LOPA CHIRAG SHAH,AHMEDABAD vs. ITO, WARD-5(2)(3), AHMEDABAD

The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals)-5, Ahmedabad (‘CIT(A)’ in short), dated 05.06.2018 arising in the assessment order dated 05.12.2017 passed by the Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2015-16.

“1. On the facts and circumstances of the case and law, the ld. CIT(A) erred in confirming addition u/s 68 amount Rs.24,50,000/- on account of unsecured loan.”

Sr. Name of lender Amount of Total income Capital balance No. loan (In Rs.) disclosed in as per capital A.Y. 2015-16 account (Rs.) (In Rs.) 1. Shilpi Shah 3,50,000/- 2,19,120/- 54,33,376/- 2. Sadhana P Shah 5,00,000/- 62,580/- 80,39,275/- 3. Reena P Shah 5,00,000/- NIL 41,40,217/- 4. Chirag P Shah 11,00,000/- 34,930/- 28,73,831/- HUF Total 24,50,000/- The AO did not find the explanation towards nature and source of credits received from above named parties to be satisfactory and consequently, added the aggregate sum of Rs.24,50,000/- as unexplained credit to the total income declared by the assessee with the aid of Section 68 of the Act.

“ 3.3. During the course of assessment proceedings the AO observed that the assessee alongwith her husband Shri Chirag shah made investment in immovable property valued at Rs.2,42,05,708/-. As regards source of investment in immovable property, the assessee furnished copy of accounts of unsecured loans which she had taken for purchase of property alongwith copy of bank statements and copy of income tax returns of the lenders. The assessee in her balance sheet has shown unsecured loans of Rs.32,58,00,000/-. On further perusal of the loan accounts in respect of the above parties furnished by the assessee, it is seen that the loans shown to have been taken from the four persons were found doubtful as they did not have the means to pay such substantial amount to the assessee. In all cases, their capital accounts furnished by the assessee are not found reliable and acceptable especially because their capital account do not show any withdrawals during the year for advancing loans to the assessee. Further they have. no plausible and reasonable means to advance such amounts to the assessee as could be seen from their return of income which show very meager income during the year. The AO also observed that the assessee has also not paid any interest on loans to these parties. There is a common pattern of credits in their bank accounts. All the amounts for the loans to the assessee appeared to have been obtained from the same party. The AO also observed that the creditworthiness of these loans to the assessee is found doubtful. The AO was also requested to produce the persons for verification of genuineness of their creditworthiness for giving these substantial loans to the assessee. However, the assessee failed to produce these persons before the AO. Considering all these facts, the AO made the addition amounting to Rs.24,50,000/- u/s.68 of the I.T. Act. During the course of appellate proceedings also the appellant has not substantiate his claim with evidences. Considering the above facts, the AO is justified in making the addition. Accordingly, the addition made by the AO is confirmed and ground of appeal is dismissed.”

5. Further aggrieved, the assessee preferred appeal before the Tribunal.

6. When the matter was called for hearing, the learned AR for the assessee vehemently contested the additions made by the Revenue authorities and contended that there is no justification whatsoever in the action of the AO to make additions within the sphere of Section 68 of the Act. To support its case, the learned AR contended that all the four parties from whom the loans have been obtained namely Shilpi Shah, Sadhana P. Shah, Reena Shah & Chirag Shah HUF are family members of the assessee and naturally these family members have extended help to the assessee. The learned AR submitted that the AO has wrongly doubted the source and capacity of the lenders to lend money to the assessee. The learned AR referred to the balance sheet of one ‘ Speed Carrier S Bombay Pvt. Ltd.’ which is stated to be a family owned company. Adverting to the notes of the accounts appearing at page no.96 of the paper book, it was pointed out that these lenders had lent money to the family company in the earlier years and owed money from the company as on 31.03.2014. The money/loan so kept with the company was recalled which flowed into the hands of the assessee by way of loan. The learned AR accordingly submitted that in these circumstances where the ‘ source of source’ of loan advanced to the assessee stands proved with documentary evidences, the annual earning capacity of the lenders is not a justifiable consideration for challenging the propriety of the loan advances. The learned AR accordingly urged for reversal of the additions made under s.68 of the Act.

7. Learned DR, on the other hand, relied upon the observations made by the AO & CIT(A).

8. We have carefully considered the rival submissions. The bonafides of loans advances by family members/HUF of the family aggregating to Rs.24,50,000/- is in controversy. We straightway notice from the annexures/notice annexed to the balance sheet of ‘Speed Carrier S Bombay Pvt. Ltd.’ that all the four parties had outstanding dues from the company as on 31.03.2014. For instance, Shilpi Shah had an outstanding receivable of Rs.10,96,717/- as on 31.03.2014 whereas Nil outstanding has been shown by the company as on 31.03.2015. Thus, the aforesaid amount of Rs.10,96,717/- has been released by the company to the lender herein. Similar is the position for Sadhana Shah where outstanding of Rs.9,92,963/- has been reduced to Nil and Reena Shah where outstanding amount of Rs.5,62,900/- was released in favour of the lender. The loan of Rs.20,47,691/- of Chirag P. Shah HUF was similarly repaid by the company during the year. In the wake of availability of funds from a definite source, the capacity of the lenders to lend money to the assessee who happens to be a family member cannot be doubted. In our view, the explanation offered by the assessee towards the bonafides of the loan and the capacity of the lenders is to be reckoned as satisfactory when seen on the touchstone of Section 68 of the Act. Having regard to the facts of the case, we are of the opinion that the AO has mis-directed himself in law and on facts in invoking Section 68 of the Act in respect of the loans in question. We accordingly reverse and cancel the actions of the AO and CIT(A) on the score.

This Order pronounced on 05/10/2020