1 ITA Nos. 3671 & 3672/Mum/2018 AY. 2013-14 Shri Tushar Mahendra Parekh Vs. Income Tax Officer-17(3)(4) IN INCOME TAX APPELLATE TRIBUNAL E Bench, Mumbai Before Shri Shamim Yahya, Accountant Member and Shri Ravish Sood, Judicial Member ITA Nos.3671 & 3672/Mum/2018 (Assessment Year: 2013-14) Shri Tushar Mahendra Parekh Income Tax Officer-17(3)(4) Prop. M/s Parekh Enterprises, Room No. 123, Plot No. 16, Block No.2, Aayakar Bhavan, Nellai Co-op, Hsg. Society, M.K. Road, Vs. Wing, Swastik Park, Mumbai 400 021 Chembur, Mumbai 400 071 PAN AABPP4751A (Appellant) (Respondent) Appellant by: Shri Sanjay R. Parikh, A.R Respondent by: Shri Rajeev Gubgotra, D.R Date of Hearing: 20.08.2019 Date of Pronouncement: 28.08.2019 ORDER PER RAVISH SOOD, JM present appeals filed by assessee are directed against order passed by CIT(A)-28, Mumbai under Sec. 250(6) of Income Tax Act, 1961 r.w.rule 46A(2) of Income Tax Rules 1962, dated 13.03.2018 for A.Y. 2013-14. As issues involved in captioned appeals are inextricably interlinked and interwoven, therefore, same are being taken up and disposed off together by way of consolidated order. Before adverting to respective appeals, we may herein observe that assessee has assailed before us order passed by CIT(A) under Rule 46A(2) of Income Tax Rules, P g e |2 ITA Nos. 3671 & 3672/Mum/2018 AY. 2013-14 Shri Tushar Mahendra Parekh Vs. Income Tax Officer-17(3)(4) 1962, dated 13.03.2018, wherein he had in course of appellate proceedings declined to admit additional evidence which was filed by assessee before him under Rule 46A of I.T rules. Thereafter, CIT(A) had disposed off appeal on merits under Sec. 250(6), vide his order dated 13.03.2018. To sum up, aforesaid order passed by CIT(A) under Rule 46A(2) while disposing off appeal of assessee stands merged in order passed by him under Sec. 250(6) of Act. We shall first advert to order passed by CIT(A) under Rule 46A(2). assessee has assailed declining on part of CIT(A) to admit additional evidence on following grounds of appeal: A) Not admitting additional evidences 1) T h e l e r n e d C o m m i s s i o n e r o f I n c o m e T x ( p p e l s ) - 2 8 ( M u m b i ) [CIT(A)] erred on facts and in law in not admitting additional evidences filed by appellant by holding that: (a) AO had given more than reasonable opportunity and appellant failed to attend hearings and give submissions; (b) confirmations are stereotyped, prepared by assessee himself and unverified signatures appended as confirmations; (c) documents do not inspire any confidence and are clearly cooked up; (d) documents are self serving documents (e) evidences filed are not worthy of admission since none of four limbs of Rule are established. 2) learned CIT(A) failed to appreciate that appellant was prevented by reasonable and sufficient cause from furnishing additional evidences before AO. 3) appellant prays that additional evidences may be admitted and CIT(A) may be directed to decide appeal afresh after considering additional evidences. B) General 4) above Grounds of Appeal are without prejudice to one another and appellant craves leave to add, alter, amend, delete or modify any of above Grounds of Appeal. 2. Briefly stated, assessee had filed its return of income for A.Y. 2013-14 on 25.09.2013, declaring its total income at Rs.6,31,820/-. Subsequently, case of assessee was selected for scrutiny assessment under Sec.143(2). A.O vide his order passed under Sec. 143(3), dated 11.03.2016 inter alia made addition under Sec. P g e 3 ITA Nos. 3671 & 3672/Mum/2018 AY. 2013-14 Shri Tushar Mahendra Parekh Vs. Income Tax Officer-17(3)(4) 68 in respect of cash credit appearing in books of accounts of assessee against name of 19 parties, as under: Sr. No. Particulars Amount 1. Arti Jasani 6,748 2. Arvind M. Shah 27,000 3. Ashit Doshit HUF 1,32,000 4. Devayani Ganatra 87,750 5. Hemal M. Shaveri 5,00,000 6. Jignesh S. Sanghvi 3,35,000 7. Jogesh Jasani 13,500 8. Kamlesh M. Doshi 1,18,125 9. Kirti S. Shah 16,200 10. Kirti S. Shah HUF 32,400 11. Krooti Sanghvi 10,63,000 12. Neeta Kirti Shah 64,800 13. Neeta Nilesh 64,800 14. Nilesh S. Shah 16,200 15. Nilesh S. Shah HUF 32,400 16. Pragna H. Shanghvi 3,67,500 17. Sanjay Sanghvi 15,94,500 18. Vasantaben Jesani 13,500 19. Trishala Enterprises 86,00,000 Total 1,30,85,423/- 3. Aggrieved, assessee assailed order in appeal before CIT(A). In course of appellate proceedings assessee vide his letter dated 18.01.2019 placed on record confirmations of all aforestated 19 parties which were added by A.O as unexplained cash credit under Sec. 68 of Act. However, CIT(A) declined to admit aforesaid additional evidence filed by assessee. It was observed by CIT(A) that as A.O had afforded more than reasonable opportunity to assessee for substantiating veracity of cash credits appearing against name of aforementioned persons, which it had failed to avail, therefore, said fresh documentary evidence could not be admitted in course of appellate proceedings. Apart therefrom, CIT(A) was also of view that confirmations filed by assessee did not inspire much of confidence and appeared to be in nature of cooked up documents. Accordingly, on basis of his aforesaid observations CIT(A) P g e |4 ITA Nos. 3671 & 3672/Mum/2018 AY. 2013-14 Shri Tushar Mahendra Parekh Vs. Income Tax Officer-17(3)(4) declined to admit aforesaid additional evidence, vide his order passed under Rule 46A(2) of Income Tax Rules, 1962, dated 13.03.2018. 4. Aggrieved, assessee has assailed aforesaid order passed by CIT(A) under Rule 46A(2) of Income Tax Rules, 1962, which as observed by us hereinabove would merge with order passed by him under Sec. 250(6) of Act. We find that it was claim of assessee before CIT(A) that initially on 26.06.2015 it was called upon to furnish certain information in course of assessment proceedings, which was duly complied with and requisite documents as were called for by A.O were filed on 29.07.2015. Also, subsequent replies to notices issued by A.O were filed till January, 2016. As is discernible from contentions advanced by assessee before CIT(A), notice calling upon assessee to furnish confirmations of unsecured loans was received by assessee for very first time on 15.02.2016. It is claim of assessee that hearing of case was thereafter fixed on 23.02.2016. On said date, as stated by assessee, his authorized representative had appeared before A.O and had sought some further time to submit confirmations, which however was declined by him and assessment was framed under Sec. 143(3), dated 11.03.2016. Further, it is claim of assessee that though hearing of case had started from 26.06.2015, however, A.O had directed him to furnish confirmation letters for very first time on 15.02.2016. Accordingly, it is claim of assessee that as it was afforded time period of less than 1 month for furnishing confirmations of aforementioned 19 parties, therefore, on account of paucity of time it could not obtain and file said confirmations within said short period. We find that it is claim of assessee that as sufficient time was not given to it to furnish P g e |5 ITA Nos. 3671 & 3672/Mum/2018 AY. 2013-14 Shri Tushar Mahendra Parekh Vs. Income Tax Officer-17(3)(4) confirmations of parties in course of assessment proceedings, therefore, same in all fairness was admissible under Rule 46A of Income Tax Rules, 1962. 5. In course of hearing of appeal, it was submitted by ld. Authorized Representative (for short A.R ) for assessee that as assessee was not afforded sufficient time for furnishing confirmations of parties with A.O, therefore, CIT(A) had erred in declining to admit same as additional evidence u/Rule 46A of Income-tax Rules, 1962 during course of appellate proceedings. 6. Per contra, ld. Departmental Representative (for short D.R ) relied on order of CIT(A). It was submitted by ld. D.R that as assessee had failed to file aforesaid confirmations despite having been afforded sufficient opportunity in course of assessment proceedings, therefore, CIT(A) had rightly declined to admit aforesaid additional evidence that was filed by assessee in course of appellate proceedings before him under Rule 46A of Income Tax Rules, 1962. 7. We have heard authorized representatives for both parties and have perused documentary evidence which was filed by assessee by way of additional evidence under Rule 46A before CIT(A). We find substantial force in claim of ld. A.R that as assessee was not afforded sufficient time for furnishing aforesaid confirmations of parties in course of assessment proceedings, therefore, same could not be obtained by him from parties and thereafter filed with A.O. Nothing is discernible from orders of lower authorities from where it could be gathered that assessee was afforded sufficient time to furnish confirmations of aforementioned 19 parties in course of P g e |6 ITA Nos. 3671 & 3672/Mum/2018 AY. 2013-14 Shri Tushar Mahendra Parekh Vs. Income Tax Officer-17(3)(4) assessment proceedings. In fact, perusal of notice issued under Sec.142(1), dated 15.02.2016, reveals that A.O had observed that assessee as on 07.01.2016 was directed to furnish confirmations along with other details in respect of aforementioned parties. Accordingly, we are of considered view that it can safely be concluded that sufficient opportunity was not afforded to assessee for furnishing confirmations of aforementioned parties in course of assessment proceedings. Apart therefrom, we find from perusal of confirmations of parties that same mainly pertains to same parties to whom interest on loan, office rent etc was paid by assessee during year under consideration. Accordingly, now when A.O had not drawn any adverse inferences as regards genuineness of aforesaid interest expenditure, rent expenditure claimed by assessee in its profit and loss account for year under consideration viz. A.Y. 2013-14, therefore, said fact in itself inspires substantial confidence as regards genuineness of credits appearing against names of aforementioned parties. Be that as it may, in backdrop of our aforesaid observations, we are of considered view that CIT(A) was in error in declining to admit aforesaid confirmations which were filed by assessee as additional evidence under Rule 46A of Income Tax, Rules, 1962. Accordingly, we set aside order of CIT(A) passed under Rule 46A(2) of Income Tax Rules, 1962 and restore matter to his file with direction to consider aforesaid confirmations of parties which were filed by assessee as additional evidence under Rule 46A in order to substantiate genuineness of credits appearing against names of aforementioned 19 parties. Grounds of appeal Nos. 1 to 4 are allowed in terms of our aforesaid observations. 8. appeal of assessee is allowed. P g e |7 ITA Nos. 3671 & 3672/Mum/2018 AY. 2013-14 Shri Tushar Mahendra Parekh Vs. Income Tax Officer-17(3)(4) ITA No.3672/Mum/2018 A.Y. 2013-14 9. We shall now advert to appeal filed by assessee against order passed by CIT(A) under Sec. 250(6) on merits. assessee has assailed impugned order of CIT(A) on following grounds of appeal: (A) Addition on account of long outstanding creditors - Rs. 7,51,308/- 1) learned Commissioner of Income Tax (Appeals) - 28 (Mumbai) [CIT(A)] erred on facts and in law in confirming order of Income Tax Officer - 17(3)(4), Mumbai (AO) making addition of Rs. 7,51,308/ u/s. 41(l) on account of creditors outstanding for long. 2) appellant prays that addition of Rs. 7,51,308/- made by AO u/s. 41(1) and confirmed by CIT(A), may be deleted. B) Disallowance u/s. 40(a)(ia) - Rs. 1,32,875/- 3) T h e l e r n e d C I T ( ) e r r e d o n f c t s n d i n l w i n c o n f i r m i n g t h e disallowance made by AO of Rs. 1,32,875/- u/s. 40(a)(ia). 4) appellant prays that disallowance made by AO of Rs.1,32,875/- u/s. 40(a)(ia) and confirmed by CIT(A), may be deleted. C) Addition u/s. 68 - Rs. 1,30,85,423/- 5) learned CIT(A) erred on facts and in law in confirming addition made by AO u/s. 68 of Rs. 1,30,85,423/- 6) learned CIT(A) erred in not admitting additional evidences filed by appellant in this regard. 7) appellant prays that addition of Rs. 1,30,85,423/- made by AO u/s. 68 and confirmed by CIT(A), may be deleted. D) Addition on account of capital receipt - Rs. 2,92,589- 8) learned CIT(A) erred on facts and in law in confirming order of AO making addition of Rs. 2,92,589/- as revenue receipt. 9) appellant prays that addition made by AO of Rs. 2,92,589/- and as confirmed by CIT(A), may be deleted. E) General 10) above Grounds of Appeal are without prejudice to one another and appellant craves leave to add, alter, amend, delete or modify any of above Grounds of Appeal. 2. We shall first advert to addition made by A.O under Sec.41(1) of Act amounting to Rs.7,51,308/- on account of creditors which were outstanding in books of accounts of assessee for long period. In course of assessment P g e |8 ITA Nos. 3671 & 3672/Mum/2018 AY. 2013-14 Shri Tushar Mahendra Parekh Vs. Income Tax Officer-17(3)(4) proceedings, it was observed by A.O that assessee had shown two sundry creditors in its balance sheet viz. (i) M/s Hare Krishna Developers:Rs.1,00,000; (ii)M/s Nand Steel & Pipe Industries: Rs.6,51,308/-. As aforesaid respective amounts were outstanding in books of account of assessee for long time, therefore, for said reason same were treated by A.O to have ceased and were added to income of assessee under Sec.41(1) of Act. 3. We have given thoughtful consideration to addition made by lower authorities under Sec.41(1) and are unable to persuade ourselves to subscribe to same. Admittedly, as per Sec. 41(1), in case where deduction has been made in assessment for any year in respect of any trading liability incurred by assessee, and subsequently during any previous year assessee had obtained some benefit in respect of such trading liability by way of remission or cessation thereof, benefit accruing to assessee shall be deemed to be profits and gains of its business or profession and accordingly chargeable to income tax as its income of that previous year. However, merely for reason that liability is outstanding in books of accounts of assessee for several years cannot on said standalone basis justify characterising of same as ceased liability under Sec.41(1) of Act. Our aforesaid view is fortified by judgment of Hon ble High Court of Delhi in case of CIT Vs. Jain Exports Pvt. Ltd. (ITA No.235/2013, dated 24.05.2013) Apart therefrom, we find that A.O while making addition under Sec.41(1) of Rs.7,51,308/- had failed to point out as to what benefit assessee had obtained in respect of aforesaid trading liability during year under consideration. In sum and substance, as to on what basis cessation of aforesaid liability had been related to year under consideration is also not discernible from assessment order. Accordingly, we are unable to persuade ourselves to sustain P g e |9 ITA Nos. 3671 & 3672/Mum/2018 AY. 2013-14 Shri Tushar Mahendra Parekh Vs. Income Tax Officer-17(3)(4) aforesaid addition of Rs.7,51,308/- made by A.O under Sec.41(1) of Act, and thus vacate same. Grounds of appeal Nos. 1 & 2 are allowed. 4. We shall now advert to disallowance under Sec. 40(a)(ia) aggregating to Rs.1,32,875/- made by A.O in context of 4 parties viz. (i) Arvind M. Shah: Rs.60,750/-; and (ii) Devyani Gonatra: Rs.54,000/-; (iii) Jogesh Jasani: Rs.3750/-; and (iv) Kamlesh N. Doshi: Rs.14,375/-. As is discernible from assessment order, as assessee had failed to deduct tax at source on interest payments made to aforementioned parties, therefore, same was disallowed by A.O under Sec.40(a)(ia) of Act. Interestingly, we find that all of aforesaid 4 parties appear in list of 19 parties in respect of which addition had been made by A.O under Sec.68 of Act. As we have restored addition made by A.O under Sec. 68 to file of CIT(A) for fresh adjudication, therefore, in all fairness as disallowance made by A.O under Sec. 40(a)(ia) in respect of aforesaid parties is inextricably linked to addition made under Sec.68 by A.O, therefore, same also is restored to file of CIT(A). At this stage, we may herein observe that amount of interest credited by assessee in accounts of aforementioned 4 parties prima facie is not found to be in conformity with amount that had been disallowed by A.O under Sec.40(a)(ia) of Act. Accordingly, CIT(A) is also directed to take cognizance of aforesaid fact while adjudicating issue pertaining to disallowance made by A.O under Sec.40(a)(ia) and addition under Sec.68 in respect of said parties. Grounds of appeal Nos. 3 & 4 are allowed for statistical purposes. 5. We shall now advert to addition of Rs.1,30,85,423/- made by A.O in respect of 19 parties under Sec.68 of Act. As we have directed CIT(A) to consider confirmations of P g e | 10 ITA Nos. 3671 & 3672/Mum/2018 AY. 2013-14 Shri Tushar Mahendra Parekh Vs. Income Tax Officer-17(3)(4) aforementioned parties that were filed by assessee by way of additional evidence under Rule 46A of Income Tax Rules, 1962 in course of appellate proceedings before him, therefore, aforesaid addition made by A.O under Sec. 68 in respect of aforementioned parties is restored to file of CIT(A) for fresh adjudication after considering aforesaid additional evidence filed by assessee. Grounds of appeal No. 5 to 7 are allowed for statistical purposes. 6. We shall now advert to addition of sum of Rs.2,92,589/- made by A.O in respect of amount that was credited by assessee in his capital account during year under consideration. As is discernible from orders of lower authorities, in absence of any explanation as regards nature and source of aforesaid amount, same had been added by A.O to returned income of assessee. We have given thoughtful consideration to said issue and finding no infirmity in view taken by CIT(A) confirm said addition. Grounds of appeal Nos. 8 & 9 are dismissed. 7. appeal of assessee is partly allowed in terms of our aforesaid observations. 8. appeal of assessee ITA No.3671/Mum/2018 is allowed and ITA No. 3672/Mum/2018 is partly allowed in terms of our aforesaid observations. Order pronounced in open court on 28.08.2019 Sd/- Sd/- (Shamim Yahya) (Ravish Sood) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; 28.08.2019 P.S Rohit Page | 11 ITA Nos. 3671 & 3672/Mum/2018 AY. 2013-14 Shri Tushar Mahendra Parekh Vs. Income Tax Officer-17(3)(4) /Copy of Order forwarded to : 1. Appellant 2. /The Respondent. 3. CIT(A)- 4. CIT 5.DR, ITAT, Mumbai 6. Guard file. True CopyBY ORDER, (Dy./Asstt. Registrar) , ITAT, Mumbai Tushar Mahendra Parekh v. Income-tax Officer-17(3)(4