ACIT-1(1)(1), MUMBAI vs. M/S. ANANTNATH SILK MILLS PRIVATE LIMITED , MUMBAI

This is an appeal preferred by revenue against the order of the Ld. Commissioner of Income Tax (Appeals) (NFAC), Delhi dated 24.03.2023 for AY. 2018-19.

The main grievance of the revenue is against the action of the Ld. CIT(A) deleting the addition of Rs.70 Lakhs added by the AO on account of unsecured loans taken by assessee from M/s. Tuni Textile Mills Limited (hereinafter “M/s. Tuni”) as well as deleting the interest paid by the assessee to M/s. Tuni amounting to Rs.1,72,662/- on the said unsecured loans. 3. Brief facts are that the assessee had filed its return of income on 12.10.2018 declaring total income of Rs.8,03,78,040/-. The AO notes that the assessee company derives income from textile business. And he noted that the return of income of assessee was selected for A.Y. 2018-19 M/s. Anantnath Silk Mills Pvt. Ltd. scrutiny for verification of loan taken/loan repayment and therefore, he issued statutory notices to the assessee. According to the AO, the assessee company had taken unsecured loan of Rs.8,34,00,000/- and repaid the loan during the year under consideration. Therefore, he directed the assessee to furnish confirmation of lenders, copy of ITR filed by the loan parties and relevant bank statements reflecting the transactions in order to prove the lenders identity and creditworthiness as well as genuineness of the transaction. During the assessment proceedings, he issued notice u/s 133(6) of the Income Tax Act, 1961 (hereinafter “the Act”) to the corporate parties (lenders) from whom the assessee had borrowed unsecured loan. And since assessee did not initially respond to his notices, he show caused the assessee as to why the amount of Rs.8,34,00,000/- [Rs 8.34 crores] should not be added as the unexplained cash credit. Pursuant thereto, the assessee filed reply and on perusal of the same, AO understood that the assessee in this relevant year had taken unsecured loan of Rs.70 Lakhs from M/s. Tuni. And the AO noted from perusal of the details submitted in respect of the lender (M/s. Tuni), that M/s. Tuni had filed its return of income for AY. 2018-19 declaring total income of Rs. Nil and did not file any financial statement of this lender. So according to AO, he was not able to look into the creditworthiness of this lender. Further, he noted after perusal of the bank statement (of M/s. Tuni) that there was meagre balance throughout the year. And that the SFIO, has termed it to be shell company. Therefore, AO was of the view that the assessee failed to prove the identity, creditworthiness and genuineness of the 2 A.Y. 2018-19 M/s. Anantnath Silk Mills Pvt. Ltd. loan transaction of Rs.70 Lakhs with M/s. Tuni and therefore, he added Rs.70 Lakhs as income from undisclosed source and added to the total income of the assessee u/s 68 of the Income Tax Act, 1961 (hereinafter “the Act”) as well as he disallowed the interest paid to M/s. Tuni on the said unsecured loan amounting to Rs.1,72,652/-. Aggrieved by the aforesaid action of the AO, assessee preferred an appeal before the Ld. CIT(A)/NFAC who was pleased to delete the same by taking note that the assessee company which is in textile business had declared income of Rs.8,03,78,040/-. And that the assessee company had borrowed unsecured loan of Rs.70 Lakhs from M/s. Tuni which was a listed company in the Bombay Stock Exchange (BSE) and had net worth of Rs.12.31 crore (Capital plus Reserves) and had turnover of Rs.34.39 crore. The assessee also brought to the notice of the Ld. CIT(A) that it had submitted the documents called for by the AO (i) Loan confirmation received from lender, (ii) Copy of relevant bank statement received from lender and (iii) Copy of ITR acknowledgement of the lender. Thus, according to the assessee, the relevant documents sought by the AO had been filed before him and since the lender company was a listed company in BSE, the other details like financial statements balance-sheet are available on public domain and on a click of mouse would be available. The Ld. CIT(A) after taking note of the relevant documents/aforesaid facts and also the fact that the lender being a BSE listed company which was incorporated more than eleven (11) years before, and having sufficient net worth as well as turnover has 3 A.Y. 2018-19 M/s. Anantnath Silk Mills Pvt. Ltd. given loan of only Rs.70 Lakhs to the assessee company through banking channel and that the assessee had repaid the same (Rs. 70 Lakhs) within a short period of less than 100 days’ i.e. in the same relevant assessment year, [to M/s. Tuni]. Therefore, the Ld. CIT(A) has deleted the addition as well as allowed deduction of interest paid of Rs.1,72,662/-. Aggrieved, the revenue is before us. 4. We have heard both the parties and perused the records. The main grievance of the revenue is that the assessee had only replied at the fag end of March, 2021 (19th March, 2021), therefore, the AO did not get proper opportunity to verify the financial of the lender company (M/s. Tuni) which according to him is a shell company as found by SFIO. Therefore, he prays that the impugned order of the Ld. CIT(A) may be set aside back to the file of the AO for denovo assessment. Per contra, the Ld. AR brought to our notice that the AO during the assessment proceedings had asked for the three (3) details of lenders viz confirmation from the lenders, copy of their ITR and the bank statement of the lender, which documents had been filed by the assessee. In this context, he pointed out that the AO asked the assessee to file documents of the borrowed amount of Rs.8.34 crores which assessee had filed and drew our attention to the paper book at page no. 147 to 252 which gives the details of loan of Rs.8.34 crores and which included Rs.70 Lakhs taken from M/s. Tuni this relevant assessment year. It was pointed out by the Ld. AR that other than making an addition of Rs.70 Lakhs, AO has not taken any adverse view against the other loans which details he asked for. According to 4 A.Y. 2018-19 M/s. Anantnath Silk Mills Pvt. Ltd. the Ld. AR, notices were issued by the AO during Covid-19 pandemic period. And therefore, the assessee could not reply but once Covid-19 restrictions were lifted, the assessee filed the documents (supra) before the AO and also the Ld. CIT(A). The assessee also filed the following documents to substantiate the identity, creditworthiness and genuineness of the loan transaction (a) IT acknowledgment receipts containing PAN and address of the lenders; (b) Copy of the ROC master data indicating the active status of the lender company, (c) Details of the loan lenders pointing out the jurisdiction where such lenders are assessed, (d) Confirmation of loan account with their Address, PAN, Cheque numbers and Bank details, (e) Assessee’s Bank statement evidencing the receipt of loans through banking channel as well as repayment within hundred (100) days in the same assessment year, (f) Bank statement of the lender disclosing the source of its funds (Not sourced out of cash deposits) and (g) Balance- sheet of the lenders disclosing their worth/advances given (exceeding loan amount). Having noticed the aforesaid primary facts, we are not inclined to restore the issue back to the file of AO for fresh assessment as prayed for by Ld. DR. Instead, we notice that the assessee had filed the documents sought specifically by the AO for proving the nature and source of Rs.70 Lakhs borrowed by the assessee from M/s. Tuni, which we find is BSE listed company and has been incorporated eleven (11) years back and still functioning. The financials of M/s. Tuni being a listed company are available in the public domain and which can be accessed in the internet.