JUGRAJ R JAIN HUF,MUMBAI vs. ITO WARD-19(2)(1), MUMBAI

The assessee has raised the following grounds of appeal: “1(a) The Ld. CIT(A) erred in confirming the addition of Rs.60,00,000/- under section 68 made by the Ld. AO without conducting any independent inquiry, relying solely on third-party statements and information from the DDIG (Inv.) Wing, Mumbai. 1(b) The Ld. CIT(A) erred in upholding the AO’s order despite the Ld. AO’s failure to provide copies of his findings despite repeated requests, and without establishing any direct nexus between the Appellant and the alleged transactions. 1(c) The Ld. CIT(A) erred in confirming the addition despite the Ld. AO’s failure to consider documentary evidence on record, including Income Tax Returns and confirmations from parties providing the unsecured loans. 2. The Ld. CIT(A) erred in confirming the disallowance of Rs.4,46,603/- as interest expense on merits and based solely on the unproven addition under section 68, without providing any evidence regarding the genuineness of the underlying transactions. 3. The Appellant craves leave to add, alter, modify or delete any of the grounds of appeal at any time during the pendency of the appeal.”

Brief facts are that the assessee, a Hindu Undivided Family engaged in the business of trading in ferrous and non-ferrous metals and steel, filed its return of income on 27.11.2014 declaring total income of Rs.79,306/. On the basis of information received from the Investigation Wing concerning the Gautam Jain Group, the Assessing Officer examined unsecured loans obtained by the assessee. The assessee stated that it had received Rs.40,00,000/- from Maniratan Exim Private Limited and Rs.20,00,000/- from Marine Gems Private Limited through banking channels. It filed ledger accounts and confirmations and claimed that the loans had been repaid in the succeeding year. The Assessing Officer, however, treated the two creditors as accommodation-entry providers, added Rs.60,00,000/- under section 68 and also disallowed interest of Rs.2,97,700/- and Rs.1,48,603/- respectively, aggregating to Rs.4,46,303/-. The assessed income was determined at Rs.65,25,910/-. 4. The learned CIT(A), on appeal held that the assessee had relied upon self-serving documents and had failed to rebut the material gathered in the search on the Gautam Jain Group. He accordingly confirmed the addition of Rs.60,00,000/- under section 68 as well as the disallowance of interest of Rs.4,46,603/- and dismissed the appeal. 5. Before us, the learned Authorised Representative submitted that the loans were received from the aforesaid two parties through account- payee banking channels, their confirmations, returns of income and bank statements were furnished, and the loans were substantially repaid through banking channels. He contended that the addition was made merely on the basis of general material collected in the case of the Gautam Jain Group, without any independent inquiry or material directly connecting the assessee with an accommodation entry. He relied upon the decisions of the coordinate benches in ITO v. Leeladevi Ganpatraj Sanghvi, ITA No.2018/Mum/2025; Nanda Sumermal Jain v. ITO, ITA Nos.2526 & 2527/Mum/2022; ACIT v. Adhiraj Constructions Pvt. Ltd., ITA No.1410/Mum/2022 and CO No.100/Mum/2022; ITO v. Leena Haresh Harde, ITA No.6429/Mum/2017; Prakash R. Mehta (HUF) v. ITO, ITA No.3969/Mum/2024; and the other decisions placed in the paper book. It was submitted that in several of these cases loans from the same group concerns, including Maniratan Exim Private Limited and Marine Gems Private Limited, were accepted where primary evidence was furnished and repayment through banking channels was established.

The learned Departmental Representative, on the other hand, supported the orders of the lower authorities. He submitted that the lenders were paper concerns controlled by the Gautam Jain Group, which was engaged in providing accommodation entries, and that routing the transaction through banking channels or subsequently repaying it would not, by itself, establish the genuineness or creditworthiness of the lenders. He therefore submitted that both the addition under section 68 and the consequential disallowance of interest deserved to be sustained. 7. We have heard the rival submissions and perused the material available on record. The assessee furnished the ledger accounts, confirmations, returns and bank statements in respect of both creditors. The loans were received through banking channels and the ledgers show substantial repayment through the Cosmos Co-operative Bank. The addition has been made principally on the basis of the general findings recorded during search in the Gautam Jain Group; no specific material showing that cash moved from the assessee to the lenders before issue of the cheques has been brought on record. The coordinate benches, on materially similar facts involving the same group concerns, have accepted the loans where the assessee had furnished primary evidence and repayment was established. In Prakash R. Mehta (HUF) (supra), after noticing the decisions in Nanda Sumermal Jain, Adhiraj Constructions Pvt. Ltd. and Leena Haresh Harde, the coordinate bench held that once repayment was established, the addition could not survive unless the Revenue disproved the repayment evidence. Respectfully following the aforesaid decisions and in the absence of any distinguishing material, we direct the Assessing Officer to delete the addition of Rs.60,00,000/- made under section 68. Ground No.1 is allowed. 8. The interest issue, however, requires separate consideration in the light of the complete ledger accounts now placed before us. The ledger 4 of Maniratan Exim Private Limited shows receipt of Rs.40,00,000/-, repayment of Rs.30,00,000/- during the relevant year and a further repayment of Rs.10,00,000/- on 30.06.2014. After crediting interest of Rs.2,97,700/- and TDS of Rs.29,770/-, a balance of Rs.2,67,930/- remained, which the assessee credited on 31.03.2017 with the narration “Balance W/O Income”. Likewise, the ledger of Marine Gems Private Limited shows receipt of Rs.20,00,000/-, repayment of the principal amount in July 2014 and a balance of Rs.1,33,743/- representing the net interest component, which was similarly written off on 31.03.2017. We may clarify that though the appellate ground and the impugned order refer to interest of Rs.4,46,603/-, the two component amounts of Rs.2,97,700/- and Rs.1,48,603/- aggregate to Rs.4,46,303/-. Thus, out of the total interest claim of Rs.4,46,303/-, an aggregate amount of Rs.4,01,673/- was ultimately written off by the assessee and only Rs.44,630/- stands outside the amounts so written off. 9. The entries dated 31.03.2017 fall in financial year 2016-17 relevant to assessment year 2017-18. If the assessee has offered the aggregate write-off of Rs.4,01,673/- as income in assessment year 2017-18, no further disallowance of that amount is warranted in the year under appeal, since the corresponding income has already suffered tax. If, however, the assessee has not offered the said amount as income in assessment year 2017-18, the disallowances of interest for the year under appeal shall be restricted by Rs.4,01,673/-, being the portion claimed, but not paid and subsequently written off. The balance interest of Rs.44,630/- shall be allowed. The Assessing Officer shall verify this limited fact from the return and computation for assessment year 2017- 18 and give effect to this direction after affording the assessee a reasonable opportunity of being heard. Ground No.2 is partly allowed. Ground No.3 is general and requires no separate adjudication. 5

In the result, the appeal filed by the assessee is partly allowed in the terms indicated above.