Varun Satyapal Singhal, Vadodara V. The Incometax Officer, Ward-1(2)(3( Now The DCIT, Circle-1(1)(1), Vadodara

ITA 636/AHD/2023

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 1730 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 12-03-2024
• Assessment Year: 2013-2014
• Appeal Filed On: 20-08-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Additional evidence; Question of law; Fair market value; Corroborative evidences; Set aside
• Section: 68; 43; 2(A); 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “A” BENCH Before: Smt. Annapurna Gupta, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member Varun Satyapal Singhal 376-GIDC, GIDC Makarpura, Baroda, Gujarat- 390010 PAN: AXZPS9257P (Appellant) Vs Income Tax Officer, Ward-1(2)(3), Vadodara, Now DCIT, Circle-1(1)(1), Vadodara (Respondent) Assessee Represented: Shri Parimalsinh B. Parmar, A.R. Revenue Represented: Ms. Saumya Pandey Jain, Sr.D.R. Date of hearing : 13-03-2024 Date of pronouncement : 10-06-2024 आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- This is an appeal filed by the assessee against the order of National Faceless Appeal Centre (NFAC), Delhi, in proceeding u/s 250 vide order dated 23/06/2023 passed for the Assessment Year 2013-14. 2. Before us, at the outset, Ld. Counsel for the assessee submitted that he shall not be pressing for Ground Nos. 3, 4 & 5 of his ITA No. 636/Ahd/2023 Assessment Year 2013-14 I.T.A No. 636/Ahd/2023 A.Y. 2013-14 Page No Varun Satyapal Singhal vs. DCIT 2 appeal. Accordingly, Ground Nos. 3, 4 & 5 of assessee’s appeal are dismissed as not pressed. 3. Ground No. 1 disallowance of interest expenses of Rs.1,06,585/-. The brief facts of the case are that the assessee is engaged in the business of trading of MS Scrap/Ferrous as well as Non-Ferrous Scrap in the name and style of M/s. Singhal Steel. During the course of assessment proceedings, the Assessing Officer made disallowance of Rs.14,06,585/- u/s. 40A(2)(b) in respect of interest paid by the assessee to certain parties during the year under consideration. Such disallowance was made by the assessing officer after adopting rate of interest of 11% as “Fair Market Value” of interest based on the rate of interest charged by the assessee from M/s. Mariya Ship Breaking Pvt. Ltd. 4. In appeal, the Ld. CIT(A) confirmed the addition with the following observations: “The appellant, engaged in the business of trading of MS Scrap (Ferous & Non Ferous Scrap) in the name and style of M/s Singhal Steel had furnished return of income on 28.09.2013 declaring total income at Rs. 16,91,710/. The case was selected for scrutiny. AO completed the assessment by assessing the total income at Rs. 1,49,35,169/- by disallowing Rs. 14,06,585/- out of interest payment, disallowing excess rent claimed of Rs.60,000/-, disallowance u/s 40A of Rs.74,438/-, disallowing deemed rent of Rs.40,425/-, disallowing unexplained salary of Rs. 1,06,000/-, disallowing cessation of liability u/s 41(1) of Rs. 76.726/- and unexplained cash credits u/s 68 of Rs.67.89,405/- During the course of assessment proceedings it was noticed by AO that the appellant has paid interest @15% and up on deposits and unsecured loans and most of the persons are covered u/s 40A(2)(b) of the Act. For instance, in the case of M/s Mariya Ship Breaking Pvt. Ltd, who is a person covered I.T.A No. 636/Ahd/2023 A.Y. 2013-14 Page No Varun Satyapal Singhal vs. DCIT 3 u/s 40A(2)(b) of the Act, the appellant has paid interest @15% however received interest from the same person @11% per annum. The appellant stated that he has paid interest 15% to most of the persons who are not covered u/s 40A(2)(b) except Mariya Ship Breaking Pvt. Ltd. Subhadra Steel, Payal Singhal. We have paid 15% interest to Mariya and Subhadra in line with the interest paid to outside parties so, there is no excess payment of interest. Appellant stated that they had received order from Reliance Industries so, they were in need of finance which they could not arrange from banks as it involves lengthy and time consuming procedures and without finance they might have lost contracts with Reliance Industries so, it was a prudent decision. As per the provisions of section 40A(2)(a) of the I.T. Act, 1961, the appellant is not allowed any expenditure incurred in respect of which the payment has been made to the parties covered u/s. 40A(2)(b) if the same is excessive or unreasonable having regards to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the appellant or the benefit derived by or accruing to him there. The appellant has earned interest from M/s Mariya Ship Breaking Pvt. Ltd @11% and paid interest to the same party @15% and failed to substantiate the excess payment of interest as in the case of most of the outside parties, the appellant obtained loan in the month of February 2013, however, the appellant has made purchases from Reliance Industries between 17.08.2012 to 08.11.2012. The AO was very much right in disallowing interest expenses of Rs. 14,06,585/-. In view of the above, this ground of appeal is, accordingly, dismissed and the addition made by the Ld. AO on this account is, hereby, confirmed.” 5. The assessee is in appeal before us against the aforesaid additions confirmed by Ld. CIT(A). The first argument of the Ld. Counsel for the assessee is that out of total disallowances made by the Assessing Officer with respect to 20 parties, only three parties are related parties as envisaged u/s. 40A(2)(b) of the Act. The same is evident from the Tax Audit Report which has been furnished by the assesse (at Page No. 12 of the Paper Book). Therefore, the I.T.A No. 636/Ahd/2023 A.Y. 2013-14 Page No Varun Satyapal Singhal vs. DCIT 4 assessee submitted that only three parties viz M/s. Mariya Ship Breaking Pvt. Ltd., M/s. Payal Singhal and Shree Subhadra Steel P. Ltd. are related parties, as is evident from the Tax Audit Report (at Page No. 12 of the Paper Book). Accordingly, the Ld. Counsel for the assessee submitted that disallowance u/s. 40A(2)(b) of the Act can be made only in respect of related parties. The said provisions cannot be invoked in order to make disallowance in respect of payments to unrelated parties. Therefore, on this count, disallowance u/s. 40A(2)(b) in respect of interest paid to 17 unrelated parties deserves to be deleted. 6. The second argument of the Ld. Counsel for the assessee was that no disallowance can be made u/s 40A(2)(b) of the Act unless the assessing officer brings on record, the “fair market value” of similar services. In this case, the assessing officer has not determined the “Fair Market Value” of interest in question. Rather, such disallowance has been made by the assessing officer after adopting 11% rate of interest as “Fair Market Value” of interest based on the rate of interest charged by the assessee from M/s. Mariya Ship Breaking P. Ltd. Accordingly, the Ld. Counsel for the assessee submitted that the assessing officer and Ld. CIT(A) failed to bring on record any comparable case as to the “fair market value” of similar services (i.e. prevalent market rate of interest). Accordingly, in absence of the same, no disallowance can be made u/s. 40A(2)(b) of the Act. 7. Thirdly, the ld. Counsel for the assessee submitted that while making the addition, the assessing officer did not issue any show I.T.A No. 636/Ahd/2023 A.Y. 2013-14 Page No Varun Satyapal Singhal vs. DCIT 5 cause notice and as to why the interest paid to unrelated parties should be disallowed. The Ld. Counsel for the assessee drew our attention to Page No. 22 of the Paper Book and submitted that as per Schedule 9 of the financial statements, the aforesaid parties are reflecting as debtors in the books of accounts on which the assessee was also paying interest. 8. Even otherwise on merits, the Ld. Counsel for the assessee submitted that interest @ 18% even to related parties is reasonable for the reason that the funds obtained by the assessee from related parties are without any security, the assessee is not liable to refund these funds to the relates parties in the near future, such funds/loans are without any security and hence such loans fall within the high risk category. On account of the above factors, the loans obtained from related parties deserves a premium as compared to loans obtained from third parties which are usually against any security, need to be repaid in the specified time and do not fall within the high risk category. 8.1. Lastly, the Ld. Counsel for the assessee submitted that Section 40A(2)(b) of the Act envisages disallowance in respect of “excessive” amount paid to “related parties”. However, in the case of two unrelated parties “Amar Steel Industries and Mundra Sale Corporation, the A.O. has disallowed the entire interest expenses instead of making addition only with respect to “differential amount”. The Ld. Counsel for the assessee submitted that this fact was categorically brought to the notice of the assessing officer (reference Page 3 of Assessment Order and page 18 of Ld. CIT(A)’s I.T.A No. 636/Ahd/2023 A.Y. 2013-14 Page No Varun Satyapal Singhal vs. DCIT 6 order). However, the submission of the assessee was ignored. Accordingly, it was submitted that disallowance is clearly against the scheme of the Act and hence, deserves to be deleted. 9. In response, the Ld. D.R. placed reliance on the observations made by the assessing officer and Ld. CIT(A) in their respective orders. 10. We have heard the rival contentions and perused the material available on record. On going through the facts of the instant case, in our considered view, the ld. assessing officer and Ld. CIT(A) have erred in facts and in law in confirming the additions in respect of “excessive amount” paid to unrelated parties by invoking the provisions of Section 40A(2)(b) of the Act In order to invoke the provisions of Section 40A(2)(b) of the Act, the primary condition as is that the disallowance can be made only in respect of “excessive amount” paid to “related parties”. In this case, as per the contents of the Tax Audit Report only three parties have been reported as related parties viz M/s. Mariya Ship Breaking Pvt. Ltd., M/s. Payal Singhal and Shree Subhadra Steel P. Ltd. Nothing has been brought on record to show/demonstrate the balance parties in respect to whom the provisions of Section 40A(2)(b) of the Act have been invoked are “related parties” within the meaning of Section 40A(2)(b) of the Act. Therefore, in our considered view, disallowance u/s. 40A(2)(b) of the Act can be made only in respect of relates parties and the said provision cannot be invoked in order to make disallowance in respect to unrelated parties. Therefore, I.T.A No. 636/Ahd/2023 A.Y. 2013-14 Page No Varun Satyapal Singhal vs. DCIT 7 disallowance made u/s. 40A(2)(b) in respect to unrelated parties is liable to be deleted. 11. Now the second issue for consideration before us is whether the assessing officer has correctly adopted the rate of 11% as “fair market value” of interest based on interest rate charged by the assessee from M/s. Mariya Ship Breaking Pvt. Ltd. In our considered view, in the instant facts, the Tax Authorities have failed to bring on record any comparable cases as to the “fair market value” of similar services (i.e. the prevalent rate of interest). 12. In the case of Sarjan Realities Ltd. 50 taxmann.com 52 (Gujarat High Court), it was held that unless payment of interest was in excess of market rate, merely because assessee paid different interest at different rates different companies, payment of interest could not be held to be excessive and unreasonable. In the case of Amit Mehra 116 taxmann.com 870 (Delhi - Trib.), the ITAT held that where assessee had made payments to related parties, however, there was no material on record to demonstrate that payment made was excessive and unreasonable having regard to fair market rate, impugned disallowance made under section 40A(2)(b) by Assessing Officer was to be deleted. In the case of Kimaya Impex (P.) Ltd. 136 taxmann.com 117 (Mumbai - Trib.), the ITAT held that Where Assessing Officer, taking recourse to section 40A(2)(a) disallowed assessee's claim for deduction of salary paid to daughter of director, however, did not disclose as to how said expenditure was found by him to be either excessive or unreasonable having regard to fair market value of services which I.T.A No. 636/Ahd/2023 A.Y. 2013-14 Page No Varun Satyapal Singhal vs. DCIT 8 were rendered by her for legitimate needs of business of assessee company, disallowance under section 40A(2)(b) being misconceived was to be set aside. In the case of Anilkumar P. Soni Vs ACIT (in ITA No. 2511/Ahd/2013), the ITAT made the following observations: “2. Facts of the case are in a narrow compass. The assessee-an individual trades in precious metal gold, jewellary etc. He filed return on 27-09-2008 declaring total income of Rs. 1,50,21,552/- along with agricultural income of Rs. 1,88,424/-. The Assessing Officer took up scrutiny. He noticed the assessee to have debited interest in P&L account @ 24% as paid to M/s. Devsatya Corporation, Geetaben D. Soni and Shardaben P. Soni amounting to Rs. 13,32,550/-, Rs. 6,73,930/- and Rs. 7,39,790/-; respectively as against that paid in other cases @ 18%. The Assessing Officer accordingly invoked section 40A(2) (b) of the act to benchmark assessee's interest payment @ 18% and computed the corresponding interest disallowance @ 6% coming to Rs. 6,86,717/- thereby treating 24% interest in question as excessive. The CIT(A) upholds Assessing Officer's action. 3. We have heard both the parties. There is no dispute that both the lower authorities have invoked the impugned section 40A(2)(b) disallowance by benchmarking assessee's interest rate paid in other cases @ 18% to disallow 6% excessive rate in case of above three payees. There is not even iota of discussion in the lower orders about market rate of interest. Nor any exercise in this direction seems to have been carried out. Hon'ble jurisdictional high court in (2014) 50 taxamann.com 52 (Guj) CIT vs. Sarjan Realities Ltd holds that the impugned disallowance cannot be invoked solely because an assessee has made interest payments at different rates to various parties. We repeat that there is no other material discussed apart from adopting interest rate @ 18% as paid to other payees. We accordingly follow hon'ble jurisdictional high court decision to delete the impugned interest disallowance/addition.” 12.1. In the case of Sharma Cars P. Ltd. Vs DCIT (in ITA No. 1655/Ahd/2015), the ITAT made the following observations: “9. A bare perusal would indicate that provisions of section can be invoked mainly three situations; (a) of the expenditure is incurred is excessive or unreasonable considering fair market value, or (b) it is not incurred for the purpose of legitimate business need of the assessee, (c) it is excessive or I.T.A No. 636/Ahd/2023 A.Y. 2013-14 Page No Varun Satyapal Singhal vs. DCIT 9 unreasonable having regard to the benefits derived by the assessee. Sub- clause (b) of the section contemplates relationship of the persons to whom payment was made vis-à-vis the management of an assessee. In other words on account of their relationship with the management, they may not take undue advantage from the assessee. In other words, considering the payment made by an assessee to a particular person, who has an advantageous position on account of relationship with the assessee, then some undue advantage be not extended by the assessee to such person. That relationship has been explained in clause (b). Thus, in plain understanding, if an assessee availed service, goods or facilities from any person who falls within the ambit of sub-clause (b) of section 40A(2) and payment made to such related person is excessive in the understanding of the AO than the fair market value of such services, goods or facilities, then, excessive amount will not be allowed to an assessee as a deduction. The AO has to establish that services, goods and facilities availed by the assessee from such related party can be availed from the open market at a lesser price. Only then, he will disallow the claim of expenditure made by the assessee. If we apply this logic to the finding recorded by both the authorities, then it would reveal that both the authorities have miserably failed to demonstrate fair market value of services rendered by these related employees. Neither the AO nor the ld.CIT(A) had demonstrated anywhere that the person to whom salaries have been paid by the assessee could not command that salary in the open market or persons having more caliber could be employed at a lesser salary by the assessee. They have merely compared the payment of salary vis-à-vis turnover of the assessee as well as salary paid in earlier years. That is not the purpose of section 40A(2). Business needs have to be determined by the businessman and not by the Assessing Officer, and if it is appeared to the AO that a particular person could not fetch this much salary from the open market, only then he can disallow part of that salary. 10. During the course of hearing, it was brought to our notice that profit before taxes for the year has increased from Rs.95.90 lakhs to Rs.153.28 lakhs. The assessee had a jump in turnover by 62.9%. It was also contended that had the assessee was a partnership firm, it could give maximum remuneration to the partners upto 194.41 lakhs, whereas, it has paid remuneration to directors and other related parties to the extent of Rs.199.80 lakhs. The assessee has submitted this comparative status before the AO. A perusal of the finding recorded by the ld.CIT(A) would reveal that the ld.CIT(A) has observed that the assessee has failed to furnish evidence with regard to the attendance of the employees. It is pertinent to observe that salary has not been disallowed on this ground by I.T.A No. 636/Ahd/2023 A.Y. 2013-14 Page No Varun Satyapal Singhal vs. DCIT 10 the AO. He has not disbelieved the relationship of employees and employer. He has disbelieved that salary was paid in excessive. Similarly, the ld.CIT(A) has observed that the assessee failed to produce any documentary evidence in support of the details of work, profile of the related person. A perusal of the chart reproduced above, the assessee has disclosed their qualification, branch in which they are working. It was for the AO to carry out a study, whether similar employees are getting lesser salary in the market. Onus was not upon the assessee, rather it was for the Revenue to demonstrate that salary paid by the assessee is excessive. They have not provided any evidence in that regard. The AO has simply made a comparison between the salaries paid in earlier years vis-à-vis this year. But that cannot be sole criterion. Therefore, taking into consideration the facts and circumstances, we are satisfied that the AO failed to bring evidence on record to demonstrate the fact that the assessee has availed services of related persons at a higher price than the one which could be availed at a lower rate from the open market. We allow this ground of appeal and delete disallowance of Rs.1,50,73,321/-.” 12.2. In the case of Kashi Exports Pvt. Ltd. Vs DCIT (in Tax Appeal No. 156 of 2003 order dated 15.12.2014), in this case, the Hon’ble Gujarat High Court made the following observations: “4. At the outset, Mr. Soparkar, learned Advocate for the appellant, invited our attention to a recent decision of this Court in Tax Appeal No. 1058 of 2006, Dated : 26.11.2014, in the case of “TAKTAWALA GLASS IND. PVT. LTD. VS. ACIT”, wherein, this Court, under similar circumstances, answered the question of law raised, therein, in favour of the assessee and against the Revenue. While disposing of the Tax Appeal No. 1058 of 2006, this Court placed reliance on the decision of this Court in “CIT III VS. AHKOK J. PATEL”, [2014] 43 Taxmann.com 227 (Gujarat), wherein, in Para-8 it is observed as under; “8. That the assessee who is in the business of transportation claimed disallowance with respect to motor bus rent paid to various persons for transportation contracts. The AO was of the view that the assessee has failed to produce any comparative market price and that the nature of work carried out by the aforesaid persons is general in nature. The Rs.15,49,163/for AO AY disallowed 200506 and Rs.14,97,668/for AY 200607 out of the total payment of bus rent under section 40A(2)(b). With respect to AY 2006-07 AO also made disallowance of Rs.93,25,426 made I.T.A No. 636/Ahd/2023 A.Y. 2013-14 Page No Varun Satyapal Singhal vs. DCIT 11 under section 40(a) (ia) of the Act by holding that the amendment carried out by Finance Act, 2010 can be held to be retrospective from AY 2005- 06. Now, so far as the disallowance made under section 40A(2)(b) of the Act on the ground of motor bus rent is concerned, it appears that the AO disallowed 5% of the total payments towards motor bus rent by observing that the assessee has failed to reconcile the difference in payments as per tax audit report and as submitted during the assessment proceedings and had also not produced any comparative prices. The learned CIT(A) deleted the said disallowances by observing that the AO has not made out any case for excessive or unreasonable payments to the related purpose towards the motor bus rent. The learned CIT(A) also observed that no comparative prices for similar transport services was cited by the AO and therefore, was not justified in making ad hoc disallowance of 5% under section 40A(2)(b) of the Act and therefore, the CIT(A) as such rightly deleted the disallowances made under section 40A(2)(b) of the Act. Considering the provisions of Section 40A(2)(b) of the Act and the Evidence Act, if the AO was of the opinion that the payment for which disallowance is claimed, is excessive or unreasonable. In that case, it was for the AO to assess fair market price and give comparative instances for payment for similar transport service. In absence of such comparative cases brought on record, as rightly observed by the ITAT it was not open for the AO to make disallowance under section 40A(2)(b) of the Act. While deleting disallowance made by the AO under section 40A(2)(b) of the Act, the learned ITAT has observed and held in para 7 as under : 7. It is plain on principle that, so far as disallowance under Section 40A(2) for payment being excessive or unreasonable can only be made when the payment is made to the specified persons under clause 40A(2)(b) and the Assessing Officer is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market price of the goods, services or facilities for which the payment is made. The opinion of the Assessing Officer for the expenditure being excessive or unreasonable is to be formed vis-a vis fair market price of such goods services or facilities. It is thus sine qua non for making a disallowance under section 40(A)(2) that the Assessing Officer has to ascertain the fair market price of such goods, services or facilities, and then make a disallowance for the amount which is in excess of fair market value of such I.T.A No. 636/Ahd/2023 A.Y. 2013-14 Page No Varun Satyapal Singhal vs. DCIT 12 goods, services or facilities. Unless there is a categorical finding about the fair market value and the assessee has an opportunity to be heard on Assessing Officers finding about such fair market value, there cannot be an occasion to make a disallowance under section 40A(2). The very scheme of Section 40A(2) does not envisage an ad hoc disallowance as has been made in the present case. For this short reason alone, the impugned deletion of disallowance must stand confirmed. There is, however, one more reason for doing so. As evident from a plain reading of the assessment order, the Assessing Officer, had called upon the assessee to demonstrate that the payment made by the assessee to the specified persons is not unreasonable or excessive, and it is thus failure of the assessee which has resulted in disallowance under section 40A(2). However, proving a negative, as the assessee has been called upon to do in this case, is an impossible onus to perform. In any event, this onus is on the Assessing Officer and the AO has failed to discharge the said onus. For this reason also, the disallowance is unsustainable in law. As regards the discrepancy in the figures of the tax audit report and the assessee, neither such a situation can be a reason enough to make a disallowance under section 40A(2) nor the onus of explaining such a variation is on the assessee. A tax auditor is an independent professional and any errors in his report cannot be put to assesses disadvantage. In view of these discussions, as also bearing in mind entirety of the case, we approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter. We are in complete agreement with the view taken by the ITAT and the observations made by the learned ITAT while deleting disallowances made by the AO under section 40A(2)(b) of the Act on motor bus rent. No error has been committed by the learned ITAT which calls for interference of this Court. No question of law much less any substantial question of law arises.” 5. Further, this Court also took into consideration, another decision of this Court in “CIT-IV VS. SARJAN REALITIES LTD.”, [2014] 50 Taxmann.com 52 (Gujarat), wherein, in Para-4 it is observed as under; 4. Heard Shri Varun Patel, learned advocate for the revenue. Now so far as question no. 2(a) with respect to disallowance of Rs.1,22,13,280/made by the AO u/s 40A(2)(b) of the Act being excessive interest paid to I.T.A No. 636/Ahd/2023 A.Y. 2013-14 Page No Varun Satyapal Singhal vs. DCIT 13 associates is concerned, it is required to be noted that it is the contention on behalf of the revenue that as such the company paid the interest at different rates from different persons / companies and therefore, the same was rightly disallowed under Section 40A(2) (b) of the Act. However, it is required to be noted that except aforesaid there was no basis for the AO to come to the conclusion that amount of interest paid at the rate of 12% would relate to the concerned parties was otherwise excessive and/or unreasonable. It is not the case on behalf of the revenue that considering the market rate the aforesaid interest charged at the rate of 12% can be said to be excessive and / or unreasonable. Under the circumstances, solely assessee for because whatever the reasons/ different rates by that itself cannot be a ground to come to the conclusion that charging of interest at higher rate than charged from other party was excessive and / or unreasonable. Under the circumstances, both the learned CIT(A) as well as learned ITAT have rightly deleted the disallowance of Rs. Rs.1,22,13,280/made by the AO u/s 40A(2)(b) of the Act. We are in complete agreement with the view taken by the learned Tribunal. Under the circumstances, question no. 2(a) is answered against the revenue.” 6. Thus, from the above it is clear that disallowance under Section 40A(2) for payment being excessive or unreasonable can only be made when the payment is made to the specified persons under clause 40A(2)(b) and when Assessing Officer is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market price of the goods, services or facilities for which the payment is made. In the instant case, admittedly, the concerned AO has not decided on what will be the fair market price of the goods, services or facilities for coming to the conclusion that the payment made by the assessee, herein, was excessive. Even, the learned CIT(A)has also observed that the Assessing Officer’s mistake has been that the AO has not only hazarded a guess on how the adjustment has been made, but, the AO has actually proceeded to work out suppressed income on the basis of his guess assuming it to be the real reason. In other words, the AO proceeded only on the basis of assumptions, without there being any material in support, thereof, and rejected the explanations given by the assessee, which, in turn wrongly confirmed by the CIT(A) and the Tribunal. 7. Mr. Mehta, learned Advocate for the Respondent-Revenue, does aforesaid position of law. 8. not dispute the So far as firs question is concerned, the factual scenario also permits us to held that provisions of Section 40A(2)(b) will permit the assessee I.T.A No. 636/Ahd/2023 A.Y. 2013-14 Page No Varun Satyapal Singhal vs. DCIT 14 allowance of labour charges paid to the female relatives of the Director of the assessee Company and that on facts and seeing that the law declared is in favour of the assessee, the disallowance could not have been made in the facts of the case. We held that the interpretation of Section 40A(2)(b) would not permit disallowance when there was no finding the effect that the labour charges paid were in excess of the fair market charges and that the authorities below disallowed the labour charges without ascertaining the fair market value of the same.” 12.3. Accordingly, in view of the facts of the instant case, we observe that the assessing officer and Ld. CIT(A) have not given any specific finding as to how the aforesaid interest rate paid by the assessee was excessive and unreasonable specially in the light of the facts that the funds obtained by the assessee were without any security, there was no immediate obligation to repay the funds in the near future and such loans were taken without any security. In addition, we note that the assessee had also filed application under Rule 46A, in which the assessee had filed additional evidences in the form of Benchmarking Prime Lending Rate of SBI and Personal loan rates of SBI (reference Page Nos. 226/227 of the Paper Book). However, it is observed that the assessing officer has not given any adverse remark in the remand report (reference Page Nos. 253-257 of Paper Book). Accordingly, looking into the instant facts and circumstances of the case, we are of the considered view that the impugned disallowance is not liable to be sustained. 13. In the result, Ground no. 2 of the assessee’s appeal is allowed. 14. Ground No. 3 addition of Rs.46,79,882/- u/s 68 of the Act. The brief facts in relation to this ground of appeal are that the I.T.A No. 636/Ahd/2023 A.Y. 2013-14 Page No Varun Satyapal Singhal vs. DCIT 15 assessing officer made addition of Rs.46,79,882/- u/s 68 of the Act in respect of certain unsecured loans obtained from the following parties, which in turn has been confirmed by ld. CIT(A): Sr. No. Name of the party Amount 1 Jagruti H Mehta 709251 2 Kishor K Shah 500000 3 Rekhaben Modi 1500000 4 Shree Subhadra Steel P. Ltd. 1320631 5 Varshaben R Doshi Total 46,79,882 15. While dismissing the appeal of the assessee on this issue, the Ld. CIT(A) made the following observations: “In any of the case complete details were not submitted by the appellant. However, to meet the end of justice, broader view has been adopted by AO by considering the cases in which copy of bank account and copy of return of income are submitted and balance is treated as unexplained and added to the total income of the appellant u/s 68 of the Act In view of the above, unsecured loans worth Rs.46,79,882/- is rightly treated as unexplained and the same is added to the total income of the appellant u/s 68 of the Act by AO. In view of the above, this ground of appeal is, accordingly, dismissed and the addition made by the Ld. AO on this account is, hereby, confirmed.” 16. The assessee is in appeal before us against the aforesaid order passed by ld. CIT(A). The Ld. Counsel for the assessee submitted before us that a detailed documentary evidences with respect to funds received from the parties. The ld. Counsel for the assessee submitted a chart of supporting documentary evidences with respect to various lenders of unsecured loans, which was furnished I.T.A No. 636/Ahd/2023 A.Y. 2013-14 Page No Varun Satyapal Singhal vs. DCIT 16 before the Tax Authorities, the details of supporting evidences filed by the assessee are given below for ready reference: 1) Jagruti H. Mehta: Rs.7,09,251/- ➤ Confirmation-Pg.55 of P/B ➤ PAN details - Pg.55 of P/B ➤ Acknowledgment of ITR Pg.56 of P/B ➤ Bank statement Pgs.233 r.w. 255 of P/B; 2) Kishor K. Shah: Rs.5,00,000/- ➤ Confirmation - Pg.57 of P/B ➤ PAN details - Pg.57 of P/B ➤ Bank statement - Pgs.58-60 of P/B ➤ Acknowledgment of ITR-Pg.207 of P/B 3) Rekhaben Modi: Rs.15,00,000/- ➤ Correct name is "Rakshaben Modi"; ➤ Confirmation - Pg.61 of P/B ➤ Acknowledgment of ITR Pg.62 of P/B ➤ PAN details - Pg.62 of P/B ➤ Bank statement - Pg.63 of P/B 4) Shree Subhadra Steel P. Ltd.: Rs.13,20,631/- ➤ Confirmation - Pg.64 of P/B ➤ Acknowledgment of ITR Pg.65 of P/B ➤ PAN details - Pg.65 of P/B ➤No fresh funds have been received during the year; 5) Varshaben R. Doshi: Rs.6,50,000/- ➤ Confirmation - Pg.208 of P/B I.T.A No. 636/Ahd/2023 A.Y. 2013-14 Page No Varun Satyapal Singhal vs. DCIT 17 ➤ PAN details - Pg.208 of P/B ➤ ITR & Address details - Pg.208 of P/B ➤ Bank statement - Pgs.209-210 of P/B 17. Before us, the Ld. Counsel for the assessee submitted that on perusal of the aforesaid details submitted by the assessee before the Tax Authorities, all three ingredients as prescribed u/s 68 of the Act have been proved by the assessee. The Ld. Counsel for the assessee submitted that Section 68 of the Act casts an initial burden on the assessee to prove identity, genuineness and creditworthiness of the lenders which has been discharged by the assessee by placing documentary evidences. Having discharged the initial onus with satisfactory explanation, the onus has now shifted on the revenue. In the instant case, since all the details had been furnished before the assessing officer, then the assessing officer had option of issuing notices u/s 131/133(6), so as to carry out the necessary verification. However the Ld. assessing officer did not carry out any independent enquiry, so as to bring on record any cogent material based on which the impugned addition could be justified. Further, the assessee also filed application for additional evidences under Rule 46A of the Income Tax Rules. However, while passing the order, the Ld. CIT(A) has only upheld the order of the assessing officer without referring to the additional evidences filed by the assessee in support of the genuineness of the parties and neither any reference to the remand report by the assessing officer was made while deciding the issue on hand. Accordingly, the ld. Counsel for the assessee submitted that in the instant facts, no addition u/s 68 of the Act is liable to be sustained. I.T.A No. 636/Ahd/2023 A.Y. 2013-14 Page No Varun Satyapal Singhal vs. DCIT 18 18. In response, the Ld. D.R. placed reliance on the observations made by the assessing officer and Ld. CIT(A) in their respective orders. 19. We have heard the rival contentions and perused the material on record. We observe that on going through the facts of the instant case, the assessee has furnished substantial documentary evidences to demonstrate the genuineness of the amounts taken from various parties. In addition to the above, the assessee also furnished further additional evidence before the Ld. CIT(A) for his consideration, during the course of appellate proceedings. However from the record placed before us and the order of Ld. CIT(A), it is evident that the assessing officer did not make any efforts to further inquire into the genuineness of the parties from whom the amounts had been obtained. It is further observed that Ld. CIT(A) while passing the order did not refer to the additional evidences furnished by the assessee, during the course of appellate proceedings and neither any reference to the observations made by the assessing officer in the remand report, while dismissing the appeal of the assessee on this issue. Ld. CIT(A) has not given any adverse remark to the documentary evidences placed on record by the assessee with respect to the addition made by the assessing officer u/s 68 of the Act. Accordingly, looking into the instant facts, we are of the considered view that the assessee has furnished adequate documentary evidences in support of its case and the department has not pointed out any specific infirmity in the supporting evidences filed by the assessee. Accordingly, looking into the instant facts, ground no. 3 of the assessee’s appeal is I.T.A No. 636/Ahd/2023 A.Y. 2013-14 Page No Varun Satyapal Singhal vs. DCIT 19 allowed. The balance grounds of appeal raised by the assessee are general in nature and do not require any specific adjudication. 20. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 10-06-2024 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 10/06/2024 True Copy आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद