The Income Tax Appellate Tribunal ( ITAT ) Rajkot Bench sent a case back to the Assessing Officer (AO) for fresh adjudication, expressing that the authorities losses to perform inquiry for unsecured loans amounting to Rs.1.82 crore and Rs.1 crore.
The tribunal marked that the additions under section 68 of the Income Tax Act, 1961, were made without satisfactory verification of the loan providers’ creditworthiness.
The matter engaged Comet Granito Pvt Ltd a manufacturer of ceramic vitrified tiles, which submitted its income tax return for Assessment Year (AY) 2013-14, declaring a loss of Rs.2.07 crore. The Assessing Officer (AO) added Rs.1.82 crore as unexplained cash credit, mentioning that the company failed to prove the creditworthiness of loan providers. For unsecured loans from four Kolkata-based companies another Rs 1 crore was added on identical grounds.
The AO for the AY 2017-18 made the additional disallowances along with Rs 50 lakh under section 69C for the unexplained expenditure on excess stock of Rs 2.25 crore as of the downfall in net profit ratio and Rs 19.75 lakh in disallowed interest on unsecured loans. Most of these additions are been carried by the Commissioner of Income Tax (Appeals) CIT(A) directing cross-appeals via both the taxpayer and the revenue before the ITAT Rajkot.
It was noted by ITAT Rajkot that the tax authorities are unable to perform the effective verification of the unsecured loans and laid on the assumptions instead of the proof. It was noted by the tribunal that AO and CIT(A) did not utilize their powers u/s 131 and 133(6) to summon loan providers or validate the financial records.
It was ruled by a two-member bench of Dinesh Mohan Sinha (Judicial Member) and Dr Arjun Lal Saini (Accountant Member) that an effective inquiry was required before treating the loans as unexplained cash credit. It too expressed that the loan providers had furnished the bank statements, tax returns, and confirmation letters, though the Assessing Officer(AO) rejected them without additional verification.
It was mentioned by the tribunal that the tax department must perform an independent investigation rather than dismissing the proof completely.
It was discovered by the tribunal that the CIT(A) is unable to examine how the excess stock was generated and held that the AO should perform a fresh examination of the unaccounted purchases. The disallowance of the interest expenses was too associated with the loans that were under reassessment, making it crucial for the AO to review this aspect along with the main inquiry.
The previous orders have been set aside by the ITAT Rajkot and remanded the case back to AO asking for a detailed investigation into the unsecured loans, the source of excess stock, and the interest disallowance. It was outlined by the tribunal that the authorities should perform an investigation before making the additions u/s 68.
| Case Title | Comet Granito Pvt. Ltd vs. Deputy Commissioner of Income Tax |
| Citation | ITA No. 273 & 317/RJT/2023 |
| Date | 30.12.2024 |
| Appellant by | Shri Vimal Desai, AR |
| Respondent by | Shri Ashish Kumar Pandey, Sr. DR |
| Rajkot ITAT | Read Order |
