Khandelwal Industries Vs ITO (ITAT Raipur)
ITAT Raipur deletes additions for partner’s capital & alleged interest disallowance due to complete absence of enquiry & violation of natural justice
Raipur SMC Bench examined two additions sustained by NFAC without inquiry or reasoning. The assessee-firm, running a rice & flour mill, received capital introduction of ₹3,00,000 from partner Shri Vinod Khandelwal. The assessee produced his ITR, computation, balance sheet, cash-flow & bank statement showing cash-in-hand of ₹10,14,541 as on 31.03.2016, arising from earlier cash withdrawal of ₹7,00,000 from the same business on 30.12.2014. However, the AO rejected the explanation solely on the ground that the partner’s ITR did not reflect cash-in-hand separately, & without verifying the documents or confronting discrepancies, treated the capital as unexplained u/s 68 r.w.s 115BBE. NFAC summarily upheld the view without satisfying the mandate of section 250(4) & (6).
Tribunal held that both authorities failed to examine the core submission that the partner possessed sufficient cash balance sourced from earlier withdrawals. No independent enquiry was made, no contradiction was confronted, & no reasoning was supplied. Such action violated principles of natural justice, making the addition arbitrary & perverse. Accordingly, the ₹3,00,000 addition was deleted.
The second issue related to disallowance of ₹2,06,400 on notional interest @12% on a deposit of ₹17,20,000 placed with Sun & Sun Inframetric. The assessee clarified that the amount represented a pre-conversion flat booking deposit of the erstwhile proprietor, later reflected in the firm’s books, & that substantial capital had been introduced so there was no diversion of borrowed funds. The Tribunal noted that AO initially alleged personal use of funds but finally disallowed interest on an entirely different allegation of ‘mis-utilisation’ by giving interest-free advance to a ‘family concern’. Neither AO nor NFAC conducted any enquiry, nor refuted the factual submissions. The findings were held to be based on pure presumption & devoid of inquiry. Consequently, the disallowance was also deleted.
