Income Tax Appellate Tribunal - Jodhpur
Manish Kumar, Sringanganagar vs Ito, Ward-1, Sriganganagar on 3 June, 2024
IN THE INCOME TAX APPELLATE TRIBUNAL
JODHPUR BENCH, JODHPUR.
BEFORE: DR. S. SEETHALAKSHMI, JJUDICIAL MEMBER &
SHRI RATHOD KAMLESH JAYANTBHAI, ACCOUNTANT MEMBER
I.T.A. No. 200/Jodh/2023
Assessment Year: 2021-22
Manish Kumar Vs. ITO,
Ram Dayal Ved Parkash Shop Ward-1,
No. 37, Dhan Mandi Rawla, Sri Shri Ganganagar.
Ganganagar. (Respondent)
[PAN: AHZPA 4400 G ]
(Appellant)
Appellant by Sh. Rajendra Jain, Adv. &
Smt. Raksha Birla, C.A.
Respondent by Shri Prem Prakash Meena, Sr-DR
Date of Hearing 12.03.2024
Date of Pronouncement 03.06.2024
ORDER
PER: RATHOD KAMLESH JAYANTBHAI, AM This appeal filed by assessee is arising out of the order of the Ld. CIT(A), National Faceless Appeal Centre, Delhi dated 05.04.2023 [here in after "ld. CIT(A)/NFAC"] for assessment year 2021-22, which in turn arise from the order dated 22.12.2022 passed under section 143(3) r.w.s. 144B of the Income Tax Act (here in after "Act") by the AO.
I.T.A. No. 200/Jodh/2023
Manish Kumar vs. ITO 2
2. In this appeal, the assessee has raised following grounds: -
"1. That on the facts and in the circumstances of the case, the Ld CIT(A) erred in upholding the validity of assessment order passed by the Ld AO.
2. That on the facts and in the circumstances of the case, the Id CIT(A), NFAC grossly erred in upholding the findings recorded by the ld. AO that interest paid of Rs. 1,66,700/- to parties is excessive & unreasonable without taken to consider the submission of assessee in right perspective and judicious manner.
3. That on the facts and in the circumstances of the case, the Id CIT(A) erred in confirming the addition of Rs. 1,66,700/- made by the ld. AO in respect of disallowance of interest paid u/s 40A(2)(a) of the Act.
4. That on the facts and in the circumstances of the case the addition made by the ld. AO and sustained by the ld. CIT(A), NFAC is contrary to material facts as explained by assessee and also against the principle of natural justice.
5. That on the facts and in the circumstances of the case, the Id CIT(A) erred in upholding the addition made by Id AO particularly when the assessee had fulfilled the condition as laid down under the Act for calming exemption u/s 10(38) of the Act.
6. That the petitioner may kindly be permitted to raise any additional or alternative grounds at or before the time of hearing."
7. The petitioner prays for justice & relief."
3. Brief fact of the case is that the case was selected for complete scrutiny on the reasons, "assessee has made substantial purchases form suppliers who are either non-filer(s) or have filed non-business ITR or reflected a substantially lower turnover in ITR." The assessee has filed his ITR on 05.01.2022 declaring income at Rs. 24,64,950/-. The return was processed u/s 143(1) on 20.06.2022 the case was selected for complete scrutiny through CASS to examined the issue of " business I.T.A. No. 200/Jodh/2023 Manish Kumar vs. ITO 3 purchases". Notice u/s 143(2) of the I.T. Act was issued to the assessee on 28.06.2022. subsequently, notices u/s 142(1) of the Act were issued to the assessee from time to time, calling for certain information/documents.
3.1 During the assessment proceedings, the assessee has filed reply on different dates along with supporting documentary evidence. The assessee has provided comparative chart of three years of sales/purchases and expenses debited to P&L account. The assessee has also provided copy of GSTR monthly & annual return, purchase invoices, copy of bank statements, item wise trading accounts, ledger accounts of sellers/buyers and Stock Register. The assessee has also provided chart of analysis of GP/NP for three years. The NP rate shown is 0.48% for the A.Y. 2020-21 and 0.40% in the A.Y. 2021-22. Regarding reason for decline in NP, the assessee has stated, "In the A.Y. 2020-21 there are corona disease. So some expenses increase and some decrease like vehicle expenses, but increase lab testing fees, staff salary also increase due to they left village, due to fear of corona. Further, during the course of assessment proceedings, it is revealed that on Insight Portal, 3 parties namely Sh. Ram Narayan prop. Rameshwar Lal, Ganganagar, Sh. Naresh kumar prop: Naresh kumar Sunil kumar, I.T.A. No. 200/Jodh/2023 Manish Kumar vs. ITO 4 Rajasthan and Ms. Krishana, Shri Sham Trading Co. from whom the assessee had purchased during the relevant year, marked as Red Flagged Entries i.e. the parties have not filed ITRs for the A.Y. 2021- 22. Therefore, notices u/s 133(6) of the Income Tax Act were issued to the parties. In response to the same, the persons/parties filed reply along with ledger accounts, bank statements, copy of invoices raised and copy of GSTR/ITR for the A.Y. 2021-22. Notices u/s 133(6) of the Income Tax Act were also issued to the other persons/parties from whom the assessee has made purchases. The explanation/reply and documents provided by the assessee have been examined and verified. Conclusively, the AO made addition in the hands of the assessee by holding as under:-
Sr. No. Description Amount ( in INR) 1. Income as per return of income filed 24,64,950/- 2. Income as computed u/s 143(1)(a) Rs. 24,68,050/- 3. Addition made u/s40A(2)(a) of the I.T. Act Rs. 1,66,700/-
4. Total income/loss determined as per the above Rs. 26,31,650/-
proposal
4. Aggrieved from the order of the assessing officer adding a sum of Rs. 1,66,700/- u/s. 40A(3) of the Act, assessee preferred an appeal before the ld. CIT(A). Apropos to the grounds of the appeal so raised by the assessee, the relevant finding of the ld. CIT(A) is reiterated here in below:-
I.T.A. No. 200/Jodh/2023 Manish Kumar vs. ITO 5 "Decision The AO in his assessment order has made an addition of Rs. 1,66,700/- u/s 40A(2)(a) of the Act. In the process, he concludes as " ...... The replies filed by the assessee and discussion made during VC has been considered but found not fully tenable, as the assessee had paid interest to Ms. Nidhi Bansal and Ms Shakuntala Devi @ 17% which is on excessive and unreasonable having regard to the fair market value. Therefore, Excessive and unreasonable interest paid to the persons is estimated at Rs. 1,66,700/- against the amount of Rs. 2,20,000/- after considering the replies and discussion made during Video conferencing. The addition of Rs. 1,66,700/- is made u/s 40A(2)(a) of the I.T. Act, 1961 and added to the returned income of the assessee....."
Before the AO, the appellant has not brought out any concrete reasons as to why he has paid an interest @ 17%.
Before me too, nothing concrete has been put on record. I am thus of the opinion that the AO is corrected in his order. I refuse to interfere with this addition.
Hence the grounds against the addition u/s 40A(2)(a) of the Act is dismissed."
5. As the assessee did find any favour on account of the appeal so filed before ld. CIT(A), the present appeal filed against the said order of the ld. CIT(A) before this tribunal on the grounds as reiterated in para 3 above. The ld. AR of the assessee vehemently argued that the finding of lower authority while disallowing that the rate of interest is @ 17 % which is excessive and unreasonable without justifying the business needs of the assessee. The assessee filed a detailed judicial orders in support of the contention so raised which are as under:-
• Genxt Mobile LLP vs. ACIT in ITA No. 2106/Mum/2023 dated 11.10.2023.
I.T.A. No. 200/Jodh/2023 Manish Kumar vs. ITO 6 • ACIT vs. Noida Cyber park Pvt. Ltd. in ITA No. 2135 & 2136/Del/2022 dated 15.01.2024.
• DCIT VS. m/S Spark Hotels Pvt. Ltd. in ITA No. 4631/Del/2011 dated 22.06.2012.
6. Per contra, the ld. DR supported the orders of the lower authorities wherein the justification of making the addition is duly recorded.
7. We have heard the rival contentions, perused the material placed on record. The bench noted that the apple of the discord in the matter that the interest paid by the assessee to following parties Sr. No. Name of the person Amount 1 Smt. Shakuntla Devi Rs. 2,48,200/-
2 Smt. Nidhi Bansal Rs. 3,18,700/-
3 Haryana Store Rs. 1,94,300/-
4 Sunil and Company Rs. 73,200/-
The ld. AO noted that interest paid to Ms. Nidhi Bansal and Ms. Shakuntala Devi is estimated to Rs. 1,66,700/- was disallowed u/s. 40A(2)(b) without assigning any reasons and there is no finding that whether the borrowing for the purpose of business or not and without doing so disallowing the interest and that too a lump sum is not correct and is purely based on the surmises and conjectures. Even the ld. CIT(A) has not given any specific finding on the issue and has confirmed I.T.A. No. 200/Jodh/2023 Manish Kumar vs. ITO 7 the addition. As it is clear from the order of the lower authority the claim of the assessee merely disallowed based on the surmises and conjecture without giving any basis or reason as to why the same is not allowable. We considered the facts of the case and decision cited by the ld. AR of the assessee. The bench based on the records and arguments advanced by the parties we are of the considered view that without finding the comparative fair market value and when the assessee has paid the interest @ 17 % to third parties the same cannot be disallowed in the case of two parties and that too in a lumpsum manner without any basis. It is well settled that the provision of section 40A(2)(b) of the Act the addition cannot be made without first concluded that the expenditure was excessive or unreasonable the addition cannot be made when there is no finding in the order of the lower authority that the borrowing is not for the purpose of business and there by the same is how excessive the disallowance cannot be made. Considering the discussion so recorded with that of the facts as emerges from the order of the lower authority we see no reason to sustain the addition and therefore, the same is directed to be deleted. Based on these observations the Ground no. 2, 3 & 4 raised by the assessee are allowed. Ground no. 1, 5 & 6 either general or technical becomes educative in nature since we have allowed the grounds on merits.
I.T.A. No. 200/Jodh/2023
Manish Kumar vs. ITO 8
In the results the appeal of the assessee is allowed. Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 by placing the details on the notice board.
Sd/- Sd/-
((Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai)
Judicial Member Accountant Member
Dated 03/06/2024
*Ganesh Kumar, Sr. Ps
Copy of the order forwarded to:
(1)The Appellant
(2) The Respondent
(3) The CIT
(4) The CIT (Appeals)
(5) The DR, I.T.A.T.
True Copy
By order