RAJRATAN GOYAL,SURAT V. ITO, WARD-2(1)(1), SURAT

ITA 427/SRT/2024

AI Insights

The case involves Rajratan Goyal, the appellant, who appealed against the order of the CIT(A) which had sustained disallowances made by the Assessing Officer (AO) under the Income-tax Act, 1961. The AO had disallowed interest expenses on interest-free advances and added amounts as deemed dividend under section 2(22)(e) of the Act. The CIT(A) dismissed the appeal due to non-compliance by the appellant in responding to notices. The Tribunal found that the CIT(A) had not complied with the mandate of section 250(6) of the Act, which requires a speaking order, and thus remitted the matter back for a fresh decision.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 473292 (ITAT-SURAT)
• Duration Of Justice: 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Next Hearing Date: 10-10-2024
• Assessment Year: 2014-2015
• Appeal Filed On: 15-04-2024
• Other Referred Cases: CIT vs. Reliance Industries Ltd., 102 taxmann.com 52 (SC), ACIT vs. Gujarat Narmada Valley Fertilizer Co. Ltd., 42 taxmann.com 579 (Guj.), PCIT vs. Dwarka Prasad Agrawal, (2024) 161 taxmann.com 813 (SC), Smt. Kankuben Karsanbhai Tejani vs. DCIT, (2022) 145 taxmann.com 530 (Surat \\u2013 Trib.)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUKESH JAIN
• Assessee Lawyers: RAMESH MALPANI
• Keywords: Set aside; Proportionate interest; Deemed dividend; Onus to prove; Commercial expediency
• Section: 250; 13; 2(22)(e)

Judgement Text

" IN THE INCOME-TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.427/SRT/2024 Assessment Year: (2014-15) (Physical Hearing) Rajratan Goyal, D-4252-57, Radha Krishna Textile, Market, Ring Road, Surat - 395003 Vs. The ITO, Ward – 2(1)(1), Surat èथायीलेखासं./जीआइआरसं./PAN/GIR No: ACHPG7515M (Appellant) (Respondent) Appellant by Shri Ramesh Malpani, CA Respondent by Shri Mukesh Jain, Sr. DR Date of Hearing 10/10/2024 Date of Pronouncement 11/11/2024 आदेश / O R D E R PER BIJAYANANDA PRUSETH, AM: This appeal by the assessee emanates from the order passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’) dated 22.02.2024 by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short, ‘CIT(A)’] for the assessment year (AY) 2014-15. 2. The grounds of appeal raised by the assessee are as under: 1) That on the facts and in the circumstances of the case as well as in law, the appeal order passed by Id. CIT (A) dismissing the appeal of the appellant is wrong, unjustified, invalid and bad in law. 2) That on the facts and in the circumstances of the case as well as in law, the Id. CIT (A) has erred in sustaining the disallowance of interest expense of Rs.5,67,612/- in respect of interest free advances given, whereas it was evident that the advances so given were based on business expediency and appellant had sufficient own funds for giving these advances. Hence, disallowance of interest made by Id. AO and sustained by Id. CIT (A) is wrong, unjustified and contrary to the settled law. Appellant prays for deleting the same. 2 ITA No.427/SRT/2024/AY.2014-15 Rajratan Goyal 3) That on the facts and in the circumstances of the case as well as in law, the Id. CIT (A) has erred in sustaining the addition of Rs.7,97,673/- on account of deemed dividend u/s 2(22)(e) of the Act by wrongly assuming the advance received from company in the course of business as deemed dividend. Addition so made by Id. AO and sustained by Id. CIT (A) is wrong, unjustified and contrary to the settled law. Appellant prays for deleting the same. 4) Appellant craves leave to add, alter, delete or modify any ground of appeal.” 3. During the hearing, Learned Authorized Representative (Ld. AR) of the assessee submitted that assessee does not wish to press ground no. 1; therefore, we dismiss this ground as not pressed. 4. Brief facts of the case are that are that assessee filed his return of income for AY.2014-15 on 26.11.2014, declaring total income at Rs.10,49,360/-. The case was selected for scrutiny under CASS and various statutory notices and show cause notice were issued calling for various details. The Assessing Officer (in short, ‘AO’) found that assessee given interest-free loans and advances of Rs.49,70,097/- to six persons during the year. After considering reply of assessee to the show cause notice, he held that Rs.47,30,097/- given to four persons was not for business purpose and accordingly, he disallowed Rs.5,67,612/- being the proportionate interest @ 12% per annum and added it to the total income. He also added Rs.7,97,673/- as deemed evident u/s 2(22)(e) of the Act. The total income was determined at Rs.24,14,650/- against returned income of Rs.10,49,360/-. 5. Aggrieved by the order of AO, the assessee filed this appeal before the CIT(A). The CIT(A) issued 8 notices fixing the hearing on 04.01.2018, 26.06.2019, 03.04.2020, 28.12.2020, 18.08.2021, 17.05.2023, 05.10.2023 and 16.01.2024. 3 ITA No.427/SRT/2024/AY.2014-15 Rajratan Goyal But there was no compliance by the appellant. Hence, the CIT(A) proceeded to decide the appeal based on the materials available on record. He has reproduced assessment order at page 6 to 13 of his appellate order. The decision is at para 6 and 7 of his appellate order. He has observed that despite being given many opportunities, appellant did not respond during appellate proceedings nor did he furnish any written submission or evidence in support of the grounds of appeal raised by him. He further observed that the assessment order is a well-reasoned and speaking order. The burden of proof lies on the appellant to prove that the facts and findings of the AO are incorrect. As the appellant did not file any reply or evidence and did not avail the opportunities granted to it, the CIT(A) dismissed the appeal. 6. Aggrieved by the order of Ld. CIT(A), the assessee filed appeal before the Tribunal. The Learned Authorized Representative (Ld. AR) of the assessee submitted that notices, though uploaded on the ITBA portal, were not received by the appellant on the e-mail or physically. No alert was received in respect of these notices in the mobile number i.e., 9825030243. Hence, the appellant could not know about these notices and therefore, he could not make submission in response to the same. The Ld. AR further submitted that brief submission in the form of ‘Statement of facts’ was already before the CIT(A). Further, contentions of the appellant were also mentioned in the assessment order. However, the CIT(A) has not considered the same and dismissed the appeal because assessee did not make submission in response to the notices issued by him. On merit, the Ld. AR submitted that assessee was having 4 ITA No.427/SRT/2024/AY.2014-15 Rajratan Goyal sufficient own capital of Rs.1,02,90,188/- to justify interest-free advances given of Rs.47,30,097/-. He relied on the decision of Hon’ble Supreme Court in the case of CIT vs. Reliance Industries Ltd., 102 taxmann.com 52 (SC) and ACIT vs. Gujarat Narmada Valley Fertilizer Co. Ltd., 42 taxmann.com 579 (Guj.). Regarding deemed dividend, he submitted that the consolidated position was net debit balance of Rs.28,64,028/- instead of the standalone loan and advances received of Rs.19,15,984/- from M/s Rich Look Fashions Pvt. Ltd. He submitted that in the ledger account of the appellant in the books of account of M/s Rich Look Fashions Pvt. Ltd., there is no loan given by the said company to the appellant and the payments given where for purchase of goods and job works charges i.e., trade payments. Hence, in view of CBDT Circular No.19 of 2007, dated 12.06.2017, PCIT vs. Dwarka Prasad Agrawal, (2024) 161 taxmann.com 813 (SC) and Smt. Kankuben Karsanbhai Tejani vs. DCIT, (2022) 145 taxmann.com 530 (Surat – Trib.), the additions are not justified. 7. On the other hand, Learned Senior Departmental Representative (Ld. Sr. DR) of the Revenue supported the order of lower authorities. He submitted that there was no commercial expediency for advancing the impugned sum without interest. He also submitted that the deemed dividend added by AO is justified because the merging of accounts, as claimed by the assessee, is an afterthought and the auditor has confirmed the unsecured loan. He, however, submitted that the CIT(A) has passed an ex parte order. 8. We have heard both the parties and perused the material available on record. We have also deliberated upon the case laws relied upon by the Ld. AR. 5 ITA No.427/SRT/2024/AY.2014-15 Rajratan Goyal We find that the AO has made the addition by partially accepting submission of the assessee regarding interest-free advances to six parties. He has considered for disallowance the advances to four parties only and disallowed Rs.5,67,612/-. Regarding the deemed dividend, the explanation of the assessee was not accepted by AO. The Ld. Sr. DR submitted that there was no commercial expediency and business necessity for giving interest-free loans and advances. Further, the claim by the Ld. AR about merger of the accounts to show that there was payment of purchase of goods and job work charges i.e., trade payments is an afterthought. After considering the contentions of both parties, we find that the CIT(A) has not passed an order as per the mandate of section 250(6) of the Act and dismissed the appeal of assessee only on the ground of non-compliance. The order passed by the CIT(A) is clearly violative of the express provisions of section 250(6) of the Act, which provides that the appellate orders of the CIT(A) are to state the points arising in the appeal, the decision of the authority thereon and the reasons for such decisions. The underlying rationale of the provision is that such orders are subject to further appeal to the appellate Tribunal. Speaking order would obviously enable a party to know precise points decided in his favour or against him. Considering the facts and circumstances of the case and the fact that the assessment order was confirmed by CIT(A) in ex parte order, we are of the considered view that the assessee deserves one more opportunity to contest his case on merit. In the interest of justice, we set aside the order of CIT(A) and remit the matter back to the file of CIT(A) with a direction to pass fresh order in accordance with law 6 ITA No.427/SRT/2024/AY.2014-15 Rajratan Goyal after granting adequate opportunity of hearing to assessee. The assessee is directed to be vigilant and to furnish all details and explanation as needed by CIT(A) by not seeking adjournment without valid reason. With this direction, the grounds of appeal raised by the assessee are treated as allowed for statistical purposes. Since, we have remitted the file back to CIT(A) for de novo adjudication, the other grounds are not adjudicated, being academic in nature. 9. In the result, the appeal of the assessee is allowed for statistical purposes. Order is pronounced in the open court on 11/11/2024 Sd/- Sd/- (PAWAN SINGH) (BIJAYANANDA PRUSETH) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat Ǒदनांक/ Date: 11/11/2024 SAMANTA Copy of the Order forwarded to: 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat "