Dharmanandan Developers Vs ITO (ITAT Ahmedabad)
Summary: The appeal by Dharmanandan Developers was directed against the order dated 06.11.2024 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi for A.Y. 2018-19. The Income Tax Appellate Tribunal, Ahmedabad Bench, considered two additions: Rs. 25,00,000/- relating to an unsecured loan from Shri Sanjivkumar Kiritkumar Patel and Rs. 29,87,770/- relating to M/s Sai Trading Company. The appeal was ultimately allowed in full.
Unsecured loan of Rs. 25,00,000/-
During assessment proceedings, the Assessing Officer noted that the assessee had taken unsecured loans aggregating to Rs. 3,66,89,137/- from various parties. In respect of Shri Sanjivkumar Kiritkumar Patel, the Assessing Officer recorded that no response had been received to a notice issued under Section 133(6) and, therefore, treated Rs. 25,00,000/- as unexplained under Section 68. The CIT(A) accepted the identity and genuineness of the creditor but considered creditworthiness unproved.
Before the Tribunal, the assessee contended that the lender had actually responded to the notice before the assessment order and had furnished a written submission, bank statement with Vijay Co. Op. Bank Ltd. and the ledger account. The assessee also relied on the lender’s return of income showing income of Rs. 25,38,990/-. The Tribunal found that the lender had specifically responded to the notice, furnished the bank statement from which the loan was given and supplied the ledger account. It further noted the return of income declaring Rs. 25,38,990/-, which established creditworthiness. The Tribunal held that the addition had been made without reasonable basis and that the CIT(A) had not identified any specific lacuna or shortfall in the supporting evidence. Accordingly, the Rs. 25,00,000/- addition was deleted and Ground No. 1 was allowed.
Sundry creditor of Rs. 29,87,770/-
The second dispute concerned M/s Sai Trading Company. The Assessing Officer had issued a notice under Section 133(6), to which no response was received, and made an addition of Rs. 29,87,770/-. The CIT(A) sustained the addition, observing that the material available consisted only of the account in the assessee’s books without confirmation from the creditor.
The assessee submitted that the creditor’s ledger account had already been furnished to the Assessing Officer vide letter dated 09.03.2020 and its PAN and opening and closing balances had been submitted vide letter dated 23.03.2021. It was further submitted that the amount represented an opening balance brought forward from prior assessment years. The Tribunal considered the principle stated in Ivan Singh vs. ACIT, 116 taxmann.com 499 (Bombay), where the High Court held that a credit under Section 68 is chargeable in the previous year in which the sum is credited and an outstanding credit pertaining to an earlier financial year could not be taxed in a later assessment year.
The Tribunal also considered Geeri Fashions Pvt. Ltd. vs. ITO, Ward-1(2), Surat, 130 taxmann.com 495 (Surat-Tribunal), where it was held that where alleged money on account of share application or share premium was received in an earlier year, the same could not be taxed in the current financial year. Applying these judicial precedents, the Tribunal held that the sundry-creditor addition pertained to an earlier assessment year and represented only the opening balance for the year under consideration. No addition was therefore liable to be sustained. Ground No. 2 was allowed.
Consequently, the Tribunal held that both disputed additions were unsustainable and allowed the assessee’s appeal in the combined result.
Cases Discussed
- Ivan Singh vs. ACIT, Circle-1(1), 116 taxmann.com 499 (Bombay)
- Geeri Fashions Pvt. Ltd. vs. ITO, Ward-1(2), Surat, 130 taxmann.com 495 (Surat-Tribunal)
- CIT v. Bhaichand H. Gandhi, [1982] 11 Taxman 59/[1983] 141 ITR 67
- CIT v. Lakshman Swaroop Gupta & Brothers, [1975] 100 ITR 222
- Bhor Industries Ltd. v. CIT, [1961] 42 ITR 57 (SC)
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, AHMEDABAD
This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 06.11.2024 passed for A.Y. 2018-19.
2. The assessee has taken the following grounds of appeal:
“1.1 The order passed by U/s.250 passd on 06.11.2024 by NFAC, [CIT(A)], Delhi (for short CIT(A)” upholding the addition of Rs.25,00,000/- in respect of Shri Sanjivkumar Kiritkumar Patel towards unsecured loan and Rs. 29,87,775/- towards the sundry creditor – M/s Sai Trading Co. made by A.O. is wholly illegal, unlawful and against the principles of natural justice.
2.1 The ld. CIT(A), has grievously erred in law and or on facts in not appreciating that the remand report categorically stated that Shri Sanjivkumar Kiritkumar Patel had submitted all the details as called for by notice u/s 133(6) which the AO had not considered while finalizing the assessment though it was on his record. In view of this clear finding, the impugned addition of Rs. 25 lakhs in respect of Sanjivkumar Kiritkumar Patel upheld by CIT(A) was wholly illegal and unjustified. Therefore, the action of NFAC (CIT(A) deserves to be condemned.
2.2 That the in the facts and circumstances of the ld. CIT(A), ought not to have upheld the addition of Rs. 25,00,000/- in respect of Sanjivkumar Kiritkumar Patel in view of the evidence produced before the lower authorities and remand report.
3.1 The ld. CIT(A) has grievously erred in law and or on facts in upholding the addition of Rs. 29,87,775/- in respect of M/s Sai Trading Co.
3.2 That the in the facts and circumstances of the ld. CIT(A), ought not to have upheld the addition of Rs. 29,87,775/- in respect of M/s Sai Trading Co.”
Ground No. 1: Addition of Rs. 25,00,000/- in respect of unsecured loans
3. The brief facts in relation to this ground of appeal are that during the course of assessment proceedings, the Assessing Officer observed that during the year under consideration, the assessee took unsecured loans amounting to Rs. 3,66,89,137/- from various parties. During the assessment proceedings, the Assessing Officer observed that one of the lenders Shri Sanjivkumar Kiritkumar Patel had advanced loan of Rs. 25,00,000/- to the assessee, during the impugned assessment year. However, Mr. Sanjivkumar Kiritkumar Patel did not file any response to notice issued under Section 133(6) of the Act. Accordingly, the Assessing Officer was of the view that the assessee did not discharge the onus to prove the genuineness of the transaction and creditworthiness of Shri Sanjivkumar Kiritkumar Patel and treated the sum of Rs. 25,00,000/- as income of the assessee under Section 68 of the Act.
4. In appeal, Ld. CIT(A) confirmed the addition with the following observations:
“On due consideration of all the above, it is noted that the appellant had filed certain evidences before the A.O during scrutiny proceedings which were not considered. On remand of the appellant’s submissions in the present appellate proceedings and on examination of all the evidence on record, the AO has pointed out certain lacunae in the evidence. With regard to addition of Rs.2500000 being unexplained unsecured loan from Shri Sanjivkumar Kiritkumar Patel, while identity and genuineness of the creditor have been substantiated, the third element of creditworthiness of the loan creditor could not be established in the absence of any evidence.”
5. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(A) confirming the addition in the hands of the assessee. Before us, at the outset the Counsel for the assessee drew our attention to the fact that there was gross omission on the part of the Tax Authorities in ignoring the fact that Shri Sanjivkumar Kiritkumar Patel had in fact responded to notices issued under Section 133(6) of the Act on 27.04.2021 i.e. before the passing of the assessment order, but the same was not considered while framing the assessment order. It was submitted that this is clearly against the principles of natural justice, wherein though the lender had filed specific response to the notice issued under Section 133(6) of the Act, however, the Assessing Officer added the sum of Rs. 25,00,000/- in the hands of the assessee by observing that no response was received from Mr. Sanjhivkumar Kiritkumar Patel in response to notice issued under Section 133(6) of the Act. The Counsel for the assessee drew our attention to the Remand Report issued by the Assessing Officer (at Page 7 of Ld. CIT(A)’s order) where this fact has been specifically mentioned by the Assessing Officer as well. The Counsel for the assessee submitted that Mr. Sanjivkumar Kiritkumar Patel had submitted reply on 27.04.2024 and in addition to that in the Remand Report the Assessing Officer also noted that he had filed copy of bank statement with the Vijay Co. Op. Bank Ltd. and also copy of ledger account of the assessee, before the Assessing Officer for his consideration. However, despite this fact Ld. CIT(A) dismissed the appeal of the assessee in a summary manner without assigning any specific reason.
6. In response, Ld. D.R. submitted that Ld. CIT(A) has dismissed the appeal of the assessee by noting that the Assessing Officer had pointed out certain lacuna in the evidence and accordingly, he had rightly sustained addition of Rs. 25,00,000/- being unexplained unsecured loans from Shri Sanjivkumar Kiritkumar Patel, in the hands of the assessee.
7. We have heard the rival contentions and perused the material available on record.
8. We observe that the lender Shri Sanjivkumar Kiritkumar Patel had specifically responded to notice issued under Section 133(6) of the Act wherein he had furnished his written submission, copy of bank statement with Vijay Co. Op. Bank Ltd. from which this loan of Rs. 25,00,000/- was given to the assessee and had also furnished copy of ledger account in his books for the impugned assessment year under consideration. Further, the Counsel for the assessee also drew our attention to return of income of Shri Sanjivkumar Kiritkumar Patel for the impugned year under consideration declaring income of Rs. 25,38,990/-, which also established the creditworthiness of the said party. On going through the evidences placed on record, we are of the considered view that instant addition has been made in the hands of the assessee without any reasonable basis. The said party had filed response to the notice issued under Section 133(6) of the Act before the Assessing Officer, he had furnished his bank details and ledger account before the Assessing Officer, whereas the assessment order was framed by the Assessing Officer with the specific remark that the said party / lender had failed to file any response to notice issued under Section 133(6) of the Act. Secondly, the assessee had also filed return of income of the said party in which the said party had declared income of Rs. 25,38,990/- for the impugned year under consideration which also establishes the creditworthiness of the said party. In addition, we observe that Ld. CIT(A) has not pointed out to any specific lacuna / shortfall in the supporting evidences produced by the assessee while sustaining the addition made by the Assessing Officer. Accordingly, looking into the evidences filed by the assessee, we are of the considered view that the addition of Rs. 25,00,000/- is liable to be deleted.
9. In the result, Ground No. 1 of the assessee’s appeal is allowed.
Ground No. 2:- Addition of sundry creditors of Rs. 29,87,770/-
10. The brief facts in relation to this ground of appeal are that during the course of assessment proceedings, the assessee furnished a list of sundry creditors. The Assessing Officer issued notice under Section 133(6) of the Act to these creditors, and noted that no response was received from one creditors namely M/s. Sai Trading Company. Accordingly, the Assessing Officer made an addition of Rs. 29,87,770/- in respect of this sundry creditor.
11. In appeal, Ld. CIT(A) upheld the order passed by the Assessing Officer with the following observations:
“Further, with regard to addition of sundry creditors M/s. Sai Trading Co. at Rs.2987775/- the material on record being only the account in the appellant’s books without any confirmation from the said party cannot be accepted as credible evidence. Accordingly, I see no cause to interfere with the additions made u/s 143(3), and the same are hence upheld, and the appellant’s grounds are dismissed.”
12. Before us, the Counsel for the assessee submitted that firstly, the notice was issued by the Assessing Officer on 19.04.2021 to the said sundry creditors, who failed to file response since it was the peak of corona pandemic period and accordingly, it was due to bona fide reasons that the said party could not file response to notice issued by the Assessing Officer. The Counsel for the assessee submitted that the ledger account of the said party was submitted vide letter dated 09.03.2020, before the Assessing Officer. The PAN number of the said party as well as the opening and closing balance was also submitted before the Assessing Officer vide letter dated 23.03.2021. The Counsel for the assessee submitted that a basic perusal of the details filed by the assessee would demonstrate that the amount which was added in the hands of the assessee during the impugned assessment year was only on account of an opening balance, which was coming from the prior assessment years. Further, the Counsel for the assesee submitted that without dealing with this aspect, Ld. CIT(A) confirmed the addition made by the Assessing Officer.
12.1 In response, Ld. DR placed reliance on the order of the Assessing Officer and the Ld. CIT(A) in their respective orders.
12.2 In the case of Ivan Singh vs. ACIT, Circle-1(1) 116 taxmann.com 499 (Bombay), the Assessing Officer by invoking provisions of Section 68 of the Act added outstanding sundry credit balance found in the books of accounts of the assessee for Financial Year 2006-07, to the income of the assessee for A.Y. 2009-10. The High Court held that in view of provisions of the Section 68 of the Act, which provides that where any sum is found to be credited in the books of accounts maintained “for any previous year” and for which there is no proper explanation for such credit, the sum so credited can be charged to income tax as income of assessee of that previous year. However, the aforesaid credit balance could not be brought to tax as income of assessee for A.Y. 2009-10 since such outstanding sundry credit balance pertained to F.Y. 2006-07. While passing the order the High Court made the following observations:
“9. From the plain reading of the provisions of section 68 of the IT Act, it does appear that where any sum is found to be credited in the books of Account maintained for any previous year and there is no proper explanation for such credit, the sum so credited can be charged to the income tax as the income of the assessee of “that previous year”.
10. In the present case, the material on record indicates that the Assessing Officer has relied upon the credits for the financial year 2006-07. However, the sum so credited, in terms of such credit, is sought to be brought to tax as the income of the appellant-assessee, for the assessment year 2009-10, which means for the previous year 2008-09, in terms of the definition under section 3 of the IT Act. Dr. Daniel is justified in submitting that this is not permissible.
11. The view taken by this Court in CIT v. Bhaichand H. Gandhi [1982] 11 Taxman 59/[1983] 141 ITR 67 and by Rajasthan High Court in CIT v. Lakshman Swaroop Gupta & Brothers [1975] 100 ITR 222, supports the contentions raised by Dr. Daniel. Similarly, we find that in Bhor Industries Ltd. v. CIT [1961] 42 ITR 57 (SC), the Hon’ble Apex Court in the context of provisions of the Merged States (Taxation Concessions) Order (1949) has interpreted the expression “any previous year” to mean as not referring to all the previous years but, the previous year in relation to the assessment year concerned Again, this decisions also, to some extent supports the contentions of Dr. Daniel.
12. The crucial phrase in section 68 of the IT Act, which provides that the sum so credited in the books and which is not sufficiently explained may be charged to the income tax as income of the assessee of “that previous year ” also lends support to the contentions of Dr. Daniel.
13. For all the aforesaid reasons, we answer the first substantial question of law in favour of the appellant-assessee and against the respondent-Revenue.”
13. In the case of Geeri Fashions Pvt. Ltd. vs. ITO, Ward-1(2), Surat 130 taxmann.com 495 (Surat-Tribunal), the ITAT held that where alleged money on account of share application or share premium was received in an earlier year, same could not be taxed in current Financial Year.
14. In view of the judicial precedents on the subject, we are of the considered view that since the aforesaid addition in respect of sundry creditors pertained to an earlier assessment year and represented only the opening balance for the impugned year under consideration, no addition is liable to be sustained in the hands of the assessee.
15. In the result, Ground No. 2 of the assessee’s appeal is allowed.
16. In the combined result, the appeal of the assessee is allowed.
This Order is pronounced in the Open Court on 03/07/2025
