PARAS H SHAH,MUMBAI V. WARD-31(3)(5), MUMBAI OLD INCOME TAX OFFICER 25(3)(2) , MUMBAI

ITA 4253/MUM/2023

AI Insights

The case revolves around an appeal by Paras Hemant Shah against the orders of the National Faceless Appeal Centre (NFAC) and the Commissioner of Income Tax (Appeals), which had confirmed the disallowance of interest expenses and the addition of unreported interest income for the assessment year 2015-2016. The Assessing Officer had initially disallowed the interest expenses claimed under section 57 of the Income Tax Act, citing lack of genuineness, and added certain interest income to the assessee's income from other sources. The Tribunal, after considering additional evidence and the circumstances of the case, found in favor of the assessee, leading to the deletion of both the disallowed interest expenses and the added interest income.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 474395 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Other Referred Cases: Sandhu Builders vs. ITO (ITA no.1328/M/2012 decided on 14.02.2014)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SRINIVAS P.
• Assessee Lawyers: SHREYAS SHAH
• Keywords: Additional evidence; Unexplained cash credit; Principle of natural justice; TDS; FORM 26AS; R3r32
• Section: 68; 194A; 133(6)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI “SMC” BENCH, MUMBAI BEFORE SHRI NARENDER KUMAR CHOUDHRY, JUDICIAL MEMBER आयकर अपील सं./ITA No.4253/MUM/2023 (निर्धारण वर्ा / Assessment Year :2015-2016) Paras Hemant Shah, 2nd Floor, Sashnil, 15, Jai Hind Society, 12th NS Road, JUHU, Mumbai-400049 Vs. ITO, Ward-34(3)(5), Mumbai/ Old ITO-25(3)(2), Mumbai स्थायी लेखा सं./PAN No. : AWPPS 2212 K (अपीलार्थी /Appellant) .. (प्रत्यर्थी / Respondent) निर्ाारिती की ओर से /Assessee by : Shri Shreyas Shah, Advocate & Shri Kunal Shah, CA राजस्व की ओर से /Revenue by : Shri Srinivas P., Sr.DR सुनवाई की तारीख / Date of Hearing : 28/11/2024 घोषणा की तारीख/Date of Pronouncement : 19/02/2025 आदेश / O R D E R The assessee has preferred this appeal against the order dated 30.09.2023, impugned herein, passed by the National Faceless Appeal Centre (NFAC), Delhi/ Ld. Commissioner of Income Tax (Appeals) {in short “Ld. Commissioner” } u/s.250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the assessment year 2015-2016. ITA No.4253/Mum/2023 2 2. In the instant case, the Assessee had declared his total income at Rs.5,64,910/- by filing his return of income for the assessment year under consideration on dated 31.08.2015 which was initially processed u/s 143(1) of the Act, however, subsequently was selected for scrutiny through CASS under limited scrutiny category and therefore statutory notices were issued to the Assessee, who in response had submitted the requisite details from time to time. On examining the case of the Assessee, it was found by the Assessing Officer (in short ‘AO’) that the Assessee, being an individual, has declared his income from other sources and has claimed the deduction of Rs.27,29,244/- u/s 57 of the Act on account of interest paid to the following parties: Sr.No. Name of the Party Amount 1 Daksh Exports 1242123 2 Devdarshan Diamonds Pvt. Ltd. 495000 3 Palak gems Pvt. Ltd. 48600 4 Venice Gems Pvt. Ltd. 315000 5 Axon Finance Ltd. 80112 6 Banas Finance Ltd. 11542 7 Five X Finance Investment Ltd 44877 8 Gromo Trade & Consultancy Ltd. 35507 9 Rockon Fintech Ltd. 46603 10 Tilak Finance Ltd. 222658 11 Rockon Capital Market Pvt. Ltd. 83342 Total 2729244 3. The AO thus in order to cross verify, the genuineness of the above transactions, sent notices u/s 133(6) of the Act to all the above parties calling for their confirmation along with relevant documentary evidences, however, only two parties namely Venice Gems Pvt. Ltd. and Gromo Trade and Consultancy Ltd. furnished the details but the remaining parties did not file any reply till the passing of the assessment order on dated 22.12.2017. Therefore, ITA No.4253/Mum/2023 3 the AO vide show cause notice dated 15.12.2017, specifically informed the Assessee that the parties to whom interest was paid, did not respond to the notices u/s 133(6) of the Act and therefore the Assessee is to reconcile the interest expenses with relevant documentary evidences. 3.1 The Assessee failed to file his reply and to prove the genuineness of the above stated transactions. Therefore, the AO in the absence of relevant details, disallowed the deduction of Rs. 23,78,737/- {Rs.27,29,244/- – Rs.31,500/- + Rs.35,507/-} as claimed by the Assessee u/s 57 of the Act, and added the same to the total income of the Assessee, as income from other sources. 3.2 The AO further, considering the fact “that the Assessee during the assessment year under consideration has received the interest income of Rs.6,27,740/- from a party namely M/s. Aristo Developers (TAN-MUMA 26434C), however, has not declared this income during the year under consideration” show caused the Assessee, who in response vide letter dated 29.11.2017 replied as under: “During the year M/s. Aristo Developers have deducted TDS of Rs.62,774/- on interest of Rs.6,27,740/-. The Assessee has not received the amount till March 2015, but same is received in the next financial year 2015-16 (A.Y. 2016-17) and the same is offered to tax in the AY 2016-17.” 3.3 Aforesaid reply filed by the Assessee was not accepted by the AO on the ground that it is clearly reflected as per AIR information that the said amount has been received by the Assessee during the current year and TDS has also been deducted by the party concern. Therefore, the same should have been declared by the Assessee during the A.Y. 2015-16 i.e. in the year under consideration, which the Assessee has not done. This is intentional on the part of the ITA No.4253/Mum/2023 4 Assessee that he has concealed his income of the year, therefore the entire amount of Rs.6,27,740/- is added to the total income of the Assessee, as income from other sources. 4. The Assessee, being aggrieved, challenged the said additions before the Ld. Commissioner, however, of no avail, as the Ld. Commissioner affirmed the aforesaid addition of Rs.23,78,737/- u/s 57 of the Act by holding that the AO has correctly taken the view that the parties were not found genuine and the Assessee has not made any efforts to prove these parties as genuine, hence the addition made by the AO is confirmed. 4.1 The Ld. Commissioner also affirmed the addition of Rs.62,77,740/- made on account of interest income received from one party namely M/s. Aristo Developers, which was not shown by the Assessee in his income for the year under consideration, by holding that the AO has rightly treated this income in the relevant year, as the Assessee maintaining his account on the basis of mercantile system. In case, a particular amount is not received, then the same should be shown in the list of debtors and therefore the contention of the Assessee is not acceptable and the addition made by the AO is confirmed. 5. The Assessee, being aggrieved, is in appeal before this Court and in order to substantiate his claim has filed various documents such as ledger accounts, bank statements etc. along with petition for admission of additional evidence mainly on the ground that the AO had requested the Assessee to submit the details in respect of his claim for interest expenses u/s 57 of the Act. The Assessee, in response to the same, duly submitted the details vide his ITA No.4253/Mum/2023 5 submissions dated 20.11.2017 and 29.11.2017. The AO, on being satisfied with the veracity of the submissions and documents, has not made any addition qua loans taken by the Assessee in respect of which interest expenses being claimed. However, the AO concluded that the interest expenses are not genuine, without giving due opportunity to the Assessee and in contravention to the principle of natural justice. Even otherwise there was no indication in the last notice issued during the course of assessment proceedings that he is inclined to disallow the interest expenses. As the documents being filed as additional evidence are necessary to substantiate his case and essential for proper adjudication of the issue arising in the appeal under consideration and since the Hon’ble Tribunal is the final fact finding authority under the provisions of the Act and therefore not admitting the same would cause ir-remediable harm to the Assessee. 6. On the contrary the Ld. D.R. refuted the claim of the Assessee and supported the orders passed by the Authorities below. 7. Having heard the parties on filing of additional evidence/documents and perusing the orders passed by the Authorities below and considering the rival claims of the parties it is observed that the reason submitted by the Assessee for not filing the relevant documents before the Authorities below does not appears to be plausible reason and therefore such reason shown is untenable. However considering the peculiar facts and circumstances in totality, as the documents filed by the Assessee are relevant and essential for proper and just decision of the case, hence, this Court is inclined to allow the filing of the additional evidence/documents. As the additional evidences were not ITA No.4253/Mum/2023 6 available before the AO as well as the Ld. Commissioner and thus this Court is inclined to remand the instant case to the file of the AO for determination afresh the issues involved while considering such additional evidence filed by the Assessee. However the Assessee has raised has also raised other aspect of the case/issue to the effect that the lender parties i.e. Daksh Exports and Dev Darshan Pvt. Ltd. depicted at sl.no.1 and 2 in the aforesaid chart, were having opening loan amounts to the tune of Rs.1,45,00,000/- and Rs.55,00,000/- respectively, having received in the A.Y. 2014-15, on which the interest amounts to the tune of 1242123/- and Rs.4,95,000/- respectably, have been paid and claimed the same as interest expenditure by the Assessee,. The Assessee during the A.Y. 2015-16 and 2016-17 has repaid the amount of Rs.1,45,00,000/- received from Daksh Exports and during the A.Y. 2016-17 & 2017-18 has repaid the loan amount of Rs.55,00,000/- received from Dev Darshan Pvt. Ltd. and with regard to rest of the loans received the Assessee has repaid the remaining loans borrowed in the subsequent assessment years. Since no addition has been made on account of unexplained credit of loans in the earlier assessment years and the loans received during the assessment year under consideration also not questioned and/or no addition has been made on the loans received, which goes to show that loans were treated as genuine but not as unexplained cash credit u/s 68 of the Act. Therefore, the Assessee has claimed that no disallowance u/s 57 of the Act is warranted on account of interest expenses in the assessment year under consideration. 9. On the contrary, the Ld. D.R. refuted the claim of the Assessee and supported the orders passed by the Authorities below. ITA No.4253/Mum/2023 7 10. This Court has given thoughtful considerations to the peculiar facts and circumstances and the rival claims of the parties on account of disallowance of interest expenses to the tune of Rs.23,78,737/-. The Co-ordinate Bench of the Tribunal in the case of Sandhu Builders vs. ITO (ITA no.1328/M/2012 decided on 14.02.2014) has also considered the identical issue, wherein no addition has been made on account of unexplained credit of loan received in the previous year, u/s 68 of the Act. The Hon’ble Bench of the Tribunal has held “that no disallowance can be made out of interest in the present year, as in the instant case no addition on account of loans taken in the previous assessment year and during the present assessment year, has been made”. This Court further observe that even otherwise, the Assessee has already repaid the loan amounts in the assessment year involved and the subsequent assessment years, which strengthens the case of the Assessee about the genuineness of the interest expenses, as claimed by the Assessee. Hence, on the aforesaid analyzations, this Court is inclined to allow the claim of the Assessee qua interest expenses to the tune of Rs.23,78,737/- the subjected addition and consequently the addition is deleted. 11. Coming to the second disallowance/ addition of Rs.6,27,740/- being interest paid on loan amount given to M/s. Aristo Developers by the Assessee, the Assessee has claimed that M/s. Aristo Developers though deducted the tax u/s 194A of the Act to the tune of Rs.62,774/- on the interest of Rs.6,27,740/- however, till the date of filing the return of income by the Assessee on 31.08.2015, M/s. Aristo Developers neither intimated to the Assessee of any provision for booking of interest for the year ended on 31.03.2015 nor the said amount was reflected in the form 26AS of the Assessee, as on the date of the filing of the return on ITA No.4253/Mum/2023 8 31.08.2015. M/s. Aristo Developers had paid the TDS and filed the TDS statement only on 05.09.2015 and therefore the issue of interest remained to be decided till filing of the return of income on 31.08.2015. However, the Assessee on being crystallized, booked the said interest amount of Rs.6,27,740/- in the next financial year 2015-16 (A.Y. 2016-17) and offered the same to tax, however, it is a fact that till date the said amount is outstanding, as the Assessee neither received principle amount nor the interest from M/s. Aristo Developers till date. As the TDS deducted was shown by M/s. Aristo Developers only on 05.09.2015, whereas the return of income was filed on 31.08.2015, therefore the Assessee could not offer the said income of Rs.6,27,740/- in the A.Y. 2015-16 but admittedly offered the same in the A.Y. 2016-17 and therefore the addition is un-sustainable. 12. On the contrary, the Ld. D.R. though refuted the claim of the Assessee but not the factual aspects demonstrated above. 13. Having heard the parties and considered the rival claims of the parties, it is observed that the Assessee has not offered the said amount/income of Rs.6,27,740/- on account of interest, during the AY under consideration, in his return of income, because the said income was crystallized on 05.09.2015, when M/s. Aristo Developers had paid the TDS and filed the TDS statement on 05.09.2015, whereas it is a fact that the Assessee has already filed the return of income on 31.08.2015. Admittedly, the Assessee had shown the said amount of Rs.6,27,740/- during the next F.Y. i.e. A.Y. 2016-17 on crystallization of the income on that count and therefore no addition on account of this aspect is sustainable. Consequently, the addition under consideration is also deleted. ITA No.4253/Mum/2023 9 14. In the result, the appeal filed by the Assessee is allowed. Order pronounced in the open court on 19/02/2025. Sd/- (NARENDER KUMAR CHOUDHRY) न्यायिक सदस्य / JUDICIAL MEMBER म ुंबई/Mumbai; दिनांक Dated 19/02/2025 Prakash Kumar Mishra, Sr.P.S. आदेश की प्रनिलिपि अग्रेपर्ि/Copy of the Order forwarded to : आदेशधिुसधर/ BY ORDER, (Assistant Registrar) आयकर अिीिीय अधर्करण, म ुंबई/ ITAT, Mumbai 1. अपीलार्थी / The Appellant- . Paras Hemant Shah, 2nd Floor, Sashnil, 15, Jai Hind Society, 12th NS Road, JUHU, Mumbai-400049 2. प्रत्यर्थी / The Respondent- ITO, Ward-34(3)(5), Mumbai/ Old ITO-25(3)(2), Mumbai 3. आयकि आयुक्त(अपील) / The CIT(A), 4. आयकर आयुक्त / CIT 5. निभागीय प्रनतनिनर्, आयकि अपीलीय अनर्किण, म ुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. सत्यापपत प्रतत //True Copy// "