ACIT 4(3)(1), MUMBAI vs. NARAYAN DALPATRAM THAKKAR, MUMBAI

On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the AO to delete the addition made towards interest claimed to be paid on unexplained unsecured loan of Rs.87,547/-u/s.69C of the I.T. Act.”

Brief facts of the case are that assessee filed his return of income on 31.07.2008 reporting total income at Rs. 76,20,820/-. Assessing Officer completed the assessment u/s.143(3) r.w.s.147 by assessing the total income at Rs. 1,42,08,370/- after making an addition of Rs.65 lakhs as unexplained cash credit u/s. 68 and of Rs. 87,547/- as unexplained expenditure on account of interest on unsecured loans by applying provisions of section 69C. These additions were based on information from the Directorate General of Income Tax Investigation, Mumbai indicating that the loans taken by the assessee from Olive Overseas Pvt. Ltd. (erstwhile Real Gold Trading Company Pvt. Ltd.) of Rs.30 lakhs and from Triangular Infocom Ltd. (erstwhile Lexis Infotech Ltd.) of Rs.35 lakhs were accommodation entries orchestrated by Shri Praveen Kumar Jain's group.

1. Ld. CIT(A) in the first appellate order deleted the additions so made by holding that assessee had discharged the onus u/s. 68 by proving the identity and creditworthiness of the lender companies and genuineness of the transactions. Revenue is in appeal before the Tribunal on the relief so granted by the ld. CIT(A) by putting its contention that ld. CIT(A) overlooked the evidence of non-genuine transactions.

We have heard both the parties and perused the material placed on record containing written submissions by both the parties and a paper book filed by the assessee having 143 pages. We have also perused the orders of the authorities below to take note of the facts and 3 Narayan Dalpatram Thakkar AY 2008-09

1. Case of the assessee is that he had obtained unsecured loans from the two companies through proper banking channel and paid interest regularly thereon. Further, the said loan has been repaid in the subsequent financial years through proper banking channel for which ledger accounts reflecting the repayment were placed on record. Both the lender companies are assessed to income tax regularly, who had filed their income tax returns, copies of which are placed on record. The loan transactions have been duly reflected in the books of accounts of the assessee as well as of the lender companies without any qualification by the auditors. Assessee has furnished following documents in respect of the two lender companies to establish the requirements as contained in section 68:-

2. Also, ld. AO issued notice u/s. 133(6) to the lender companies. Ld. AO records in the assessment order that he had received reply from Triangular Infocom Limited along with necessary and relevant documentary evidences confirming the transaction undertaken by it with the assessee. In respect of the other company, namely, Olive Overseas Limited, ld. AO mentions that no reply was received from the said party. However, contention of the assessee is that no notice u/s. 133(6) was served to the said party for which a confirmation of non- receipt of notice u/s. 133(6) was placed on record as received from the said lender company. Despite this, the said lender company complied with requirements contemplated by the ld. AO by furnishing all the relevant documentary evidences through the assessee.

We note that ld. AO has been unable to refute the cogent evidences placed on record by the assessee and those furnished by the lender companies. Various facts and figures and details furnished by the assessee in complying with the requirements of section 68 is tabulated below:

01. 2008

01. 2008

01. 2008

09. 2010

09. 2009

1. From the above details, it is evidently noted that assessee has discharged his onus to prove the identity and creditworthiness of the loan transactions as well as their genuineness. All the documentary evidences are placed on record for which nothing cogent is brought to disprove them or point out any deficiency or inconsistency to dislodge the claim of the assessee. It is seen that ld. AO has merely relied on the statements by alleged Shri Praveen Kumar Jain as recorded by Investigation Wing. It is also noted that ld. AO could not establish and demonstrate with cogent documentary evidence of any relationship between the assessee and the Praveen Kumar Jain group as well as the lender companies by evidencing any nexus of the transaction of the assessee with the Praveen Kumar Jain group. From the statements recorded of Shri Praveen Kumar Jain on which ld. AO has placed his sole reliance, there is nothing brought on record to suggest and establish that assessee's name was taken and recorded in the statement for the alleged transactions being undertaken by the assessee for the purpose of accommodation. Assessee has claimed for providing copies of material relied upon by the ld. AO and for a cross examination in respect of the statement relied upon by the ld. AO. However, no such opportunity was made available to the assessee, nor any such material was provided. Claim of the assessee is that statement made by Shri Praveen Kumar Jain and relied upon by the ld. AO is a general statement with regard to providing entry through his concerns and nowhere in his statement made any specific allegation that he had provided any entry to the assessee in the form of unsecured loans. It is also worth noting that ld. AO has not made any further enquiry to probe into the matter and has rested on the findings of the investigation wing and the statement recorded of Shri Praveen Kumar Jain in the course

1. Reliance placed by the ld. Sr. DR. on the judgement of Hon’ble Supreme Court in the case of NRA Iron and Steel Pvt. Ltd. 412 ITR 161 (SC) is found to be distinguishable on the facts in as much as in the said decision, ld. AO had made extensive enquiries and some of the investors were found to be non-existent. On going through the facts involved in that judgement, it is noted that in the decided case, the AO had made extensive enquiries and from that he had found that some of the investor companies were non-existent, which is certainly not the case before us. In the decided case, certain investor companies also failed to produce their bank statements proving the source for making investments in assessee Company. In the facts of the present case, however, not only have the lender companies furnished their bank statements and audited financial statements to establish the source of funds but have also furnished their respective sources of funds in response to notices issued by the ld. AO.

Keeping the entire discussion made above in juxtaposition, with the documentary evidences placed on record, we find that assessee has discharged his onus to prove the identity and creditworthiness of the lender companies and the genuineness of transactions. We do not find any reason to interfere with the findings arrived at by ld. CIT(A) in deleting the addition made by ld. AO u/s.68 amounting to Rs. 65 lakhs from the two lender companies. Accordingly, ground no.1 raised by the Revenue is dismissed.

Ground no. 2 relates to addition made on account of interest expenditure on the said two loans. Since the said two loans have been held to be genuine, the consequential effect is that the claim of interest on the said loan is an allowable expenditure and therefore, the disallowance made is deleted. We find no reason to interfere with the findings arrived at by ld. CIT(A) on this aspect by deleting the disallowance so made by ld. AO. Accordingly, ground no.2 raised by the Revenue is dismissed.

In the result, appeal of the Revenue is dismissed.

The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. 5. Guard File CIT