INCOME TAX OFFICER-6(3)(1), MUMBAI, MUMBAI vs. M/S FOGGIA TRADERS PRIVATE LIMITED, MUMBAI

In the instant case, on the basis of information received from the Investigation Wing, alleging that the Assessee had received accommodation entries from concerns belonging to the Gautam Jain Group, the assessment was reopened under section 147 of the Act. The information related to unsecured loans aggregating to ₹3,70,00,000/- , received from M/s Marine Gems Pvt. Ltd., M/s Karishma Diamond Pvt. Ltd., and M/s Parshwanath Gems Pvt. Ltd.

During the assessment proceedings, the Assessee furnished confirmations, affidavits, PAN details, returns of income, audited financial statements, ledger accounts, and bank statements of the lenders. All the lenders also independently responded to the notices issued under section 133(6) of the Act and confirmed the transactions.

The AO, though considered the aforesaid documents, however, did not find the explanation acceptable, principally, on the grounds that the lenders had disclosed meagre or nil income and had accumulated losses, and their Directors had not appeared in response to the summons issued under section 131 of the Act. Consequently, the AO made the addition of ₹3,70,00,000/-, under section 68 of the Act.

The Ld. Commissioner observed that the identity of the lenders, their financial particulars, and the transactions conducted through regular banking channels, stood established from the documentary evidence. The loans had also subsequently been repaid through banking channels. Further, the AO had neither established any cash trail from the Assessee to the lenders nor pointed out any defect in the documents furnished. Accordingly, the Ld. Commissioner held that the Assessee had discharged the initial onus cast upon it, under section 68 of the Act and, consequently, he deleted the addition.

The Ld. DR relied upon the assessment order and submitted that the lenders belonged to the Gautam Jain Group, which had been identified as an accommodation-entry provider. It was further submitted

We further observe that the statements allegedly recorded during the investigation were neither supplied nor confronted to the Assessee. Though the AO issued summons fixing a date for appearance, however, the mere issuance of summons could not cure the denial of an effective opportunity to controvert the material sought to be used against the Assessee.

We further observe that the loans had subsequently been repaid through regular banking channels and such repayments were neither doubted nor disputed by the Revenue. The Hon’ble Gujarat High Court, in PCIT v. Ambe Tradecorp (P.) Ltd. [2022] 145 taxmann.com 27 (Guj.) and CIT v. Ayachi Chandrashekhar Narsangji [2014] 221 Taxman 146 (Guj.), and the Hon’ble Jurisdictional High Court in PCIT Vs Skylark Build { ITA no. 616 of 2016 decided on 24.10.2018} the Tribunal, in DCIT v. Hetal Nitin Shah, ITA No. 1080/Mum/2023, decided on 22.01.2024, have also held that where the identity and creditworthiness of the lenders and the genuineness of the transactions stood established and the loans had subsequently been repaid, then the addition under section 68 of the Act, is not justifiable.

Thus, considering the peculiar facts and circumstances in totality, we are of the considered view that the Assessee had established the identity and creditworthiness of the lenders and the genuineness of the transactions. The AO, though considered the documents furnished by the Assessee and the lenders, however, did not point out any defect or discrepancy therein or bring any contrary material on record.