RAJNEESH MADAN MISHRA,THANE vs. ITO, WARD 42(3)(2), MUMBAI, MUMBAI

The grounds of appeal raised by the assessee are as under:

Facts of the case, in brief, are that the assessee filed return of income for the AY 2022-23 on 05.11.2022 declaring total income of Rs.1,08,77,470/-. The case was selected for scrutiny and AO issued various notices and show cause notice to the assessee. The assessee filed part reply to the AO. The assessee has taken unsecured loan of Rs.45,00,000/- from Shri Sururaj Tramat Shetty. The AO did not accept the explanation by stating that the credit account in the passbook is not commensurate with the income profile of the assessee. The assessee also did not furnish proof to substantiate creditworthiness of the party. Hence, the amount was added u/s 68 r.w.s. 115BBE of the Act. 4. Aggrieved by the order of AO, the assessee filed appeal before the CIT(A). The assessee filed written submission which is reproduced at para 5 of the appellate order. The assessee filed loan confirmation duly signed by the creditor, PAN, ledger account of the party along with ITR and bank statements etc. It was submitted that low income in ITR cannot be a ground for making addition u/s 68 of the Act. The assessee also relied on the decision of the Hon’ble Supreme Court and different High Courts in cases of the (i) CIT vs. Orissa Corporation Pvt. Ltd. 159 ITR 78 (SC) (1986); (ii) Orient Trading Co. Ltd. vs. CIT 49 ITR 723 (Bom.) (1963); (iii) DCIT vs. Rohini Builders 256 ITR 360 (Guj.) (2003); (iv) Nemi Chand Kothari vs. CIT & Anr. 246 ITR 254 (Gau.) (2004); (v) Addl. CIT vs. Bahri Brothers Pvt. Ltd. 154 ITR 244 (Pat.) (1985); (vi) CIT vs. Laul Transport Corporation 180 taxmann 185 (P & H) (2009); (vii) CIT vs. Gobi Textiles Lted. 294 ITR 663 (Mad.) (2007); (viii) CIT vs. Pragati Co-operative Bank Ltd. 278 ITR 170 (Guj.) (2005) and (ix) ITO vs. Suresh Kalmadi 32 TTJ 300 (TM) (1988). However, the CIT(A) was not satisfied with the explanation of the assessee and confirmed the addition made by the AO. 5. Aggrieved by the order of CIT(A), the assessee filed appeal before the Tribunal. The Ld. AR has filed a paper book giving details of submission and evidences filed before the lower authorities. He submitted that in support of the unsecured loan transaction, the appellant had furnished the following documents before the lower authorities: (i) duly signed ledger loan confirmation, (ii) bank passbook copy of Mr Saruraj Tranat Shetty reflecting payment on the loan to the appellant, (iii) ITR acknowledgements of Mr Saruraj Tranat Shetty for A.Y 2021-22, 2022-23 and 2023-24, (iv) bank statement of the appellant reflecting receipt of the loan and (v) response by Mr Saruraj Tranat Shetty to notice issued u/s 133(6). The Ld. AR also submitted that notice u/s 133(6) of the Act was issued by the AO to Mr Saruraj Tranat Shetty through the I.T portal and the loan creditor responded to the notice u/s 133(6) by filing online the requisite documents (page Nos. 15 to 24 of PB). During assessment proceedings, the AO forwarded the above details to the Verification Unit (VU) for further verification. The Inspector of the VU, however, reported that the loan party could not be traced due to an incomplete address. The Ld. AR submitted that the loan party even today resides at the given address and the same address can also be found recorded in the bank passbook of the loan party (page No. 08 of PB) as well as his ITRs (page No. 10 to 12 of PB). He submitted that another credit party, M/s. Samarth Enterprises also could not be traced by the VU, but the said party had similarly responded to 133(6) notice and the AO was satisfied with the compliance. No addition was made in respect of the said creditor. Thus, non-traceability by the verification unit is no criterion for any adverse view as per the present assessment order itself. 5.1 The Ld. AR also submitted that there is no dispute as to the identity of the creditor. There is also no dispute about the genuineness of the loan transaction. The entire transaction is through banking channels. The appellant has paid interest on the loan after deduction of TDS. Apart from that, the appellant has also substantiated the creditworthiness of the loan party by submitting the bank statement of the loan party reflecting credit of sufficient funds, as well as ITR copies for 3 years. The immediate source of funds with the loan party appears to be a refund of an earlier advanced loan from a third party, M/s. Goldmines Infra. Thus, the appellant has fully discharged the onus placed u/s 68 of the Act and therefore, no addition is justified. Reliance placed on Gaurav Triyugi Singh vs Income Tax Officer 24(3)(1), Mumbai, 423 ITR 531 (Bombay) [2020]. He also submitted that the AO and CIT(A) have held that the creditworthiness of the lender is not established owing to the lower income declared in the ITR. No adverse inference can be drawn against the appellant for this reason alone. The premise that a loan is given out of a particular year's income of the lender is erroneous. 5.2 The Ld. AR also submitted that the said loan was fully repaid in the subsequent year through banking channels and this indicates the genuineness of the loan transaction. In such circumstances, the loan should not be disputed. As per the decision of Hon’ble Bombay High Court in case of Pr. CIT vs Skylark Build in ITA No. 616 of 2016 dated 24.10.2018. Hence, the appellant has discharged the onus placed by section 68 of the Act and there was no cause for upholding the addition. 6. On the other hand, the Ld. Sr. DR supported the order of lower authorities. 7. We have heard both sides and perused the materials on record. We have also deliberated on the decisions relied upon by the ld. AR. We find that the creditor has independently confirmed the loan advanced by him to the assessee in response to notice u/s 133(6) of the Act issued to him by the AO. The assessee has also filed (i) duly signed ledger loan confirmation, (ii) bank passbook copy of Mr Saruraj Tranat Shetty reflecting payment on the loan to the assessee, (iii) ITR acknowledgements of Mr Saruraj Tranat Shetty for A.Y 2021-22, 2022-23 and 2023-24, (iv) bank statement of the appellant reflecting receipt of the loan and (v) response by Mr Saruraj Tranat Shetty to notice issued u/s 133(6) with annexures along with copy of notice u/s 133(6) dated. 25.01.2024. Therefore, the assessee has duly discharged the initial burden cast upon him u/s 68 of the Act. If the AO was not satisfied with the reply of the assessee, he could have taken further steps to disprove the claim of the assessee. The AO has not done anything to counter the explanation of the assessee. Hence, the assessee is liable to succeed on this ground alone. However, we also find that the loan was subsequently repaid by the assessee in the subsequent AY through banking channels. Hence, the appellant is also liable to succeed on this ground also because he is no longer beneficiary of the unsecured loan. There is no evidence that the assessee has received cash after repayment of the impugned loan. In this regard, reliance may be placed on the decision in the case of Skylark Build (supra), Aayachi Chandrasekhar Narsangji (2014) 221 taxmann.com 146 (Guj.), Ojas Trademark Pvt. Ltd. (2023) 156 taxmann.com 75 (Guj.) and Ambe Trade Corporation Pvt. Ltd. (2023) 145 taxmann.com27 (Guj.). In view of the facts discussed above and the decisions cited supra, the ground is allowed.

In the result, the appeal of the assessee is allowed.