In a recent judgment, the Pune bench of the Income Tax Appellate Tribunal ( ITAT ) has restored the assessment order, highlighting that the National Faceless Appeal Centre ( NFAC ), failed to examine the nature of the unsecured loan transactions and passed the order in a perfunctory manner.
An appeal has been filed by the Revenue against the order issued by the National Faceless Appeal Centre (NFAC), Delhi, dated May 12, 2023, pertaining to the assessment year 2013-14.
The Respondent/ Assessee, Splice Biotech Pvt. Ltd., is a company incorporated under the Companies Act, 1956, engaged in the business of property development and the manufacturing and trading of recycled betelnut. The Return of Income for the assessment year 2013-14 was submitted on September 19, 2013, revealing a total income of Rs. 97,64,890/-.
Get a Copy of Income Tax Rules with FREE e-book access, Click here
Subsequently, the Income Tax Officer completed the assessment through an order dated March 29, 2016, under Section 143(3) of the Income Tax Act, 1961, determining the total income at Rs. 6, 23, 59,430. The assessment included additions due to unsecured loans from various Kolkata-based companies.
The appellant was provided with statements recorded by the Investigation Wing of the Department in Kolkata, involving Navneet Kumar Singhania and Beni Prasad Lahoti, who were alleged to have provided accommodation entries as bogus long-term capital gains. During the assessment proceedings, the appellant could not substantiate the transactions regarding the receipt of unsecured loans, prompting the Assessing Officer to classify these loans as unexplained cash credits.
Dissatisfied with the assessment order, the appellant filed an appeal with the NFAC. The NFAC subsequently deleted the addition, concluding that the assessee had demonstrated the genuineness of the transactions concerning share purchases and unsecured loans. The NFAC accepted the appellant’s explanation and instructed the Assessing Officer to annul the addition made under Section 68 of the Income Tax Act.
Mr. Devendra Jain, representing the revenue/ appellant, contended that the NFAC should not have directed the Assessing Officer to eliminate the addition of Rs. 5, 20, 00,000 without recognizing the appellant’s failure to prove the identity, creditworthiness of the loan parties, and the genuineness of the transactions.
Get a Copy of Income Tax Rules with FREE e-book access, Click here
Conversely, Mr. Akhilesh Srivastava, representing the assessee/respondent, emphasized the reasoned order of the NFAC, arguing that no further interest was warranted.
The tribunal observed that the transactions involving the unsecured loans were void ab initio, characterizing them as sham arrangements designed to introduce undisclosed income into the books of account. The tribunal referenced the Bombay High Court‘s ruling in the case of PCIT vs. Indravadan Jain, HUF, noting its irrelevance to the current case as it pertained to shares purchased on a listed exchange rather than through private preferential allotment.
Additionally, the High Court had dismissed the revenue’s appeal without establishing any question of law, thus lacking precedential value. The tribunal pointed out that the NFAC failed to examine the nature of the transaction and passed the order in a perfunctory manner.
Consequently, the two-member bench of the tribunal, comprising Vinay Bhamore (Judicial Member) and Inturi Rama Rao, (Accountant Member) reinstated the assessment order and allowed the Revenue’s appeal.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
