UN-NECESSARY APPEAL BE REVENUE CONTRARY TO FINDING IN ORDERS DELETING PENELTY ABOUT ALLEGED CASH LOANS TRANSACTIONS WHICH WERE NOT CASH LOANS

Judgment under study DCIT, Central Circle 1 (4), Kolkata Versus Murlidhar Ratanlal Exports Limited, Kolkata And (Vice-Versa) - 2025 (12) TMI 165 - ITAT KOLKATA

In this case appeals for various years were filed by revenue and assessee filed cross objections against them. Details of appeals are as follows:

No.- ITA Nos. 2178, 2179, 2187, 2245, 2196/KOL/2024, CO No. 42/KOL/2025 (Arising in ITA No. 2178/KOL/2024), CO No. 43/KOL/2025 (Arising in ITA No. 2179/KOL/2024), CO No. 44/KOL/2025 (Arising in ITA No. 2187/KOL/2024) And CO No. 45/KOL/2025 (Arising in ITA No. 2245/KOL/2024)

We find that all appeals by revenue were filed during year 2024 and these are against common order of Ld. CIT(A) dt. 12.07.2024.

The title of this article reflects nature of un-necessary dispute, contrary to fact of the case right from stage of addition made for alleged case loan, penalty proceedings initiated for alleged cash loan transitions which stood dropped because loan was not cash loan. Still department did not delete addition by way of rectification.

In appeal addition was deleted finding that wrongly loan transaction was assumed as transactions in cash. Above that,without application of mind appeal was filed against order of CIT.A although there is strict rules about scrutiny of appeal order at many stages before a decision is taken to prefer appeal.

Therefore the title of this article is kept as

UN-NECESSARY APPEAL BE REVENUE CONTRARY TO FINDING IN ORDERS DELETING PENELTY ABOUT ALLEGED CASH LOANS TRANSACTIONS WHICH WERE NOT CASH LOANS

Portion of order of ITAT relevant to the above aspect is reproduced below with highlights added by author:

ITA No. 2245/KOL/2024

028. The issue raised by Revenue in Ground no.1 & 2 are similar to ground no.1 & 2 of Revenue's appeal by ld. CIT(A) as made by the ld. AO u/s 68 of the Act on account of unexplained cash credit and against the deletion of additions of Rs. 1,00,00,000/- and Rs. 32,35,250/- respectively, in ITA no. 2187/KOL/2024 for A.Y. 2015-16. Hence, taking similar view in this appeal also, ground no.1 & 2 of revenue appeal are dismissed.

029. The issue raised by Revenue in Ground no.3 and 4, is against the deletion of addition of Rs. 1,46,55,000/- by the ld. CIT(A) as made by the ld. AO in respect of interest on cash loans taken by the assessee during the year.

030. The facts in brief are that the ld. AO observed on the basis of incriminating material found during the course of survey which was also extracted by the ld. AO in para no.13.3.1. of the assessment order that assessee had entered into several transactions of cash loans during F.Y. 2015-16 and 2016-17 and assessee has not paid interest on unsecured cash loans taken during the year under consideration. Accordingly, the ld. AO estimated the interest paid by the assessee at the rate of 12% on total cash loans taken and thus made an addition of Rs. 1,46,55,000/- the calculation whereof (interest) is given at para no.11 of the assessment order and same was added to the income of the assessee.

031. In the appellate proceedings, the ld. CIT(A) deleted the addition by observing and holding as under: -

'8.14.1 I have carefully considered the facts of the case, the Assessment Order of the AO and the submission of the appellant. The AO has made the addition of Rs. 1,46,55,000/- on account of interest expenses paid in cash on the cash loan received through Finance broker Sanwaria and Kasera Group. As per AO search u/s 132 of the Act was conducted at the premises of the Finance broker i.e. Sanwaria and Kasera on 30.11.2018 and in search several incriminating documents were found and seized, wherein transaction relating to loan transactions with MREL group were recorded.

8.14.2 The AO has mentioned about incriminating documents impounded during the course of survey operation and reproduce the extract of documents found from the computer Hard Disk marked MREL/HD/2 at page no. 41-46 of the assessment order. Thereafter, the AO alleged that on the perusal of transaction details it was seen that the assessee has entered into several cash loan transactions during the relevant year under consideration and several incriminating material were impounded during the course of survey. The AO has thereafter, prepared a summary at page no. 47 of the assessment order based on the extract of documents from computer Hard Disk marked MREL/HD/2. The AO has made calculation of total credit entry, total debit entry and calculation of interest expense. The summary of documents impounded as per the order is reproduce as under:

8.14.3 However, the appellant in its submission has stated that all these loan transactions alleged to have been made in cash are duly recorded in the books of accounts and have made through proper banking channels. The loan ledgers, interest ledgers, details of TDS deductions etc. were duly furnished to the AO in the assessment.Not only that the AO has conducted enquiry u/s 133(6) of the Act for all the loan creditors appearing in its regular books. This proves that AO has not applied his mind while making vague allegation. Further, there is merit in the submission of the Appellant that all these loans appearing at page no. 42-46 of the assessment order are duly reflected in the item no. 31(a) & 31(b) of the tax audit report, which was duly uploaded on the income tax portal. Furthermore, the appellant has pointed out various other glaring mistakes in the analysis of the data found in the excel sheets of Hard Disk marked as MREL/HD/2. As per appellant, there is many mistakes and repetition in the data prepared by the AO.

8.14.4 I have examined all the details submitted by the appellant with its submissions. These details were duly furnished to the AO in the assessment as well. On the verification of all the details, I am fully convinced that the loans alleged by AO to have been taken in cash are actually taken through proper banking channels and duly reflected in the books of accounts of the assessee. The interest payments on those loans are also accounted for in the books of account and paid through banks. Assessee has also pointed out that against the assessee penalty proceeding for taking cash loan and refunding u/s 271D and u/s 271E of the act was initiated by the Addl. Commissioner, Central Range -1, Kolkata and he has after due verification found that the assessee has not taken or refunded any cash loan. Hence, he dropped the penalty proceeding initiated u/s 271D and 271E vide order dt. 03.08.2022 for the year under consideration. The claim of the appellant was verified and found to be correct. AO himself has verified all the loan taken in the regular books of account of the assessee is evident from the assessment order and made addition of Rs. 1,46,55,000/- separately. This shows AO has alleged these as cash loan is factually wrong.

8.14.5 Further, the appellant has deducted TDS on the payments of these loans and has claimed these interest payment in P/L Accounts. So, there is no any reason found to treat these loans as received in cash and interest of Rs. 1,46,55,000/- have been paid in cash. The AO has made this addition purely on presumptions and surmises and without bringing any adverse material on record. Further, while making---- this addition, the AO has failed to look into the details furnished by assessee to him in assessment proceeding.

Therefore, in view of the above discussion, I held that addition made by the AO on account of interest payment on the cash loan of Rs. 1,46,55,000/- is arbitrary and untenable in the eyes of law. The AO has made this addition without analyzing the relevant fact of the case and purely on the basis of surmises and presumption. Hence, the addition of Rs. 1,46,55,000/- made u/s 69C of the Act is deleted.'

032. After hearing the rival contentions and perusing the materials available on record, we find that the ld. CIT(A) has recorded a finding of fact that the loans which the ld. AO misconstrued as cash loans taken by the assessee during the year were fully recorded by the assessee in the books of accounts. The ld. CIT(A) recorded a finding of fact that these were in fact the loans taken by the assessee through banking channel and interest payment were also duly accounted for in the books of accounts and paid through bank accounts. The ld. CIT(A) also noted that the penalty proceedings initiated for taking cash loans and the payments thereof u/s 271D of the Act and 271E of the Act were initiated by the additional Commissioner of Income Tax, Central Range-1, Kolkata and the said authority, after due verification, found that assessee had not taken or refunded any cash loans during the impugned assessment year during proceedings u/s 271D and 271E of the Act and accordingly order was passed dated 03.08.2022 dropping the proceedings u/s 271D and 271E of the Act. Considering these facts, we are inclined to uphold the order of the ld. CIT(A), which is a very reasoned order and fully justified the reasons for deletion of the notional interest added by the ld. AO. Consequently, we dismiss the ground nos. 3 and 4 of the Revenues appeal.

033. The issue raised by Revenue in Ground no.5 is same as ground no.3 in Revenue's appeal in ITA No. 2187/KOL/2024 for A.Y. 2015-16, which is discussed and decided in above paras. Therefore, following our own decision in ground no.3 in ITA No.2187/KOL/2024 for A.Y. 2015-16, we dismiss the ground no.15 of Revenue's appeal.'

Unquote:

From perusal of order of ld. AO and Ld. CIT(A) it is clearly found that by overlooking loan related documents, TDS details and returns,and also tax audit report, learned AO assumed loan to be loans taken in cash and assumed interest also paid in cash and unrecorded.

Even penalty proceedings u.s. 271D and 271E were initiated due to such presumption and later on verification the same was dropped vide order dated 03.08.2022. This was much before filing of appeal before ITAT in the year 2024 which were preferred by the Revenue against order of Commissioner of Income-tax (Appeals) Kolkata-20 vide even dated 12.07.2024 for the AYs 2013-14 to 2016-17 & 2018-19.

Observations of author:

When penalty proceedings were dropped on 03.08.2022 after finding mistakes about alleged cash loan, it was proper for the Ld. AO to pass suo moto rectification order and delete addition due to wrong assumption of cash loans. This could have reduced outstanding bogus tax demands. That was not done and assessee was forced to pursue appeal before ld. CIT(A).

The order of Ld. CIT(A) was passed on 12.07.2024, by that time it was clear that there was wrong assumption about cash loans and consequent additions.

On receipt of order of Ld. CIT(A) as per normal procedure, scrutiny report is prepared by concerned AO, it is reviewed by Addl./ Jt. CIT of range, then by CIT and CIT (Judicial). Therefore, there are well established procedure and supervision to avoid un-necessary litigation. However, it is clear case of working with prejudiced and preset mind set and to file appeal if an addition was made based on some reports of department.

If a proper reading during scrutiny of appeal order was made the Ld. AO should not have sent offer for second appeal. It appears that Ld. Addl CIT, CIT and CIT (judicial) have also not applied mind and filed appeal on these issues which are based on wrong assumption, as revealed in course of penalty proceedings.

This was a fit case for Tribunal to grant heavy cost of appeal in favour of assessee for the costs incurred and harassment faced by assessee.

It is not discernible on reading of order of ITAT whether assessee had filed any rectification petition before AO when penalty proceeding was dropped on finding that there was wrong assumption about cash loan and whether assessee claimed any costs during appeal before ITAT.

In the entire order of ITAT word 'rectification' is not found, that means that rectification petition, if any made, was not pointed out before the CIT(A) and ITAT.

In the entire order of ITAT word 'costs' is not found, that means that cost was not claimed before the ITAT. It was a fit case to claim costs.

However, since costs are in discretion of Tribunal, honourable Tribunal can grant costs of appeal even if not claimed by appellant/ assessee.

The case discussed in this article is illustrative, we find large number of such cases which are in nature of unnecessary litigation by revenue. This must come to an end to save human resources, brain drain and avoid wasteful expenditure.