liabilities was reversed, as Ld. CIT(A) observed that it was merely a regrouping of earlier existing accounts and no fresh liabilities had been created, attracting provisions of Section 68 of the Act. 6. The Department is in appeal before us against the aforesaid order passed by Ld. CIT(A) deleting the additions made by the AO. 7. On going through the arguments of the Ld. D.R. and the Counsel for the assessee, we observe that firstly the Ld. D.R. did not point out to any specific infirmity in the findings made by Ld. CIT(A) in the appellate order during the course of arguments before us. Secondly, Ld. CIT(A) while passing the order, made a specific observation that the basis on which the case of the assesee was reopened was not the subject matter of additions at the time of passing of the assessment order. Therefore, on this technical ground itself, in view of various judicial precedents on the subject which have held that if no addition are made by the AO on the basis of the ground on which re-assessment proceedings have been initiated, then the other additions made in the assessment proceedings are liable to be deleted. Thirdly, without prejudice to the above, the Ld. CIT(A), looking into the facts of the assessee’s case took on record substantial additional evidence under Rule 46A and sent the same to the AO for his review and called for a remand report. However, despite issuance of two reminders, the AO did not give any report / findings with respect to the additional evidence placed by the assessee in support of it’s ITA No. 253/Ahd/2024 ITO vs. Neptune Overseas Ltd. Asst. Year –2011-12 - 6– case. Accordingly, Ld. CIT(A) after giving a detailed finding with respect to each of the additions made by the AO and the supporting evidence placed by the assessee on record, geve relief to the assessee after passing a detailed speaking order. On going through the findings of the Ld. CIT(A), we are of the considered view that there is no infirmity in the order of Ld. CIT(A) so as to call for any interference. Further, even Ld. CIT(A) gave reminders to the AO to furnish the remand report in response to additional evidence placed by the assessee on record before Ld. CIT(A). However, despite two reminders sent to the AO, there were no inputs in the form of remand report from the concerned AO. Accordingly, in view of the detailed findings by the Ld. CIT(A), with respect to each ground of appeal, we are of the considered view that there is no infirmity in the order of Ld. CIT(A) so as to call for any interference. 8. In the result, the appeal of the Department is dismissed. This Order pronounced in Open Court on 10/06/2025 Sd/- Sd/- (NARENDRA P. SINHA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 10/06/2025 TANMAY, Sr. PS TRUE COPY आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. संबंिधत आयकर आयुƅ / Concerned CIT 4. आयकर आयुƅ(अपील) / The CIT(A)- 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाडŊ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad "