ZODIAC BUSINESS P LTD.( SUCESSOR OF GALLEON DISTRIBUTORS P LTD.),KOLKATA vs. D.C.I.T., CC - 2(1), KOLKATA, KOLKATA

Facts in brief are that the assessee is a non-banking finance company and filed return of income during the year on 28.09.2012 declaring loss of Rs. 2,01,582/-. The case of the assessee was selected for scrutiny after search action u/s 132 of the Act. Notice u/s 153A was issued on 21.09.2015 which was complied with by filing a return of income on 4.12.2015 declaring the same loss as was declared in the original return. Thereafter the statutory notices were duly issued and served on the assessee. The AO during the course of search, bank account with ING Vysya Bank was found and inventorized. On examination of said bank account, it was found that the assessee has received three cheques namely Rs. 4,00,000/- from Shri Madanlal Siraswa, Rs. 3,50,000/- from Shri Madanlal Siraswa (HUF) and Rs. 4,01,000/- from Shri Umed Siraswa on as unsecured loan on which the interest was also paid during the year of Rs. 76,506/-, Rs. 72,805/- and Rs. 40,476/- respectively. The AO in order to verify the transactions issued notice u/s 133(6) of the Act to the above parties from whom loans were received and the parties duly replied the said notice. The AO thereafter noted that on scrutiny of the documents, it was found that before advancing the loan there were cash deposits in the bank accounts of these individuals and accordingly called upon the assessee to prove the genuineness of the transactions. The AO also noted that Shri Madanlal Siraswa appeared as individual as well as Karta of his HUF and he was examined u/s 131 of the Act in which he confirmed to have given the loans. He also stated that the he is an employee of Bhagwati Group and was working for the last 20 years and withdrawing salary of Rs. 19,000/- per month. Mr. Madanlal Siraswa has stated that he has wife, mother and two children. He also stated that he has agricultural land in Rajasthan and agricultural income is around Rs. 30,000/- per annum. The AO finally treated these loans as not genuine and added the same to the income of the assessee u/s 69 of the Act as an unexplained cash credit by brushing aside the reply of the assessee and facts on records. The AO has also disallowed the interest on these unsecured loans amounting to Rs. 2,13,806/- on the ground that the unsecured loans

In the appellate proceedings, the Ld. CIT(A) simply affirmed the order of AO.

After hearing the rival contentions and perusing the material on record, we find that in this case, the assessee borrowed Rs. 11,51,000/- from Shri Madanlal Siraswa and his HUF and Urmed Siraswa all from one family. We note that Shri Madanlal Siraswa furnished all the details and has appeared before the AO in response to summons issued u/s 131 and confirmed to have given loans to the assessee. He has explained the source of these unsecured loans by furnishing his and family members bank statements. The AO however, noted that there was cash deposit in the bank account of the lenders before advancing the loans to the assessee. We have perused the bank statement of Shri Madanlal Siraswa and found that only Rs. 17,000/- cash was deposited before advancing the loan of Rs. 4,00,000/-. Therefore, the opinion of AO that cash was introduced before advancing of loan is incorrect and against the facts on record. We also note that the facts are similar in case of remaining lenders. We note that similar issue has been decided by the Co-ordinate Bench in the case of M/s Bhagwati Foods Pvt. Ltd. vs. DCIT in IT(S.S)A No. 55/Kol/2022 & Ors. Dated 31.08.2023 wherein the issue of unsecured loans from the same parties were held to be genuine. We, therefore, respectfully following the said decision and also considering the facts on record, set aside the order of Ld. CIT(A) and direct the AO to delete the addition. The appeal of the assessee is allowed.