Loading judgment…
Facts
The assessee company borrowed unsecured loans from three entities, which were repaid within the same financial year with interest. The Assessing Officer (AO) reopened the assessment based on information from a search conducted in a related party's case and added the loan amounts as unexplained cash credit under Section 68 of the Income Tax Act.
Held
The Tribunal held that the addition made under Section 68 could not be sustained as the assessee had discharged the onus of proving the identity, genuineness, and creditworthiness of the loan creditors. The loans were borrowed and repaid within the same financial year, with interest duly paid and tax deducted at source.
Key Issues
Whether unsecured loans treated as unexplained cash credit under Section 68 are sustainable when the assessee has provided documentary evidence of identity, genuineness, and creditworthiness of the creditors.
Sections Cited
250, 5, 68, 143(3), 148, 271(1)(c), 234A, 234B, 234C, 234D
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: JUSTICE (RETD.) C V BHADANG&
(Assessment Year: 2011-12) Y2K Fashions Private Ltd. Commissioner of Income Tax 304, Narayan Udyog Bhavan, (Appeals)/ National Faceless Dr. Ambedkar Road, Lalbaug, Vs. Appeal Centre, (NFAC) Delhi. Mumbai-400012. PAN: AAACY3103D Appellant) : Respondent) : Shri R B Popat, AR Appellant /Assessee by : Shri Swapnil Choudhary, Sr.DR Revenue / Respondent by Date of Hearing : 05.06.2025 Date of Pronouncement : 19.06.2025 O R D E R Per Padmavathy S, AM:
This appeal by the assessee is against the order of the Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre (NFAC), Delhi (in short "CIT(A)") dated 17.03.2024 passed under section 250 of the Income Tax Act, 1961 (the Act) for Assessment Year (AY) 2011-12. The assessee raised the following grounds:
Y2K Fashions Private Ltd. “1. We humbly pray that honourable Members of ITAT may be pleased to condone the delay in filing the appeal of 47 days from the date of the CIT Appeal order received on email (excluding permissible 60 days) for which an application under Section 5 of the Limitation Act has been filed alongwith memorandum of appeal. That delay in filing the appeal is because of non receipt of physical copy of the order till date but well within the date of knowledge i.e. 14.06.2024. We complied with the appeal filing procedure in 20 days from the date of knowledge. That We/I had no intention to jeopardize the interest of the revenue by delaying the filing of the appeal, by allowing the appeal filed herewith for the same, unless We/I will be put to irreparable injuries and loss.
2. The appellant company submits that, The Ld. CIT (A) erred in law and on facts confirming addition made by AO of loan simplicitor as an accommodation entry to facilitate money laundering. Ld. CIT (A) ought to have held transaction as genuine when the loan was repaid with interest deducting tax at source during the year itself would establish that there were indeed real creditors; that they had indeed the funds available with them and that the transactions were genuine and not attract deeming fiction of Section 68 of ITA, 1961.
3. The appellant company submits that, The learned Commissioner of Income Tax Appeals erred in confirming the addition of Rs. 22,00,000/- made by the learned Assessing Officer by invoking the provisions of section 68 of the Act without appreciating the fact and circumstances of the case and position of law and AO failed to conduct proper enquiries before making any addition.
4. The appellant company submits that, The Ld. CIT (A) erred in law and on facts in confirming action of AO treating unsecured loan of Rs. 22,00,000/- received and returned with interest during the year as unexplained cash credit u/s 68 of the Act. Ld. CIT (A) ought to have deleted addition as appellant discharged primary onus filing complete details of Name/Address/PAN/Balance Sheet/ ROI of depositor.
5. The appellant company submits that, when the Assessing Officer has not disallowed the interest in relation to credit in the assessment year and the assessee as deducted tax at source for the interest paid to the creditors, the Department is not justified in making addition under section 68 of the Act.
6. The appellant company submits that, where the department has accepted repayment of loan in subsequent year, no addition was to be made in the current year for cash credit.
Y2K Fashions Private Ltd.
7. The appellant company submits that, the learned Commissioner of Income- tax Appeals erred in confirming the addition despite that opportunity for cross examination as per law was not provided to the appellant, thus, not appreciating the facts and circumstances of the case and position of law, 8. The appellant company submits that, there is no independent evidence that Unsecured loans borrowed by your appellant is undisclosed own fund of the appellant.
9. That the unsatisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee.
That the Ld. CIT (A) erred in law and on facts not following ratio laid down by the jurisdictional High Court that appellant is not obliged to explain source of the source once primary onus cast u/s. 68 of the Act is discharged. Further actions if any should be taken in the hands of the depositor when PAN & IT details are on record.
Levy of interest u/s 234A/B/C&D of the Act is unjustified.”
The assessee is a private limited company engaged in the business of cloth trading. The assessee filed the return of income for AY 2011-12 on 30.09.2011 declaring a total income of Rs. 78,88,410/-. The assessment under section 143(3) was completed in assessee's case vide order dated 17.02.2014 assessing the income at Rs. 83,90,310/-. Subsequently the AO received information from DCIT, CC-2(2), Mumbai, that the assessee has received certain advances from companies controlled by Shri Sirish C. Shah as per details below:
Sr. No. Date Name of the Company Amount (In Rs.) 1. 04.06.2010 M/s. Adila Traders P. Ltd. 8,00,000/- 2. 04.06.2010 M/s. Grantview Properties P. Ltd. 4,00,000/- 3. 04.06.2010 M/s. Walton Construction P. Ltd. 10,00,000/-
The AO issued notice under section 148 reopening the assessment in this regard. The assessee in response filed the return of income on 22.06.2018 declaring a total income of Rs. 81,39,360/-. The assessee furnished the confirmations, bank Y2K Fashions Private Ltd. statements, etc. before the AO. The assessee also submitted before the AO that the assessee has repaid the loans within the same financial year and that the loans are genuine. The assessee also submitted that the search operation was conducted in the case of Shri Sirish C. Shah during subsequent year and merely based on the same the loan transactions which are bonafide cannot be added as unexplained. The AO did not accept the submissions of the assessee and held that “9.2 The assessee has furnished copy of bank account of said 3 companies reflecting the advancing of loans to the assessee. However, the source of funds of 3 companies which have funded the loans to the assessee has not been explained especially as the said 3 companies did not sufficient balances to fund the loans and the loans were funded by deposits of equivalent amount either on the same day or the previous day. 9.3 It is pertinent to mention here that the corporate veil of these 3 entity i.e. Adila Traders Pvt. Ltd., Walton Construction Pvt. Ltd. & Grandview Properties Pvt. Ltd. has been lifted by the Income Tax Department vide assessment orders passed u/s 143(3) rws 153C for AY 2011-12 in their own assessments. The transactions of these companies have been proved as sham transactions by the Income Tax Department. The assessing officer of the said 3 companies had recorded a finding of fact that the said 3 companies were merely tools in the hands of Shri Shirish C. Shah who controlled not only these 3 companies but many other companies. Shri Shirish C. shah was found to be engaged in providing various sorts of accommodation entries to various parties through these entities. In view of this the loan transactions with the above entities, are held to be bogus and added to the total Income of the assessee u/s. 68 of the Income Tax Act, 1961. I am satisfied that assessee has furnished inaccurate particulars of his income and therefore penalty proceedings u/s. 271(1)(c) of the I.T. Act, 1961 are initiated separately.”
Aggrieved the assessee filed further appeals before the CIT(A). The assessee before the CIT(A) filed further documents substantiating the creditworthiness of the parties, however the CIT(A) rejected the submissions made by the assessee and upheld the addition made by the AO by relying on the decision of the Hon'ble Supreme Court in the case of Sumati Dayal vs. CIT 1995 AIR 2109.
Y2K Fashions Private Ltd.
During the course of hearing the ld. AR submitted that the assessee has discharged the onus of proving the identity, genuineness and creditworthiness of the parties before the lower authorities. The ld. AR drew our attention to the findings of the CIT(A) where he has upheld the addition made by the AO on the ground that the creditworthiness of the parties are not established to submit that the said finding is based on the income returned which is not the right basis for deciding the creditworthiness. The ld. AR in this regard drew our attention to the financial statements filed in Form 23AC of the loan parties to substantiate that all the loan parties are having sufficient funds in the balance sheet. The ld. AR during the course of hearing also submitted the following table in support of the claim that the identity, genuineness and creditworthiness of the loan creditors are well substantiated before the lower authorities:
The ld. DR on the other hand supported the order of the lower authorities.
We heard the parties and perused the material on record. The assessee during the year under consideration has borrowed and repaid the loan from three parties. Based on information received consequent to a search conducted in the case of Shri Sirish C. Shah, the AO reopened the assessment in assessee's case. The AO did not accept the submissions of the assessee that the loans were borrowed and repaid during the same financial year and the interest is also paid after deducting tax at source. The CIT(A) confirmed the addition on the ground that the creditworthiness of the parties are not substantiated, however from the perusal of the details submitted by the assessee before the lower authorities as tabulated above, we notice that the impugned loan creditors are having sufficient balances as below:
Name of the company Total assets/liability as on 31.03.2011 – Rs. Adila Traders Pvt. Ltd. 22,31,46,380/- Grantview Properties Pvt. Ltd. 17,91,19,592/-
From the perusal of the above it becomes clear that the loan creditors are having sufficient balances and therefore, in our considered view the addition cannot be sustained on the ground of creditworthiness of the parties. We further notice from the perusal of the balance confirmations from the parties as submitted by the assessee, we notice that the assessee has borrowed the loan from these parties on 04.06.2010 and the same is repaid within the same financial year i.e. in December 2010. We also notice that the assessee has repaid the loan along with interest after deducting tax at source. It is relevant to mention here that the AO though held the loans to be non-genuine has not disallowed the interest paid by the assessee. In view of this discussion and considering the facts peculiar to the assessee's case, we are of the view that the addition made cannot be sustained for the reason that the assessee has discharged the onus by providing sufficient documentary evidences to prove the identity, creditworthiness and genuineness of the loan creditors and that the revenue has not recorded any adverse findings with regard to the various documentary evidences submitted by the assessee. Further the AO has doubted the genuineness of the loan based on search conducted subsequently where these companies were found to be controlled by Shri Sirish C Shah who is an alleged bogus entry operator. While holding so, the AO has not considered the fact that the assessee has no outstanding balance payable to these companies and that the loans have been repaid including interest on which tax was duly deducted at source. In our considered view the loan transactions carried out by the assessee cannot be held as non-genuine merely based on the finding as a result of a search conducted subsequently in the case of the third party holding that these companies are controlled by an alleged entry provider without recording any incriminating findings specific to the assessee to substantiate Y2K Fashions Private Ltd. that the loan transactions are non-genuine. Accordingly, we direct the AO to delete the addition made by the AO.
In result the appeal of the assessee is allowed.