ACIT 19(3), MUMBAI vs. S V EXPORTS, MUMBAI

691 & 692/Mum/2025 CO Nos. 41, 42 & 43/MUM/2025 S.V. Exports (ii) Thus, in the books of accounts of the assessee, the unsecured loans to the extent taken from the above said party remained unverifiable and hence, I arrive at a conclusion that the assessee has taken unsecured loan entries from certain parties to introduce unaccounted cash in its books of account and that the creditworthiness of the loan creditors was not established and corroborated by relevant supporting documents. (iii) Assessee could not provide any documents to substantiate the creditworthiness of the above loan creditors and hence these loans remained unexplained. Even though the assessee had provided the details of the unsecured loans but it had failed to establish the creditworthiness & genuineness of the lender. (iv) The onus was upon the assessee to establish the genuineness of the loan taken by the assessee. (v) Mere fling of evidences such as copies of bank statement showing payment through account payee cheque cannot be conclusive in a case where genuineness of transaction is in doubt. Payment by account payee cheques are not sacrosanct. Thus, from the above analysis of the facts, it is crystal clear that the unsecured loans claimed to have taken by the assessee from the above parties and shown as its liability is not genuine..

Now, in the given facts and circumstances of the case, it is held that the assessee has indulged in non-genuine transaction. As the assessee failed to provide the evidences whatsoever which would cumulatively prove all the three essential ingredients, such as, identity, creditworthiness, genuineness of the loan lenders, it is held that the said unsecured loan cannot be accepted as genuine borrowings of the assessee and the same are squarely covered by the provisions of section 68 of the Act. As the loan amount of Rs. 3,31,00,000/- is treated as unexplained and 691 & 692/Mum/2025 CO Nos. 41, 42 & 43/MUM/2025 S.V. Exports creditworthiness of the same was not established, the same is added to the total income of the assessee.”

The ld. CIT(A) has deleted the addition holding that all these five entities have come up for consideration before ITAT Mumbai Bench wherein the loan given by these entities have been held to be genuine and he has relied upon the following orders of the Tribunal with respect to these five parties: - (i) M/s Prime Star - ITA No: 145/Mum/2017 In the case of Sumit Jain and other decisions. (ii) M/s Mayur Exports - ITA No: 6099/Mum/2016 in the case of Janam Investment. (iii) M/s A2 Jewel - ITA No: 7040/Mum/2016 in the case of Gujrat construction and other decisions. (iv) M/s Amit Diamonds - ITA No: 2583/Mum/2016 in the case of Rajesh Kachhara. (v) M/s Jewel Diam -ITA No: 5973/Mum/2016 in the case of Bhavana Metal Company.

He further noted that assessee has filed Acknowledgement of Return, Confirmation of Accounts, Audited Financial Statements, Bank Statements and Affidavit of the lender parties. Ld. CIT(A) made the following summary: -

Whether bank Whether statement Sr.No. Name Amount return of the available party available 1. Prime Star 80,00,000/- Yes Yes 2. Jewel Diam 65,00,000/- Yes Yes 3. Mayur 86,00,000/- Yes Yes 691 & 692/Mum/2025 CO Nos. 41, 42 & 43/MUM/2025 S.V. Exports Exports 4. Amit 50,00,000/- Yes Yes Diamonds 5. A2 Jewels 50,00,000/- Yes Yes 7.4.10 The appellant argues that the AO has disregarded substantial factual evidence. Confirmations from the involved parties have been duly submitted. The loans received from these parties have been recorded in the appellant's books of accounts, and interest on these loans has been paid. Additionally, the appellant has repaid the loans during the assessment year under consideration, as well as in the subsequent year. All transactions have been conducted exclusively through banking channels, therefore the genuineness of loans need not be doubted. The excessive reliance on the statements given by a third-party i.e. key persons of Bhanwarlal Jain group, who the appellant does not know, is not proper even without giving the appellant a chance to cross- examine them who have given such adverse statements. It was further argued that the addition was made without providing the appellant the corroborative evidence in the possession of the AO to prove that the appellant has paid cash, as alleged, against the receipt of cheque.”

On the other hand, Ld. DR relied upon the order of the ld.AO and submitted that once it has been found that these parties were involved in providing accommodation entries on account of loan during search and assessee could not produce the parties, therefore the loan cannot be accepted to be genuine. Accordingly, addition made by the ld. AO should be upheld.

We have heard both the parties and also perused the relevant material placed on record and the reports, findings given by the ld. CIT(A). The summary of loan taken, loans repaid and the details of interest paid, TDS deducted for all the three assessment years are summarized as under: - A.Y. 2007-08 Name of Alleged Opening IDS Loan Closing Loan Taken Interest paid Party Balance Deducted Repaid Balance Prime Star - 80,00.000 - - - 80,00,000 691 & 692/Mum/2025 CO Nos. 41, 42 & 43/MUM/2025 S.V. Exports Jewel Diam - 1.30,00.000 - - 65,00,000 65,00,000 Mayur Exports 1.00,00,000 - - 14,00,000 86,00,000 - Amit Diamonds - 50,00,000 - - - 50,00,000 A2 Jewels 50,00,000 - - - 50.00,000 - 79,00,000 331,00,000.0 Total - 4,10,00,000.0 - - A.Y. 2009-10 Name of Alleged Opening TDS Loan Closing Loan Taken Interest paid Party Balance Deducted Repaid Balance Prime Star 80,00,000 - 7,20,000 74,160 - 86,45,840 Jewel Diam 65,00,000 - 5,19,689 53,528 12,15,000 57,51,161 Mayur Exports 86,00.000 - 7,74,000 79,722 - 92,94,278 Amit Diamonds 54,03,650 - 4,50,000 46,350 4,03,650 54,03,650 A2 Jewels 54,03,650 - 4,50,000 46,350 4,03,650 54,03,650 Total 3,39,07,300 - 29,13,689 3,00,110 20,22,300 3,44,98,579 A.Y. 2010-11 Name of Alleged Opening TDS Loan Closing Loan Taken Interest paid Party Balance Deducted Repaid Balance Prime Star 86,45,840 - 4,63,562 46,356 80,00,000 10,63,046 Jewel Diam 57,51,161 - 3,87,212 38,721 47,36,000 13,63,652 Mayur Exports 92,94,278 - 4,90,241 49,024 86,00,000 11,35,495 Amit Diamonds 54,03,650 - 4,50,000 45,000 - 58,08,650 A2 Jewels 54,03,650 - 2,78,038 27,803 50,00.000 6,53,885 Total 3,44,98,579 - 20,69,053 2,06,904 2,63,36,000 1,00,24,728

As noted above in respect of all these parties, assessee had filed account confirmations, copy of ITR of the lender parties, affidavit along with audited financial statements, bank statements and ledger account of repayment of loan qua each of the parties. Nowhere these documents including the bank statements or the audited financial statement of the lender parties have been examined by the ld. AO. His entire case hinges upon the report of the investigation wing and the information received from investigation wing. These reports and information could be the triggering point to reopen the case or take up the 691 & 692/Mum/2025 CO Nos. 41, 42 & 43/MUM/2025 S.V. Exports case for scrutiny; however, the addition cannot be made solely relying upon the report of the investigation wing. Ld. AO has to apply his mind and carry out independent enquiry and analyze the documents furnished by the assessee, whether the provisions of section 68 of the Act would be applicable or not, depends upon whether the assessee is able to satisfy the nature and source of credits appearing in the books of accounts. Here, the nature of credit is in the form of a loan taken from the five parties and for proving the source assessee has filed documents to prove the identity, which is not in dispute, genuineness of the transactions has been proved through bank statements and the loan has been received through banking channels and loan also has been repaid back through banking channels.

Apart from that, to prove the creditworthiness, the financial statements of the lender companies are to be seen. From the perusal of the audited accounts, it was found these entities had huge reserves and surplus and revenue from operations and the profit before tax much far exceeded the amount given by the lender companies. The creditworthiness stands duly established from these financial statements.

Another important point here is that, nowhere it has been brought that these lender companies had received funds through some other entities which reflect any rotation of funds which is usually adopted in the case of accommodation entries. The bank statements of these parties duly reflect that there is huge amount of money coming from sales which has been duly 691 & 692/Mum/2025 CO Nos. 41, 42 & 43/MUM/2025 S.V. Exports disclosed in their books. Nowhere, it has been brought on record that Banwarlal Jain was either Director or a shareholder in these companies. Once these companies are regularly assed to tax till date and are active companies doing regular business it cannot be held that these are paper companies.

Another important fact which has been noted by ld. CIT(A) is that in case of all these five entities, the Coordinate Bench of ITAT Mumbai Bench in various cases who have taken a similar loans from these parties have been held to be genuine loan given by them. Thus, when the Coordinate Bench in several cases have held that they are to be genuine companies, therefore loan given by them cannot be held to be bogus entities. Nowhere, the ld. AO has given any findings that funds in their bank account and as reflected in the audited balance sheet are through from dubious sources. In fact all these companies are assessed to tax on the bossiness income till date and nowhere, it has been brought on record that in their assessments some adverse inference has been drawn or established with regard to these five parties. Accordingly, we do not see any reason to tinker with the findings of the ld. CIT (A). Accordingly, addition of Rs. 3,31,00,000/- made by the ld. AO is deleted.

In so far as appeals for A.Y. 2009-10 & A.Y. 2010-11, the only issue which has been challenged is on account of interest paid on these loans. Once we have held that loans taken from these parties as genuine and TDS has been deducted on the interest paid, later on these loans has been repaid back, then no 691 & 692/Mum/2025 CO Nos. 41, 42 & 43/MUM/2025 S.V. Exports disallowance of interest can be made. Accordingly, the disallowance of interest of Rs.29,13,689/- and Rs.20,69,053/- in A.Y. 2009-10 & A.Y. 2010-11 respectively are deleted. Accordingly, all the appeals of the revenue are dismissed.

In so far as cross objections filed by the assessee are concerned, assessee has challenged the validity of reopening u/s.147 of the Act, which is treated as academic, in view of the fact that we have deleted the additions on merits and dismissed the revenue‟s appeal. Accordingly, cross objections filed by the assessee are treated as infructuous.

In the result, appeals of the revenue as well as the cross objections of the assessee are dismissed. Order pronounced on 19th May, 2025.