M/S SHAGURN CONSTRUCTIONS,MUMBAI vs. ACIT (OSD), MUMBAI

This appeal in A.Y.2015-16 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-30,Mumbai in appeal No.CIT(A)-30/ITO-19(3)(3)/10326/2017-18 dated 09/05/2019 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 22/12/2017 by the ld. Asst. Commissioner of Income Tax-(OSD)-19, In- Situ ITO-19(3)(3), Mumbai (hereinafter referred to as ld. AO).

The first issue to be decided in this appeal is as to whether the ld CIT(A) was justified in confirming the addition made in the sum of Rs 10,00,000/- as unexplained cash credit u/s 68 of the Act in respect of loan received from Shri Vimal Kumar Jain. 2.1. We have heard the rival submissions and perused the materials available on record. We find that assessee is a partnership firm engaged in construction business . The ld. AO observed that the assessee had received loan of Rs 10 lakhs from Shri Vimal Kumar Jain during the year under consideration. We find that the assessee had furnished during the course of assessment proceedings loan confirmation from the lender, income tax return acknowledgement of the lender, bank statements of the lender showing sufficient creditworthiness, PAN of the lender, income tax assessment particulars of the lender and the trial balance of the lender for the year ended 31.3.2015. The assessee submitted that the lender is regularly assessed to income tax and had regularly filed his income tax returns and hence identity is proved. The loan transaction was routed through regular banking channels which is already disclosed both by the lender as well as the assessee and hence the genuineness of transaction is also proved. From the trial balance of the lender, it could be seen that Shri Vimal Kumar Jain (Lender) has capital account balance of Rs 44.32 lacs and loans received from various banks to the tune of Rs 26 lacs , which duly explains the source also for the lender to prove the creditworthiness. However, the ld. AO observed that the immediate source of credit in the hands of the lender as is evident from his bank statement was cash deposits. Hence the genuineness of the transaction becomes suspicious. Accordingly, the ld AO summoned the lender and recorded a statement on oath from him. In the said statement, the lender had categorically stated that he had sold certain lands in the year 2012 for Rs 15 lakhs in cash which was utilized by him for advancing loans to various persons as he is engaged in money lending business and that the said loans were received back by the lender and the said cash was deposited into his bank account, from which loan was given to the assessee herein. This statement on oath given by the lender before the ld AO was never retracted by him. Despite this, the ld. AO observed that it is very unlikely that the lender was holding the cash received on sale of lands from 2012 and deposited the same in the year under consideration. Hence the ld AO concluded that the genuineness of loan transaction was not proved conclusively by the assessee herein and proceeded to treat the loan as unexplained cash credit u/s 68 of the Act. This action of the ld. AO was upheld by the ld. CIT(A). 2.2. We find that the lender is aged 61 years and had travelled all the way from Chennai to Mumbai to depose before the ld. AO confirming the loan transaction with the assessee. He had also produced all the necessary documents before the ld AO in person also apart from enclosing the same separately before the ld . AO. None of the statements given by the lender had been found to be false by the lower authorities except alleging that it is unlikely that the person would hold the cash for such a long time in his house. Infact we find that this is also duly answered by the lender in his statement, wherein he had said that the cash received on sale of lands was utilized by him for his lending business and the loans were received back during the year from those parties and that cash was deposited into the lender’s bank account for issuing loan to assessee herein. Hence we hold that the assessee had duly proved all the three necessary ingredients of section 68 of the Act viz identity of the lender, creditworthiness of the lender and genuineness of transaction. Hence we hold that no addition could be made u/s 68 of the Act in the instant case. Accordingly, the Ground No.1 raised by the assessee is allowed.

The next issue to be decided in this appeal is challenging the action of confirming the disallowance of interest of Rs 26,959/- paid on aforesaid loan of Rs 10 lakhs. 3.1. We have heard the rival submissions and perused the materials available on record. We find from the perusal of the financial statements of the assessee herein that assessee had not even claimed the interest cost of Rs 26,959/- as deduction and instead the same has been duly capitalized by the assessee in its books. When no deduction per se has been claimed by the assessee for interest, there is no question of disallowance of interest u/s 36(1)(iii) of the Act. In any case, we have already held that the loan borrowed from Vimal Kumar Jain is genuine in Ground No. 1 above. It is not the case of the revenue that the said loan was not utilized for the purpose of business. Hence in either case, the said interest paid would be allowable as deduction u/s 36(1)(iii) of the Act. As stated earlier, since no deduction is claimed by the assessee towards interest, there is no question of disallowance. Accordingly, the Ground No. 2 raised by the assessee is allowed.

The next issue to be decided in this appeal is challenging the action of confirming the disallowance of interest of Rs 3,15,179/- paid on loan of Rs 50 lakhs received from Ms/s Manirattnam Exim Pvt Ltd in earlier years. 4.1. We have heard the rival submissions and perused the materials available on record. We find from the perusal of the financial statements of the assessee herein that assessee had not even claimed the interest cost of Rs 3,15,179/- as deduction and instead the same has been duly capitalized by the assessee in its books. When no deduction per se has been claimed by the assessee for interest, there is no question of disallowance of interest u/s 36(1)(iii) of the Act. Accordingly, the Ground No. 3 raised by the assessee is allowed.

The Ground No. 4 raised by the assessee is only on without prejudice basis to the aforesaid grounds. Since relief is granted to the assessee on the aforesaid 3 grounds, the adjudication of Ground No. 4 becomes academic in nature and is hereby left open.

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