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Facts
The assessee, Rakesh Gupta Family Trust, filed a NIL return for AY 2011-12. Following a search action, the assessment was reopened u/s 147, and a notice u/s 148 was issued, alleging the assessee was a beneficiary of bogus loans and interest claims, leading to a disallowance of Rs. 3,00,000 in interest expenditure. The assessee contended that the loans were old (from AY 2005-06/2006-07), not related to the current year, and provided extensive documentation to prove the identity, creditworthiness, and genuineness of the loan transactions.
Held
The Tribunal found that the loans on which interest was disallowed were indeed from prior years, and the Assessing Officer himself acknowledged that no addition could be made for the loans u/s 68 for the current year. The assessee successfully discharged its onus u/s 68 by providing corroborative documentary evidence, and the interest payment disallowed by the Assessing Officer was deleted. Grounds related to the validity of reopening u/s 147/148 were left open as the appeal was allowed on merits.
Key Issues
Whether the reopening of assessment u/s 147 was valid; and whether the disallowance of interest expenditure of Rs. 3,00,000 on loans taken in earlier assessment years was justified.
Sections Cited
143(3), 147, 148, 68
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Income Tax Appellate Tribunal, “D” BENCH MUMBAI
Before: SHRI SANDEEP GOSAIN & SHRI GIRISH AGRAWAL
Present for: Assessee : Shri Dharmesh Shah, Advocate and Ms. Jigna Jain, Advocate Revenue : Shri Annavaran Kosuri, Sr. DR Date of Hearing : 24.07.2025 Date of Pronouncement : 22.09.2025 O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by assessee is against the order of ld. ADDL/JCIT (A), Panchkula, vide order dated 11.02.2025 passed against the assessment order by the ACIT-21(3), Mumbai u/s.143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 16.12.2017 for Assessment Year 2011-12.
Grounds taken by the assessee are reproduced as under: 1. The Ld. CIT(A) has erred in law and in facts in confirming the order of the Ld. AO passed u/s 143(3) r.w.s. 147 of the Act which is invalid and bad in the eyes of law.
Rakesh Gupta Family Trust AY 2011-12 2. The Ld. CIT(A) has erred in law and in fact in confirming the reopening of assessment u/s 147 of the Act which is invalid and bad in the eyes of law.
3. The Ld. CIT(A) has erred in law and in facts in confirming the disallowance of interest expenditure of Rs. 3,00,000/-.
Brief facts of the case are that assessee filed its return of income on 30.09.2011 reporting total income at Nil. On the basis of findings during the search and seizure action in the case of Vidur Bhatt Group, it was found that assessee is a beneficiary of obtaining bogus loans and claiming bogus interest thereon. Consequently, case of the assessee was taken up for reopening proceedings for which notice u/s.148 was issued on 24.03.2017. Assessee raised its objection by submitting that reopening is not valid as it was made on the basis of statement of Shri Vipul Vidur Bhatt. From the perusal of the reasons to believe recorded by the ld. Assessing Officer, it is noted that ld. Assessing Officer has observed that- “on examination of the details during the course of search, it was seen that Rakesh Gupta Family Trust is also a beneficiary of such accommodation entries in the nature of loans taken from bogus parties and the details of such loans as seen from the records of the assessee for the year under consideration is as under: Α.Υ. 2011-12 Sr.No. Name of the Bogus Entities F.Y. Amount 1 AJAY M. BHATT 2010-11 5,00.000 2 SANJAY G. PARMAR HUF 2010-11 3,50,000 3 SHRISH J. BHATT HUF 2010-11 5,00,000 TOTAL 13,50,000
In the course of assessment, assessee submitted that statement given by Shri Vipul Vidur Bhatt was retracted for which a copy of affidavit was placed on record. Assessee also filed affidavits from Ajay M Bhatt, the Karta of Sanjay G. Parmar HUF and Shirish J. Bhatt HUF stating that they have given loans to the assessee and are from their regular source. Assessee had also filed confirmations from the other parties. The documentary evidences placed by the assessee in the course of assessment proceedings included the following: i. Income Tax Return Acknowledgement of the parties, Rakesh Gupta Family Trust AY 2011-12 ii. Confirmation from parties iii. Affidavit of the parties iv. Relevant extract of bank statement of the parties v. Relevant extract of bank statement of the assessee vi. Ledger account of the said party in the books of the appellant for various years showing loans taken in earlier years and repaid in subsequent years 4.1. For the onus casted on the assessee u/s.68 to establish identity and credit worthiness of the parties and genuineness of the transaction, assessee inter alia submitted as under: “23. The appellant had proved the identity of 6 parties by providing Income Tax Return of the party. Further, appellant has also submitted confirmation and affidavit of these parties. Hence, the identity of the above parties stands conclusively proved.
With respect to capacity of the party to give loan to the appellant, these parties have filed the affidavit as well as ITR. Moreover, the bank statements of the parties reflect sufficient funds before giving loan to the appellant which demonstrates the creditworthiness of the party.
With respect to genuineness of the transaction, the appellant submits that the interest is paid through banking channel which were duly recorded in the books of accounts of the appellant. Further, it is not the case of the Assessing Officer that the cash has been deposited in the bank account of the party before issuing the cheque in favour of the appellant. Bank statement of the party is also available on record. Further, the aforesaid loans are also repaid in subsequent years. Hence, the genuineness of the transaction is sufficiently proved.
Further, we submit that the loan taken in earlier year has also been repaid in subsequent years by the appellant through banking channels. Copy of the ledger account and relevant bank statement showing repayment of loan is enclosed herewith. These facts clearly show that the transaction carried out by the appellant are genuine and no contrary fact have been placed on record by the Assessing Officer in his assessment order to prove otherwise.
Thus, it is submitted that the appellant had proved identity and capacity of the parties and genuineness of the transaction and therefore the appellant had fulfilled it's burden of explaining the loan transaction as genuine transaction.”
4.2. Assessee further submitted that the loans taken by the assessee from the six parties are old loans taken much prior to the period Rakesh Gupta Family Trust AY 2011-12 under consideration and the conduct of search. These loans on which interest has been paid do not pertain to the year under consideration. The year in which these loans were taken are Assessment Year 2005- 06 and 2006-07 for which copies of ledger account were referred. This factual position has not been disputed by the Revenue as non genuine in the respective years. Further, ld. Assessing Officer in the impugned assessment order in para-4.6 categorically notes that- “It is seen on verification that the contention of the assessee is correct as the loans were taken prior to the year under consideration and accordingly cannot be considered for addition u/s.68 in the year. In view of the said facts, only the interest claimed is disallowed as under: Sr. No. Name of party Loan amount taken Interest amount during the year 1 Babubhai D Patel NIL Rs. 42,000/- HUF 2 Sanjay G Parmar NIL Rs. 42,000/- HUP 3 Deepak R Rawal NIL Rs. 60,000/ 4 Ajay M Bhatt NIL Rs. 60,000/- 5 Gangaben M Patel NIL Rs.36,000/- 6 Niral S Bhatt NIL Rs.60,000/- TOTAL NIL Rs.3,00,000/- (Emphasis supplied by us by bold and underline)
Ld. Assessing Officer thus, without making any addition for the loans outstanding, disallowed the claim of interest payment on the said loans totalling to Rs. 3 lakhs for which assessee is in appeal before the Tribunal. Admittedly, the fact is undisputed that loans on which interest payment has been disallowed are of earlier years, i.e., years much prior to the conduct of search and seizure operation in the case of Vidur Bhatt Group. For establishing the identity and credit worthiness of the parties and genuineness of the transaction, assessee has placed on record relevant material corroborating the transaction. Further, assessee demonstrated by way of documentary evidences that the said loans have been repaid subsequently. Revenue has not brought any cogent material on record to point out the discrepancy or Rakesh Gupta Family Trust AY 2011-12 deficiency in the corroborative documentary evidences placed on record by the assessee. Also, it is a fact on record, no adverse view was taken by the Revenue on these loans on which interest payment has been disallowed in the corresponding years in which the loans were taken by the assessee.
In the given set of facts and circumstances where no addition has been made in respect of loans on which the interest payment has been disallowed and more particularly where assessee has discharged its onus casted u/s.68 in respect of the said loans, the interest payment disallowed by the ld. Assessing Officer is deleted. Accordingly, ground No.3 raised by the assessee is allowed.
Ground No.1 and 2 raised by the assessee are left open, since appeal of the assessee has been allowed on the merits of the case.
In the result, appeal of the assessee is allowed.