Loan cannot be treated as bogus without considering documents submitted by Assessee

Ramanlal K. Darji Vs ITO (ITAT Mumbai)

The AO rejected the loan transaction and treated the same as unexplained cash credit u/s 68 of the Act. Needless to say that the assessment order has been passed u/s 144 of the Act. No opportunity of being heard was given to the assessee. The books of accounts have been rejected and the cash credit was added to the income of the assessee without giving an opportunity of being heard to the assessee in accordance with law. The assessee has confirmed the loan which lies at page 1 to 9 of the paper book. The confirmation is on the record. The said documents were produced before the CIT(A) as well as AO also. The authority nowhere considered these documents. The rejecting the contentions without any reason nowhere seem justifiable. The explanation and confirmation given by assessee was nowhere considered. The rejecting the claim of the assessee without any basis nowhere required to be sustainable in the eyes of law, therefore, we set aside the finding of the CIT(A) on this issue and restore the issue before the AO to decide the issue afresh by giving an opportunity of being heard to the assessee in accordance with law. Accordingly, these issues are decided in favour of the assessee against the revenue.

FULL TEXT OF THE ITAT JUDGEMENT

The assessee has filed the present appeal against the order dated 15.01.2014 passed by the Commissioner of Income Tax (Appeals) – 5, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2005-06.

The assessee has raised the following grounds: –

“1. Condonation of Delay: The Appeal Order was collected from Post Office on 14/12/2014 which was immediately forwarded to the Chartered Accountant for filing of an Appeal. But the appealed was not filed due to CA’s ignorance. Moreover, the building which housed the office was demolished for the purpose of redevelopment. thus we were not able to receive any further notice. We came to know about the non- filing of appeal only when the recovery proceedings were initiated.

The Learned CIT (A), confirmed the adhoc addition in GP of Rs. 6,57,560/- @3.64% on the quantum of sates for Rs 1,80,64,000/-on the basis of assumptions, presumptions and on estimation, which is unwarranted and unjustified.

The Learned CIT (A), not justified in confirming addition of Rs. 4,64,760/- u/s. 68 without providing proper opportunity.

The Learned CI’I’ (A), not justified in confirming the disallowance of interest (Rs. 40,744/-) on the Additions made for Cash Credit u/s. 68.

The Learned CIT (A), not justified in upholding the Penalty u/s. 271(I)(C) Rs. 3,91,490/-.”

3. The brief facts of the case are that the assessee filed his return of income on 26.10.2005 declaring total income to the tune of Rs.5,74,463/-. The return was processed u/s 143(1) of the I. T. Act, 1961. The case was selected for scrutiny under CASS. Notices u/s 143(2) & 142(1) of the Act were issued. The assessee nowhere responded to the notice, therefore, the assessment of the assessee was initiated u/s 144 of the Act. The gross profit was shown to the tune of Rs.15.10 lakhs which was works out @ 8.36%. The net profit has been declared at Rs.5,25,454/- which was worked out 2.91% of the sales turnover. The details were not submitted, therefore, after the rejection of the books of account., the gross profit was estimated @ 12% of the total sales turnover and the excess of 3.64% was worked out of Rs.6,57,560/-and was added to the income of the assessee. From the examination of annexure 2 clause-24 of the Tax audit report u/s 44AB of the Act, it was seen that the assessee has availed of loans/deposits from the following six parties.

The same was treated as un-substantiated, therefore, the same was added to the income of the assessee u/s 68 of the Act. The total income of the assessee was assessed to the tune of Rs.16,88,518/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who dismissed the appeal of the assesse, therefore, the assessee has filed the present appeal before us.

ISSUE NO.1

4. We have heard arguments advanced by the Ld. Representative of the parties and perused the record. The present appeal has been field 965 days delayed. The reason for delay has been mentioned that the assessee is having age more than 70 years and took the heart ailment treatment on 29.11.2013 and Cataract Operation on 03.02.2014 and Cataract Operation on 21.03.2015, therefore, in the said circumstances, the assessee filed the appeal delayed. The contention of the assessee is supported by affidavit and record. On seeing the medical ground of the assessee, we condoned the delay.

ISSUE NO.2

5. Under this issue the assessee has challenged the confirmation of G.P. addition @ 3.64% i.e. a sum of Rs.6,57,560/- on the quantum of sale of Rs.1,80,64,000/-. At the very outset, the Ld. Representative of the assessee has argued that the AO has raised the addition @ 3.64% on the basis of Assumption & Presumptions and on estimation basis which is not liable to be sustainable in the eyes of law. However, on the other hand, the Ld. Representative of the Department has refuted the said contentions. On appraisal of the assessment order, we noticed that the assessment was completed u/s 144 of the Act on account of non-appearance. The AO rejected the books of account. The AO observed that the sale has been declared in sum of Rs.1,80,64,000/- and gross profit has been shown at Rs.15.10 lakhs which was worked out at Rs.8.36%. However, the net profit was declared in sum of Rs.5,25,454/- which was worked out 2.91% of the sales turnover. The AO observed the same less and estimated the 12% profit on sale turnover. The estimation was not based upon the earlier or subsequent gross profit if any. There is no plausible reason on record to which it can be assumed that the AO has estimated the 12% profit upon the declared sale. However, the assessee has shown the net profit @ 2.91%. Anyhow we found that the assessment of the assessee was completed u/s 144 of the Act. The assessee did not get an opportunity before the AO to present his claim. Therefore, taking into account all the facts and circumstances specifically when the assessee failed to get an opportunity to represent his claim, therefore, we set aside the finding of the CIT(A) on this issue and restore the issue before the AO to decide the matter of controversy afresh by giving an opportunity of being heard to the assessee in accordance with law. Accordingly, this issue is decided in favour of the assessee against the revenue.

ISSUE Nos. 3 & 4

6. Under these issues the assessee has challenged the addition in sum of Rs.4,64,760/- u/s 68 of the Act. On appraisal of the assessment order, we noticed that the AO on the basis of tax audit report u/s 44AB of the Act as observed that the assessee took the loan in sum of Rs.4,64,760/- from the following parties:-

The AO rejected the loan transaction and treated the same as unexplained cash credit u/s 68 of the Act. Needless to say that the assessment order has been passed u/s 144 of the Act. No opportunity of being heard was given to the assessee. The books of accounts have been rejected and the cash credit was added to the income of the assessee without giving an opportunity of being heard to the assessee in accordance with law. The assessee has confirmed the loan which lies at page 1 to 9 of the paper book. The confirmation is on the record. The said documents were produced before the CIT(A) as well as AO also. The authority nowhere considered these documents. The rejecting the contentions without any reason nowhere seem justifiable. The explanation and confirmation given by assessee was nowhere considered. The rejecting the claim of the assessee without any basis nowhere required to be sustainable in the eyes of law, therefore, we set aside the finding of the CIT(A) on this issue and restore the issue before the AO to decide the issue afresh by giving an opportunity of being heard to the assessee in accordance with law. Accordingly, these issues are decided in favour of the assessee against the revenue.

6. In the result, the appeal filed by the assessee is hereby ordered to be allowed for statistical purposes.

Order pronounced in the open court on 04/03/2020.