ACIT, Cir. 43, Kolkata V. M/s Parwati Lakh Udyog, Kolkata

ITA 44/KOL/2021

AI Insights

The case involves the Income Tax Department (revenue) appealing against the order of the CIT(A) which had deleted the additions made by the Assessing Officer regarding unsecured loans treated as bogus and the disallowance of interest expenses on these loans for the Assessment Year 2013-14. The Assessing Officer had initially added Rs.4,99,50,000 as income from bogus loans and disallowed Rs.52,14,990 as interest expenses, citing lack of evidence for the genuineness of the loans. The CIT(A) reversed this decision, leading to the revenue's appeal. The Tribunal examined the evidence presented, including PAN details, bank statements, and financial statements of the creditors, and found no discrepancies that would warrant the additions made by the Assessing Officer.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 132537 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 03-05-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 09-02-2021
• Other Referred Cases: Commissioner of Income Tax vs. Orissa Corpn. (P.) Ltd., CIT vs. M/s. Dataware Private Ltd., Ashish Sumatibhai Shah vs. The DCIT, CIT vs. Ayachi Chandrashekhar Narsangji, ITO vs. Shri Subrata Das, Shri Lalchand P. Dhariwal vs. ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rule 8D
• Section: 131; 68; 271(1)(c); 14A; 133(6); 250; 251; 143(2); 113

Judgement Text

| आयकर अपीलीय अिधकरण Ɋायपीठ, कोलकाता | IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, KOLKATA BEFORE SHRI SANJAY GARG, HON’BLE JUDICIAL MEMBER & DR. MANISH BORAD, HON’BLE ACCOUNTANT MEMBER I.T.A. No. 44/Kol/2021 Assessment Year: 2013-14 ACIT, Circle-43, Kolkata Vs M/s. Parwati Lakh Udyog 2 nd Floor, Room No. 30 135A, C.R. Avenue Kolkata- 700007 [PAN: AEDPG0951R] अपीलाथŎ/ (Appellant) Ů̝ यथŎ/ (Respondent) Assessee by : Shri A.K. Tibrewal, FCA Revenue by : Shri Abhijit Kundu, CIT, Sr. D/R सुनवाई की तारीख/Date of Hearing : 04/05/2023 घोषणा की तारीख /Date of Pronouncement: 26/07/2023 आदेश/O R D E R PER DR. MANISH BORAD, ACCOUNTANT MEMBER : The captioned appeal has been preferred by the revenue against the order of Learned Commissioner of Income Tax (Appeals)-13, Kolkata, (hereinafter referred to as “the ld. CIT(A)”), passed u/s 250 of the Income Tax Act, 1961 (hereinafter ‘the Act’) dated 18/09/2020, for Assessment Year 2013-14. 2. The Registry has pointed out that there is a delay of 59 (fifty nine days) days in filing the present appeal before the Tribunal. The revenue has filed a petition for condonation stating that the impugned order passed by the ld. CIT(A) dt. 18/09/2020 was received by the Department on 14/10/2020. It is noted that the period of delay falls during the time of Pandemic of Covid-19 which has been excluded by the Hon’ble Supreme Court in the case of suo moto Writ Petition (C) I.T.A. No. 44/Kol/2021 Assessment Year: 2013-14 M/s. Parwati Lakh Udyog 2 No. 3 of 2020 dated 10.01.2022 by which the period from 15.03.2020 to 28.02.2022 has been directed to be excluded for the purpose of limitation. Accordingly, we condone the delay and proceed to admit the appeal for hearing. 3. The revenue raised the following grounds of appeal:- “1. That on the facts and in the circumstances of the case the ld. CIT(A) erred in law as well as on the facts of the case by deleting the addition of Rs.4,99,50,000/- of bogus unsecured loans and bogus interest expenses claimed on such loan amounting to Rs.52,14,990/- under section 68 of the I T Act. on the basis of the applicant had satisfactorily established the identity, creditworthiness and genuineness of the transaction. The learned CIT(A)-13, Kolkata has not looked into and also persuade the facts of the case on grounds of such additions of Rs.4,99,50,000/- and interest Rs.52,14,900/-. Hence, order pronounced by the learned CIT(A)-13, Kolkata on such ground is not accepted. 2. On the facts and in the circumstances of the case Ld. CIT(A) erred is law as on the cases of the case deleting the disallowing the entire amount of Rs.52,14,990/- claimed by the assessee firm under section 36(1)(iii) of the I.T. Act which sum included a sum of Rs. 19,56,988/- only paid to 11 parties from whom fresh loans were received by the assessee firm during the previous year 2012-13. 3. On the facts and in the circumstances of the case Ld. CIT(A) erred is law as on the cases of the case deleting the disallowing the sum of Rs.25,967/- under section 14A of the I.T. Act read with Rule 8D of the income Tax Rules, 1962. 4. On the facts and in the circumstances of the case Ld. CIT(A) erred is law as on the cases of the case deleting the disallowing the sum of Rs. 1,39,829/- @20 per cent of the aggregate amounts of expenditure incurred by the assessee firm on account of telephone charge, travelling and Motor car expenses, whichever not maintaining in the books of accounts bills and vouchers produced the course of assessment proceedings. Such ad-hoc disallowances has been made only on an estimated basis which does not find support from the provisions of the act. I.T.A. No. 44/Kol/2021 Assessment Year: 2013-14 M/s. Parwati Lakh Udyog 3 5. The appellant craves leave to add, delete and/or modify any of the grounds of appeal before or at the time of instant appeal proceedings.” 4. Brief facts of the case is that the assessee is a partnership firm engaged in the business of manufacturing and trading of shellac products. Income of Rs.1,25,93,997/- disclosed in the return for Assessment Year 2013-14 filed on 05/09/2013. Case selected for scrutiny through CASS followed by issuance of notice u/s 143(2) and 142(1) of the Act. During the course of assessment proceedings, the ld. Assessing Officer noticed that during the year the assessee has shown unsecured loan of Rs. 4,99,50,000/- and also claimed interest expenditure on the said unsecured loan at Rs.52,14,990/-. The ld. Assessing Officer asked the assessee to explain the nature and source of the said unsecured loan to which certain informations were filed. Some of the notices issues u/s 133(6) of the Act were unserved. However, ld. Assessing Officer was not satisfied and he confirmed the addition for unsecured loan u/s 68 of the Act treating them as bogus entry and in the nature of accommodation entry and also disallowed the interest claim and crux of the finding of the ld. Assessing Officer is as follows:- “From the above discussions/replies, following observations are noted:- (a) Out of the 10 cases to whom summons u/s 131 were issued in 8 cases summons could not be served as there is no existence of such parties in the said premises. Change of addresses filed by the assessee but there also parties are not existed. (b) The assessee was also given several opportunities to produce the parties but failed to produce even one of the loan creditors which I.T.A. No. 44/Kol/2021 Assessment Year: 2013-14 M/s. Parwati Lakh Udyog 4 articulates the fact that such loans are completely bogus and existing in paper only. (c) Reply received from two parties, have returned income of Rs.0/- and Rs.10,557/- during the A.Y.2013-14 but loan received from such parties are Rs.30,00,000/- and Rs.40,00,000/-. Therefore, it is evident that such parties have no credit worthiness to give such huge amount of loan. (d) In the reply received from two parties, no source of fund is explained, therefore such claim cannot be accepted. Under these facts and circumstances, it is clear that the entire unsecured loan of Rs.4,99,50,000/- are bogus and existing only on paper and it is done to bring the unaccounted black money into the business. Under these facts and circumstances, such bogus unsecured loan of Rs.4,99,50,000/- and interest claimed of 52,14,990/- on such bogus loan is disallowed. Therefore Rs.5,51,64,990/- (4,99.50.000 + 52,14,990] is added to the total income of the assessee. Penalty proceedings u/s 271(1)(c) are being initiated separately for furnishing inaccurate particulars /concealment of income. [Addition: Rs.5,51,64,990]” 5. The ld. Assessing Officer also noticed that the assessee had made investment in mutual funds and has received dividend income during the year and thus invoked the provision u/s 14A of the Act and made disallowance at Rs. 25,967/-. Adhoc disallowance of 20% of expenses incurred towards telephone expenses, travelling and motor car running expenses totaling to Rs.1,39,829/-. Income assessee at Rs.6,79,24,783/-. Aggrieved assessee preferred appeal before the ld. CIT(A) and partly succeeded. 6. Aggrieved the revenue is now in appeal before this Tribunal. I.T.A. No. 44/Kol/2021 Assessment Year: 2013-14 M/s. Parwati Lakh Udyog 5 7. The ld. D/R vehemently argued supporting the order of the ld. Assessing Officer and also submitted that the alleged cash creditors did not have a regular business and have meagre source of income and transactions carried out in the bank shows that these are accommodation entry providing companies and, therefore, the assessee has failed to explain the source of the said sum. 7.1. On the other hand, the ld. Counsel for the assessee placing reliance on the finding of the ld. CIT(A) also referred to various documents placed on the paper book containing 220 pages and also placed reliance on the following decisions:-  Commissioner of Income Tax vs. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 78 (SC)  CIT vs. M/s. Dataware Private Ltd. (ITAT No. 263 of 2011 : G.A. No. 2856 of 2011 (Calcutta High Court)  Ashish Sumatibhai Shah vs. The DCIT in ITA No. 2994/Ahd/2017 (Ahmedabad ITAT)  CIT vs. Ayachi Chandrashekhar Narsangji [2014] 42 taxmann.com 251 (Gujarat)  ITO vs. Shri Subrata Das in ITA No. 1386/Kol/2016 (Kolkata ITAT)  Shri Lalchand P. Dhariwal vs. ITO in ITA No. 2623/AHD/2016 (Ahmedabad ITAT) 8. We have heard rival contentions and perused the material placed before us. I.T.A. No. 44/Kol/2021 Assessment Year: 2013-14 M/s. Parwati Lakh Udyog 6 9. Apropos Ground Nos. 1 & 2, raised by the revenue against the addition made under section 68 of the Act and disallowance of interest expenditure paid thereon, we notice that the assessee has placed complete details including PAN Nos., bank account statements, financial statements and income tax details of each of the cash creditors. The ld. Assessing Officer has not indicated any discrepancy in any of these details. The ld. CIT(A) has also examined each of the cash creditors in detail including the fact that in some of the cases there are cash creditors who had already advanced funds for the assessee in the preceding year and some fresh loans have been taken. Interest has been paid through banking channels and tax has been deducted at source. The Assessing Officer failed to bring any adverse material against the assessee and the loan borrowed. Most of the unsecured loans have been repaid in the subsequent period. We, thus are of the considered view that the ld. CIT(A) after examining the facts of the case and giving finding of fact that the assessee has explained the nature and source of alleged sum and has proved the identity and creditworthiness of the cash creditors and genuineness of the transactions and further placing reliance on the judgement of the Hon’ble Calcutta High Court in the case of CIT vs. Dataware Pvt. Ltd. (ITA No. 263 of 2011 dated 21.09.2011), Hon’ble Delhi High Court in the case of CIT vs. Sophia Finance Ltd. (1993) 113 CTR (Del.) FB 472 and Hon’ble Gujarat High Court in the case of CIT vs. Ayachi Chandrashekhar Narsangji [2014] 42 taxmann.com 251 (Gujara), has rightly deleted the addition made by the Assessing Officer under I.T.A. No. 44/Kol/2021 Assessment Year: 2013-14 M/s. Parwati Lakh Udyog 7 section 68 of the Act and also allowed the interest expenditure. Thus, no interference is called for in the finding of the ld. CIT(A). Thus, Ground Nos. 1 & 2 of the revenue are dismissed. 10. Ground No. 3, is against the disallowance made under section 14A of the Act. We notice that the dividend income on during the year is Rs.29,363/-. Disallowance has been made under section 14A of the Act at Rs. 25,967/-. However, the fact remains undisputed that the only investment made by the assessee firm in mutual funds is at Rs.5,00,000/-. During the appellate proceedings before the ld. CIT(A), prayer of the assessee was to direct the Assessing Officer to verify the claim of the appellant in view of the decision of the Hon’ble Calcutta High Court in the case of CIT vs. M/s. REI Agro Ltd., judgment dt. 23/12/2013 in ITAT No. 161 of 2012. Considering the same, we fail to find any infirmity in the finding of the ld. CIT(A) in restoring the issue of disallowance under section 14A of the Act to the assessing officer for necessary verification in light of the judgement of the Hon’ble Jurisdictional High Court in the case of M/s. REI Agro Ltd (supra). Accordingly, Ground No. 3 raised by the revenue is dismissed. 11. Ground No. 4 is against the deletion of adhoc disallowance by the ld. CIT(A) made by the Assessing Officer @ 20% at Rs. 1,39,829/-. We notice that the ld. CIT(A) has confirmed the said disallowance observing that the expenditure being personal nature cannot be ruled out. It was the assessee who had to raise such ground but there is no appeal filed by the assessee and it seems that the revenue has inadvertently raised a wrong ground challenging the finding of the ld. I.T.A. No. 44/Kol/2021 Assessment Year: 2013-14 M/s. Parwati Lakh Udyog 8 CIT(A) even though it has been decided in favour of the revenue. Thus, Ground No. 4 raised by the revenue becomes infructuous and the same is dismissed as such. 12. Ground No. 5 is general in nature. 13. In the result, appeal of the revenue is dismissed. Order pronounced in the Court on 26 th July, 2023 at Kolkata. Sd/- Sd/- (SANJAY GARG) (DR. MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER Kolkata, Dated 26/07/2023 *SC SrPs आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent 3. संबंिधत आयकर आयुƅ / Concerned Pr. CIT 4. आयकर आयुƅ)अपील (/ The CIT(A)- 5. िवभागीय Ůितिनिध ,आयकर अपीलीय अिधकरण, कोलकाता/DR,ITAT, Kolkata, 6. गाडŊ फाई/ Guard file. आदेशानुसार/ BY ORDER, TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Kolkata