HPC Infotech P. Ltd. vs Income Tax Officer, Ward 11(1)

PER VIKAS AWASTHY, JM:

This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as ‘the CIT(A)’) dated 07.11.2025, for AY 2019-20.

Shri Sanjay Rohilla, appearing on behalf of the assessee submits that the assessee is engaged in import, distribution and trading of Ultra High Frequency (UHF) RFID tags and readers. During Financial Year 2018-19 i.e. period relevant to AY 2019-20, the assessee company was in critical start-up phase and was making substantial investments for establishing global supply chains with specialized manufactures based in China and United States. The assessee had entered into commercial agreements with two overseas suppliers, namely Zhejiang Laxcen

Information Technology Inc. Ltd., China, and Novanta Distribution, USA. Pursuant to the aforesaid supplier arrangement, the assessee made foreign remittances aggregating to Rs.23,26,982/- though authorized banking channel. Out of the aforesaid remittances Rs.21,86,570/- were remitted to the Chinese entity and Rs.1,40,412/- was remitted to the US entity. These remittances where towards advance payments for procurement of RFID equipment, which constitutes core business inventory of the assessee company. The foreign remittances were made in accordance with FEMA guidelines through banking channel.

The ld. Counsel stated that the Assessing Officer (AO) and the CIT(A) have not raised any doubt with regard to the assessee’s nature of business or remittance made by the assessee for procurement of stock of RFID equipment. The addition of Rs.23,13,542/- has been made by the AO raising doubt over the source of foreign remittances. The assessee had explained before the AO and the CIT(A) that for funding foreign remittances, the Directors of the Company had taken unsecured loan from Shri Pradeep Kumar. In order to substantiate genuineness of the loan transaction from Shri Pradeep Kumar, the assessee had furnished following documents before the AO on 13.11.2023:-

Per contra, Shri Manoj Kumar, representing the department vehemently defending the impugned order prayed for dismissing appeal of the assessee. The ld. DR pointed that the CIT(A) in para 4.4 of the impugned order has specifically recorded that written submissions of the appellant and the documents placed on record considered. The CIT(A) has passed the well-reasoned order after considering submission and documents on record filed by the assessee.

Both sides heard, orders of the authorities below examined. The issue for consideration before the Bench falls within narrow encompass i.e. whether the assessee has been able to substantiate source of funds for foreign remittances. The assessee is engaged in trading of UHF RFID tags and readers. The nature of assessee’s business is not doubted by the lower authorities. The assessee for import of RFID readers had made foreign remittance aggregating to Rs.23,13,542/-. The AO questioned the source of aforesaid remittances, the assessee explained that the remittances were made from the funds sourced as unsecured loans by Directors of the assessee company from Shri Pradeep Kumar. In order to substantiate unsecured loans taken by the Directors of the company from Shri Pradeep Kumar, the assessee has placed on record confirmation from Shri Pradeep Kumar, copy of his return of income for AY 2018-19 & 2019-20, bank statement of Shri Pradeep Kumar, copy of invoices, copy of bank statement of directors i.e. Ms. Kaushal and Shri Amit Kumar. The Id. Counsel for the assessee to substantiate that these documents were furnished before the AO referred to e-Proceedings Response acknowledgement at page 39 to 42 of the appeal set. I find that the CIT(A) the impugned order at para 4.4 has although mentioned that the documents placed on record by the assessee has been considered but there is no reference to the nature of documents considered by the CIT(A) and findings of the CIT(A) on the documents examined. Considering entire facts of the case, I deem it appropriate to restore the matter back to the AO for denovo examination of the documents furnished by the assessee to substantiate unsecured loans taken by the Directors of the company for funding of foreign remittances during AY 2019-20.

Needless to say, that the AO shall grant reasonable opportunity of making submissions to the assessee before passing the order, in accordance with law.

In the result, impugned order is set aside and appeal of the assessee is allowed for statistical purpose.