CHETAN STONE CRUSHER,MUMBAI vs. INCOME TAX OFFICER 42(1)(1), MUMBAI

In the instant case, the Assessee filed its return of income declaring total income at Rs. Nil. Subsequently, on the basis of information received pursuant to the search conducted in the case of Shri Bhanwarlal Jain Group, the Assessing Officer {in short ‘AO’} reopened the assessment on the allegation that the Assessee obtains accommodation entries in the nature of unsecured loans.

The Ld. AO ultimately treated the loans of Rs.44,50,000/- from M/s Laxmi Trading Co. and Rs.50,00,000/- from M/s Sonam Gems Pvt. Ltd., aggregating to Rs.94,50,000/-, as unexplained credits and also disallowed the corresponding interest of Rs.3,29,116/- u/s 37(1) of the Act.

The Assessee challenged the aforesaid additions before the Ld. Commissioner and claimed that it furnished the confirmations, ledger accounts, bank statements, audited balance sheets, profit and loss accounts and audit reports of the respective creditors. The Assessee further claims that both the creditors independently responded to the notices issued by the Ld. AO u/s 133(6) of the Act and furnished the relevant documents directly to the Ld. AO.

The Ld. Commissioner, however, dismissed the appeal mainly on the ground that the Assessee did not furnish any new evidence in the appellate proceedings and that the Ld. AO has duly considered the material available on record.

The Assessee, being aggrieved, is in appeal before us. The Ld. Counsel submitted that the Assessee had discharged the primary onus by furnishing complete documentary evidence in respect of the identity and creditworthiness of the creditors and genuineness of the loan transactions. The Ld. Counsel further would submit that the creditors also complied with

On the other hand, the Ld. DR relies upon the orders passed by the Authorities below and submitted that the concerns from whom the loans were received form part of the group controlled by Shri Bhanwarlal Jain, who admitted during the search that the concerns provided accommodation entries.

We have heard the parties, perused the material available in record and considered the rival submissions. We observe that the Assessee furnished the confirmations, ledger accounts, bank statements and financial statements of both the creditors. It is also an admitted fact that the creditors had also responded to, directly to the notices issued by the Ld. AO u/s 133(6) of the Act and furnished their respective details. Thus, the identity of the creditors and the transactions appearing through the banking channels stand supported by documentary evidence.

Though the AO refers to the statement of Shri Bhanwarlal Jain regarding the general modus operandi of providing accommodation entries, however, no specific material was/is brought on record to establish that the particular loans received by the Assessee represent its own unaccounted money routed through the creditors. The AO neither pointed out any cash deposit immediately preceding the advancement of loans nor established any corresponding flow of cash from the Assessee to the creditors.

We further observe that no defect or discrepancy was pointed out in the confirmations, bank statements or financial statements furnished by the creditors. The replies filed by the creditors in response to the notices

The AO also drew an adverse inference on account of the Assessee’s failure to produce the creditors personally. Though the Assessee did not produce the creditors, however, both the creditors complied with the statutory notices issued by the AO and furnished the relevant details directly. Hence, the personal non-production of the creditors, by itself, cannot be treated as sufficient to disregard the documentary evidence already available with the AO.

The Ld. Commissioner also did not independently examine the evidence already filed during the assessment proceedings and dismissed the appeal merely because no new evidence was furnished during the appellate proceedings. In our view, the appellate authority is required to adjudicate the correctness of the additions on the basis of the entire material available on record and not merely on the basis of whether any fresh evidence was filed.

We further observe that the Assessee had obtained a loan of Rs.44,50,000/- from M/s Laxmi Trading Company on 03.11.2011. The Assessee regularly paid interest thereon from A.Y. 2012-13 to A.Y. 2015-16 after deducting tax at source, and the corresponding interest income was duly confirmed by M/s Laxmi Trading Company. The Assessee also repaid the said loan during the financial year 2015-16 in three instalments, i.e., Rs.25,00,000/- on 16.06.2015 and Rs.9,50,000/- and Rs.10,00,000/- on 27.07.2015.

We further observe that the Assessee had obtained a loan of Rs.50,00,000/- from M/s Sonam Gems in two instalments of Rs.25,00,000/- each on 18.10.2011 and 20.10.2011 through banking channels. From A.Y. 2012-13 to A.Y. 2015-16, the Assessee regularly paid interest thereon after deducting tax at source and ultimately repaid the entire loan amount to M/s Sonam Gems on 06.02.2015. These transactions were also duly confirmed by M/s Sonam Gems.

Thus, the regular payment of interest after deduction of tax at source, repayment of the principal amounts and the corresponding entries recorded in the books of the respective lenders substantiate the genuineness of the loan transactions. Though repayment by itself may not be conclusive, however, it constitutes a relevant corroborative circumstance, where the identity and creditworthiness of the lenders and the genuineness of the transactions otherwise stand established. Therefore, on this aspect as well, the additions made by the AO and affirmed by the Ld. Commissioner are unsustainable, particularly in view of the propositions laid down by the Hon’ble Gujarat High Court in PCIT v. Ambe Tradecorp (P.) Ltd. [2022] 145 taxmann.com 27 (Guj.); CIT v. Ayachi Chandrashekhar Narsangji [2014] 221 Taxman 146 (Guj.)/[2014] 42 taxmann.com 251 (Guj.); and PCIT v. Skylark Build(2019) 180 DTR 266 (Bom.)/[Income Tax Appeal No. 616 of 2016, decided on 24.10.2018].

Thus, considering the peculiar facts and circumstances in totality, we are of the considered view that the Assessee has duly discharged the prima facie onus cast upon it, with regard to the identity and creditworthiness of the creditors and the genuineness of the transactions. Thus, in the absence of any transaction-specific material controverting the documentary evidence furnished by the Assessee and the creditors, the

Further, once the loan transactions are accepted as genuine, the corresponding interest expenditure of Rs.3,29,116/- paid on such loans is also allowable. Hence, the disallowance of Rs.3,29,116/- made u/s 37(1) of the Act, is also liable to be deleted.

Thus, the order of the Ld. Commissioner is accordingly set aside, and the addition of Rs.94,50,000/- on account of unsecured loans and the consequential disallowance of interest expenditure of Rs.3,29,116/- are deleted.

In the result, the Assessee’s appeal is allowed.