MUKESH MANGILAL DEOPURA,MUMBAI vs. ITO WARD 8(3)(1), MUMBAI

In this case, pursuant to a search and seizure operation conducted in the case of the Gautam Jain Group, the Investigation Wing informed that the Assessee had received an unsecured loan of Rs.5 Lakhs from M/s. Nikhil Gems Pvt. Ltd., Surat, which was alleged to be a bogus concern. Accordingly, the Assessee’s return of income filed on 29.03.2014, declaring a total income of Rs.7,26,310/-, was selected for scrutiny.

The Assessing Officer (in short, the “AO”) thus in order to verify the identity and creditworthiness of the lender and the genuineness of the transaction, issued a notice dated 16.02.2016 u/s 133(6) of the Act to the lender. However, the notice was returned with the postal remark “Left.” The Assessee was thereafter directed to produce the Principal Officer or Managing Director of the lender company. Though the Assessee sought further time up to 30.03.2016 to produce a key person, however, considering that the assessment was getting time-barred, the AO declined further time and made an addition of Rs.5 Lakhss u/s 68 of the Act.

Thus, the Assessee being aggrieved challenged the addition before the Ld. Commissioner and furnished the confirmation, PAN, financial statements, bank statements and other supporting documents. The Assessee also demonstrated that the loan had been repaid in two instalments of Rs.2,50,000/- each on 23.02.2015 and 24.02.2015. The Ld. Commissioner, however, sustained the addition, inter alia, on the grounds that the notice issued to the lender was returned unserved, no loan agreement or interest clause was produced and the lender had received Rs.5 Lakhs from M/s. Arihant Exim on 21.01.2013 and transferred the same amount to the Assessee on the very same date.

The Assessee thus, being aggrieved has preferred the instant appeal. The Ld. Counsel for the Assessee controverts the findings of the authorities below and relies upon the decision of the Coordinate Bench in ITO v. Leena Haresh Harde, ITA No.6429/Mum/2017, for A.Y. 2013-14, decided on 20.07.2020 wherein the transaction from M/s. Arihant Exim was also considered.

On the contrary the Ld. DR supports the impugned order and distinguishes the aforesaid decision.

We have heard the parties, perused the material available on record and considered the rival submissions. To establish the identity and creditworthiness of the lender and the genuineness of the transaction, the Assessee furnished the ITR acknowledgement and balance sheet of M/s. Nikhil Gems Pvt. Ltd., confirmations of account, bank statements of both parties reflecting the receipt and repayment of the loan, the lender’s letter authorising its Chartered Accountant to attend the proceedings and the letters stated to have been filed in response to the notice issued u/s 133(6) of the Act.

By producing the aforesaid documents, the Assessee has prima facie discharged the initial onus cast upon it u/s 68 of the Act. Though the lender was not produced and the notice issued u/s 133(6) remained un-complied with, however, such non- compliance, by itself, cannot justify the addition when the relevant documentary evidence is available on record. The Hon’ble Supreme Court in CIT v. Orissa Corporation (P.) Ltd. [(1986) 159 ITR 78 (SC)] holds that where the relevant particulars of the creditors are furnished, the addition cannot be sustained merely because the notices issued to them remain unserved or uncomplied with. Similar views are expressed in ITO v. Leena Haresh Harde (supra) and PCIT v. Wel Intertrade (P.) Ltd. [[2023] 152 taxmann.com 663 (Delhi)].

We further observe that the loan was subsequently repaid through regular banking channels and such repayment is neither doubted nor disputed by the Revenue. Though repayment by itself may not be conclusive, however, it constitutes a relevant corroborative circumstance where the identity and creditworthiness

The aforesaid proposition finds support from PCIT v. Ambe Tradecorp (P.) Ltd. [[2022] 145 taxmann.com 27 (Guj.)], CIT v. Ayachi Chandrashekhar Narsangji [[2014] 221 Taxman 146 (Guj.)], PCIT v. Skylark Build, Income Tax Appeal No.616 of 2016, decided on 24.10.2018.

Even otherwise, for A.Y. 2013-14 under consideration, the Assessee was not required to prove the “source of source” of the unsecured loan. The Assessee’s initial onus was confined to establishing the identity and creditworthiness of the lender and the genuineness of the transaction. The Hon’ble Jurisdictional High Court in Gaurav Triyugi Singh v. ITO [(2020) 423 ITR 531 (Bom.)] holds that, once the aforesaid requirements stand satisfied, the Assessee is not required to explain the source from which the creditor received the funds. Further, the requirement to explain the source of funds in the hands of a creditor in the case of a loan or borrowing was introduced by the Finance Act, 2022 with effect from 01.04.2023 and is applicable from A.Y. 2023-24 onwards.

Thus, the mere fact that the lender received an equivalent amount from M/s. Arihant Exim and transferred it to the Assessee on the same date, without any material demonstrating that the amount actually belonged to the Assessee, is insufficient to treat the loan as unexplained. The AO does not point out any specific falsity or discrepancy in the confirmations, financial statements or bank statements furnished by the Assessee and also does not bring any contrary material on record.

Thus, considering the peculiar facts and circumstances in totality, we are of the considered view that the Assessee has established the identity and creditworthiness of the lender and the genuineness of the transaction. Accordingly, the addition of Rs.5 Lakhs made by the AO u/s 68 of the Act and sustained by the Ld. Commissioner is deleted.

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