INCOME TAX OFFICER 23(2)(1), MUMBAI, LALBAUG, PIRAMAL CHAMBERS MUMBAI vs. NINE DIMENSIONS HOUSING LLP, BANDRA EAST, MUMBAI

According to the AO, the assessee did not comply with the said show-cause notice and therefore he presumed that the assessee has failed to discharge onus to prove genuineness of the transaction and case is getting time barred by limitation of time and the assessee could not prove the creditworthiness of the loan creditors, therefore he examined the creditworthiness of the aforesaid parties from the financials details below:-

The Assessing Officer on the aforesaid financials observed that these parties have a very meager income. One of the loan creditors for example M/s. Atin Exports LLP has claimed TDS of Rs. 7,21,739/- and has offered income of Rs. 4,00,490/- as against Rs. 38,17,268/- received from the assessee itself. The assessee is not the only party from whom the loan creditors have received interest. Further, after paying meager tax amount of Rs. 1,33,751/-, balance TDS has been claimed by way of refund from Income tax Department. Further the assessee failed to explain the need of taking funds from entities engaged in the business of diamonds.

The Assessing Officer thereafter discussed the law and judgments concerning the addition under section 68 of the Act and ultimately by observing that the case was getting time barred by limitation of time, he is constrained to take action and complete the case, as the assessee has failed to prove the genuineness, creditworthiness and identity of loan creditors and accordingly, he treated the amount of Rs. 1 crore (Rs. 39 lakh from Angel Gems and Rs. 61 lakh from Atin Exports LLP) as unexplained cash credit under section 68 read with section 115BBE of the Act and added the same to the total income of the assessee.

The Assessing Officer further by holding that it has been proved that the loan creditors as discussed above are non-genuine and creditworthiness and payment of interest expenses amounting to Rs.1,02,82,440/- is also non-genuine and wants disallowance, as per

Subsequently the said original order came into scrutiny before Ld. Principal Commissioner of Income Tax (in short ‘PCIT’), who vide order dated 23.3.2022 under section 263 of the Act, exercised its jurisdiction for the limited purpose of rectifying provisions of section 43(1) of the Act qua making the addition of Rs. Rs.1,02,82,440/- on account of interest paid to the creditors, as applied by the Assessing Officer in the original assessment proceedings/assessment order and ultimately set aside the said original assessment order dated 28.12.2019 for passing an order afresh with the direction to consider interest expenditure as above for addition under section 69 read with section 115BBE of the Act instead of under section 37(1) of the Act.

Subsequently, the latest Assessing Officer by passing consequential assessment order 23.3.2022 under section 143(3) read with section 263 and 144B of the Act, complied with the directions of the Ld. PCIT and consequently made the disallowance of Rs. 1,02,82,440/- being unexplained expenditure under section 69C of the Act and also reiterated the disallowance of unsecured loans under section 68 of the Act as per section 143(3) order to the tune of Rs. 1 crore, as made in the original Assessment order.

Thus, the assessee being aggrieved against both the assessment orders passed under section 143(3) dated 28.12.2019 and dated 14.3.2023 under section 143(3) read with section 263 of the Act, preferred first appeal before Ld. Commissioner, who vide impugned order deleted both the additions of Rs. 1,00,00,000/-under section 68 of the Act

The Ld. DR in support of its appeal, more or less has claimed that the assessee has not satisfactorily discharged onus to prove identity, creditworthiness of the loan creditors and genuineness of the transaction involving unsecured loan of Rs. 1 crore in total. Further though, the assessee provided documentary evidences, such as loan confirmations, bank statements and income tax return (ITRs) of the creditors but these documents do not conclusively established legitimacy of the transaction. The AO in the assessment order passed under section 143(3) read with section 263 of the Act, has rightly concluded that the transactions lacked genuineness, as the assessee failed to provide cogent evidence during the assessment proceedings, despite proving opportunities through show- cause notices. The Ld. DR further claimed the loan creditors including Shri Tikam Chand Jangid (Prop. of M/s. Angel Gems) and M/s. Atin Exports LLP declared meager incomes in their ITRs, yet provided substantial loans to the assessee. Additionally, these creditors claimed significant refunds from the income Tax Department on account of TDS payments, primarily from interest received from the assessee itself. This pattern suggests a circular flow of funds, where the assessee’s unaccounted money may have been routed through these creditors to create a facade of legitimate transactions. Further, the loan amounts provided by the creditors are significantly disproportionate to their declared incomes, raising serious doubts about their creditworthiness. Ld. DR further relied on the judgments passed in the case of NRA Iron & Steel Pvt. Ltd. Vs. PCIT (Central) and J.K. Global Vs. ITO (ITAT Mumbai order dated 5.9.2024). The Ld. DR at last has submitted that the judgements relied on by the Ld. Commissioner are distinguishable on facts.

On the contrary, Ld. Counsel for the assessee has claimed that before the Assessing Officer it has duly filed relevant documents, such as ledger confirmations, copy of ITRs and computation of income, tax audit report, profit and loss account, balance sheet etc. of the creditors/loan parties as it clearly appears from the acknowledgement/response to the notice dated 2.12.2019 issued by Ld. Assessing Officer (page 1 & 2 of the paper book). The assessee further demonstrated from the paper book pages 147 to 152, which are acknowledgments issued by the Revenue/CBDT portal, that the assessee has filed certain documents from time to time vide response submitted on 9.12.2019, 14,12,2019, 17.12.2019 and 21.12.2019. The Ld. Counsel for the assessee has therefore claimed that by submitting relevant documents, as mentioned above, the assessee not only established identity of the parties but also proved their creditworthiness and genuineness of the transactions and therefore Ld. Commissioner by taking cognizance of the peculiar facts and circuses, deleted the additions and thus in the impugned order, no inference is required.

Heard the parties and perused the material available on record and given thoughtful consideration of the rival claims of the parties. First, we will adjudicate the addition of Rs. 1 crore, which has been made as unexplained cash credit under Rs. 68 of the Act by both the Assessing Officers in their respective orders, under section 143(3) and 143(3) read with section 263 of the Act. We observe from the orders passed by the authorities below that the Assessee during the assessment year under consideration has raised unsecured loan of Rs. 1 crore in total, from following parties:

We observe from the impugned order, as well as acknowledgment and documents shown/demonstrated by the assessee and clear cut findings of the Ld. Commissioner that the assessee in response to the questionnaire notice dated 8.8.2023 issued by the Ld. Commissioner provided documentary evidences/submissions and party-wise details submitted already or made online on 14.12.2019, 17.12.2019 and 21.12.2019 before the original Assessing officer, to prove the identity, genuineness and creditworthiness of the parties from whom unsecured loans have been taken and interest paid. The Ld. Commissioner by taking cognizance of such facts, specifically observed that it is surprise that on one hand the Assessing Officer has asserted that he has not received any submissions from the parties or assessee regarding unsecured loans or interest paid, while on the other hand while making disallowance he has discussed ITRs, TDS etc. for one of the parties, in paragraph 7 of the assessment order. The Ld. Commissioner further observed that the Assessee before the Assessing Officer filed the documentary evidence and made the submissions, in support of its claim qua unsecured loans taken and interest paid and has also provided such details and documents during appellate stage, which for the sake of brevity and ready reference read as under: - a) Income Tax Returns

We have given thoughtful consideration to the peculiar facts and circumstances in totality. It is not in controversy that the assessee has duly filed relevant documents referred to above before both the parties below, however, may be inadvertently or oversight, the same remains to be examined by the Assessing Officer. However, Ld. Commissioner independently examining the aforesaid documents, ultimately held that the assessee has discharged its onus of proving unsecured loan as genuine.

The Ld. DR also acknowledged this fact of filing relevant documents to discharge its onus under section 68 of the Act by the assessee. However, Ld. DR has submitted that these documents alone do not conclusively establish the legitimacy of the transactions, as Ld. Commissioner erred in accepting this evidence, at face value without scrutinizing the underlying financial capacity and intent of the creditors. However, the loan amounts provided by the creditors were significantly disproportionate to their declared incomes. It is settled that showing having and declaring a meagre income is not only a criterion to weigh the creditworthiness of the creditors but in fact capital, reserve, surplus and financials in total, are requires to be seen, which the Ld. Commissioner has examined independently. Further Ld. DR also relied on various judgments referred to above, which are not applicable to this case as in the instant case the assessee by producing relevant evidence/documents

Coming to the making of addition Rs. 1,02,82,440/- under section 69C of the Act by the subsequent AO in pursuance to the Order u/s 263 of the Act, we observe that the Ld. Commissioner in the last part of the impugned order specifically considered such aspect and observed that the Ld. Assessing Officer in the assessment order has not mentioned anything and as he has held already deleted the addition and therefore the order passed under section 143(3) read with section 263 of the Act became redundant.

As the Ld. Commissioner deleted the aforesaid addition not only on the basis of relevant evidence/documents and peculiar facts and circumstances of the case but also on the legal aspects as involved and therefore there is no infirmity in the order passed by Ld. Commissioner in deleting the addition under consideration as well. Thus, the respective ground qua addition of Rs. 1,02,82,440/- also stands dismissed.

In the result, appeal filed by the Revenue-Department stands dismissed.