INCOME TAX OFFICER-2(2)(3),MUMBAI, MUMBAI vs. PLEXITECH TECHNOLOGIES PRIVATE LIMITED, MUMBAI

The Revenue, in substance, has challenged the deletion of the addition of Rs. 80,00,000/- made by the Ld. Assessing Officer (in short “AO”) u/s 68 r.w.s. 115BBE of the Act, whereas the Assessee, by way of its cross-objection, has assailed the validity of the reassessment proceedings on legal aspects.

Coming to the factual aspects of the case, as relevant for adjudication of Revenue’s appeal, we observe that the Assessee filed its original return of income for the A.Y. 2016-17 on 15.10.2016, declaring a total income of Rs. 25,44,770/-, which was processed u/s 143(1) of the Act on 19.03.2018. Subsequently, on the basis of information received through the Insight Portal that the Assessee was a beneficiary of an alleged bogus entry from M/s. Abhinandan Diamond Pvt. Ltd., the assessment was reopened by issuance of notice u/s 148 of the Act on 30.03.2021. In response thereto, the Assessee filed its return on 29.04.2021, declaring the same income.

During the year under consideration, the Assessee received an unsecured loan of Rs. 80,00,000/- from M/s. Abhinandan Diamond Pvt. Ltd. through banking channels. The loan was repaid within the same financial year along with interest, after deduction of tax at source. The AO, however, treated the loan as unexplained cash credit u/s 68 of the Act, mainly on the ground that the financial position of the lender did not establish its creditworthiness. The AO also relied upon the statement of Shri Deepak Jain recorded u/s 132(4) of the Act, wherein he had stated that M/s. Abhinandan Diamond Pvt. Ltd. was engaged in providing accommodation entries.

Thus, the Assessee being aggrieved challenged such addition before the Ld. Commissioner and furnished, inter alia, the loan confirmation, PAN and address of the lender, its return of income, audited financial statements and relevant bank statements. The Assessee also furnished its own bank 2 statement evidencing receipt and repayment of the loan, interest ledger and TDS details. It further relied upon the retraction made by Shri Deepak Jain and contended that the statement relied upon by the AO was neither supplied to it nor tested through cross-examination.

During the appellate proceedings, the additional evidence was forwarded to the AO, who submitted a remand report dated 26.11.2024. Upon considering the material available on record and the remand report, the Ld. Commissioner held that the Assessee had established the identity and creditworthiness of the lender as well as the genuineness of the transaction. The Ld. Commissioner also noticed that the loan was received and repaid through banking channels within the same financial year and that interest was paid after deduction of tax at source. Further, the statement relied upon by the AO had been retracted and no opportunity of cross-examination was afforded to the Assessee. The Ld. Commissioner, accordingly, deleted the addition of Rs. 80,00,000/- made u/s 68 r.w.s. 115BBE of the Act.

The Ld. DR relied upon the assessment order and submitted that information received through the Insight Portal identified the Assessee as a beneficiary of accommodation entries provided by M/s. Abhinandan Diamond Pvt. Ltd. It was contended that the lender, having meagre reserves and returned income, lacked the creditworthiness to advance Rs. 80,00,000/-. The Ld. DR also relied upon the statement of Shri Deepak Jain recorded u/s 132(4) of the Act and the remand report dated 26.11.2024. It was further submitted that routing the transaction through banking channels and subsequent repayment thereof would not, by themselves, establish its genuineness. The Ld. DR, accordingly, prayed for restoration of the addition made u/s 68 r.w.s. 115BBE of the Act.

On the contrary, the Ld. Counsel for the Assessee relied upon the impugned order and submitted that the identity and creditworthiness of the lender and genuineness of the transaction stood established through the loan confirmation, PAN, return of income, audited financial statements, 3 bank statements, ledger accounts and TDS details. It was emphasized that the loan of Rs. 80,00,000/-, received through banking channels, was repaid within the same financial year along with interest, after deduction of tax at source. Further, in response to the notice issued u/s 133(6) of the Act, the lender had confirmed the transaction. It was also submitted that the statement of Shri Deepak Jain had been retracted and, despite being relied upon by the AO, was neither supplied to the Assessee nor tested through cross-examination. Thus, in the absence of any independent material connecting the Assessee with the alleged accommodation entry, the Ld. Commissioner rightly deleted the addition.

We have heard the parties, perused the material available on record and given thoughtful consideration to their rival claims. It is an admitted fact that the Assessee received an unsecured loan of Rs. 80,00,000/- from M/s. Abhinandan Diamond Pvt. Ltd. through banking channels and repaid the same within the same financial year, along with interest, after deduction of tax at source. In support of the transaction, the Assessee furnished the loan confirmation, PAN and address of the lender, its return of income, audited financial statements and bank statements, besides the interest ledger and TDS details.

We observe that, in response to the notice issued u/s 133(6) of the Act, the lender confirmed the loan transaction. The documentary evidence furnished by the Assessee was also examined during the remand proceedings. Though the AO objected to the explanation of the Assessee, however, no material was brought on record either to controvert the documentary evidence or to demonstrate that the amount received represented the Assessee’s own unaccounted money routed through the lender.

The AO doubted the creditworthiness of the lender principally on the basis of its meagre reserves and nominal returned income. In DCIT Vs. YRV International, ITA No. 1414/Mum/2017, decided on 04.07.2018, the Coordinate Bench held that low capital or profit, by themselves, are not 4 determinative of creditworthiness. What is required to be examined is whether sufficient funds were available with the creditor at the time of advancing the loan, including funds generated from its business or borrowed from other persons. A similar view was taken in Nehal Brothers Vs. ITO, ITA No. 2541/Mum/2023, decided on 22.01.2025.

Repayment through banking channels is also a relevant circumstance, though not conclusive by itself, while examining the genuineness of a loan transaction. In CIT Vs. Ayachi Chandrashekhar Narsangji, Tax Appeal No. 992 of 2013, decided on 02.12.2013, the Hon’ble Gujarat High Court noticed, inter alia, that the confirmed loan had been repaid in the immediately succeeding financial year and such repayment had been accepted by the Department without further inquiry. In Pr. CIT Vs. Veedhata Tower Pvt. Ltd., Income Tax Appeal No. 819 of 2015, decided on 17.04.2018, the Hon’ble Bombay High Court sustained the deletion where the Assessee had discharged the onus u/s 68 of the Act through the requisite documentary evidence; partial repayment through account-payee cheques was also noticed as a relevant fact. Further, in Pr. CIT, Central-2 Vs. Skylark Build, Income Tax Appeal No. 616 of 2016, decided on 24.10.2018, repayment, considered along with the documentary evidence establishing the ingredients of section 68, was held to support the existence of real creditors, availability of funds and genuineness of the transactions. Similarly, in DCIT Vs. Rohini Builders [(2002) 256 ITR 360 (Guj.)], the deletion of the addition was sustained where the particulars of the creditors were furnished, the loans were received and repaid through account-payee cheques and interest was paid after deduction of tax at source.

Coming to the present case, the lender’s return of income, audited financial statements, bank statements, loan confirmation and other supporting documents were available with the AO. The lender also confirmed the transaction in response to the notice issued u/s 133(6) of the Act. Neither any cash deposit immediately preceding the advancement of the loan nor any infirmity in the documentary evidence or movement of 5 funds has been brought on record. Further, the loan was fully repaid through banking channels within the same financial year, along with interest, after deduction of tax at source. The payment of interest and deduction of tax at source have also not been disputed by the Revenue. Thus, the documentary evidence, confirmation by the lender and repayment of the loan, considered cumulatively, establish the identity and creditworthiness of the lender as well as the genuineness of the transaction.

We further observe that the AO also relied upon the statement of Shri Deepak Jain recorded u/s 132(4) of the Act, which was subsequently retracted. Moreover, the statement was neither supplied to the Assessee nor was any opportunity of cross-examination afforded. Thus, in the absence of independent corroborative material connecting the Assessee with the alleged accommodation entry, the retracted statement of a third party could not, by itself, justify the addition.

Thus, in view of the aforesaid facts and circumstances, we are of the considered view that the Assessee had duly discharged the initial onus cast upon it u/s 68 of the Act and, therefore, no addition was warranted. Therefore, the Ld. Commissioner committed no perversity or error in deleting the addition of Rs. 80,00,000/-. Consequently, the impugned order, qua deletion of the said addition, is affirmed and the grounds raised by the Revenue are dismissed.

Resultantly, the Revenue’s appeal is dismissed.

Coming to the Assessee’s cross-objection, we observe that the Assessee, by way of its cross-objection, has challenged the validity of the reassessment proceedings on legal aspects. Since we have dismissed the Revenue’s appeal against the deletion of the addition on merits and affirmed the relief granted to the Assessee by the Ld. Commissioner, thus in our considered view, adjudication of the legal grounds raised in the cross- objection, would be academic exercise. Consequently, the cross-objection filed by the Assessee is rendered infructuous and is, accordingly, dismissed. 6

In the result, the Revenue’s appeal, as well as the Assessee’s cross- objection stand dismissed.