RAMESH V.SHAH`,MUMBAI vs. ACIT 25(3) (3), MUMBAI

The appellant, M/s. Ramesh V. Shah HUF (hereinafter referred to as ‘the assessee’) by filing the present appeal, sought to set aside the impugned order dated 26.07.2021 passed by Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) [hereinafter referred to as the CIT(A)] qua the assessment year 2013-14 on the grounds inter alia that :- “1. The learned Commissioner of Income Tax (Appeals) erred in law and on the facts of the case in invoking the provisions of the Income 2 M/s. Ramesh V. Shah HUF Tax Act, 1961 (“Act”) and thereby making the additions and disallowance of Rs.27,21,826/-. 1.1 The Learned Commissioner of Income Tax (Appeals) has erred in upholding the addition of Rs. 20,00,000/- u/s. 68 of the Act. 1.2 The learned Commissioner of Income Tax (Appeals) further erred in law and fact by upholding that the interest amounting to Rs.71,671/- paid by the appellant to Mr. Mahesh Khandelwal cannot be allowed as deduction. 1.3 The learned Commissioner of Income Tax (Appeals) further erred in law and Fact by upholding the disallowance of Rs.6,50,155/- from the appellant’s claim of deduction on account of interest paid. 1.4 The learned Commissioner's order being contrary to law, evidence and facts of the case should be set aside, amended or modified in the light of the grounds deduced above. 1.5 The grounds of appeal

Briefly stated facts necessary for adjudication of the controversy at hand are : the assessee is deriving income from partnership firm under profit and gains and business or profession and income from other sources. During the scrutiny proceedings the Assessing Officer (AO) noticed that the assessee has taken unsecured loan of Rs.20 lakhs from one party who has not filed any return of income for the last many years. The assessee has also not produced Shri Mahesh Khandelwal, creditor who has not filed any return of income for A.Y. 2010-11 to 2013-14.

Declining the contentions raised by the assessee that creditworthiness of capacity of the lender is proved from balance sheet, copies of bank statements and that there has been aggregate 3 M/s. Ramesh V. Shah HUF deposit of Rs.1,00,00,000/- through banking channel in his account who has issued the cheque to the assessee, the AO proceeded to make addition of Rs.20 lakhs on the ground that the assessee has failed to prove the genuineness of the transactions and creditworthiness of the lender. The AO also made addition of Rs.71,671/- being the interest claimed to have been paid by the assessee to Shri Mahesh Khandelwal on the ground that the assessee has failed to prove the genuineness of transaction and creditworthiness of the lender the same is disallowed under section 57 of the Act. The AO also made addition of Rs.6,50,155/- being the difference in the amount of interest paid on unsecured loans taken in excess of 15% as the assessee on the one hand was receiving interest @ 15% and on the other hand he was paying interest at different rates in excess of 15% on amount of loan taken by him during the year under consideration and thereby framed the assessment under section 143(3) of the Act.

Assessee carried the matter before the Ld. CIT(A) by way of filing appeal who has confirmed the addition by dismissing the appeal. Feeling aggrieved the assessee has come up before the Tribunal by way of filing present appeal.

We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto. 4 M/s. Ramesh V. Shah HUF Ground No.1, 1.1 & 1.2 6. Undisputedly, the assessee has availed of the loan of Rs.20 lakhs from one Shri Mahesh Khandelwal during the year under assessment . It is also not in dispute that the said loan was taken by the assessee through banking channel. It is also not in dispute that Shri Mahesh Khandelwal gave confirmation of the loan during the assessment proceedings along with his bank statement. It is also not in dispute that Shri Mahesh Khandelwal has not filed any return of income for A.Y. 2010-11 to A.Y. 2013-14.

The Ld. A.R. for the assessee in order to prove the creditworthiness of the lender Shri Mahesh Khandelwal drew our attention towards his bank statement available at page 29 of the paper book issued by Kotak Mahindra Bank for the period 01.04.2012 to 31.03.2014 which shows that the assessee was having sufficient funds in his account to the tune of Rs.41,22,506.73 and he has advanced the loan of Rs.20 lakhs to the assessee through banking channel.

The AO/ Ld. CIT(A) declined to accept the creditworthiness of the creditor Shri Mahesh Khandelwal on the ground that on 12.02.2012 the date of advancing the loan to the assessee an amount of Rs.40 lakhs were credited in the bank account and on the same day he has alleged to have advanced of Rs.20 lakhs to the assessee.

We are of the considered view that when sufficient funds were there in the bank account of the assessee even prior to credit of the amount of Rs.40 lakhs on 12.02.2014, it is a mere surmise 5 M/s. Ramesh V. Shah HUF that the lender of the assessee was not having creditworthiness on the date of advancing the loan. We are of the further view that when assessee has taken the loan from Shri Mahesh Khandelwal through banking channel and duly shown the same in his return of income the same cannot be disputed on the basis of conjuncture and surmises. The assessee is not to prove the source of source.

Secondly, merely because of the fact that Shri Mahesh Khandelwal has not filed the return of income from A.Y. 2010-11 to A.Y. 2013-14, whose identity is otherwise not disputed and has brought on record the funds available with him, for non filing of return of income by Shri Mahesh Khandelwal, assessee cannot be fastened with the addition on the basis of conjuncture and surmises. So the addition made on the basis of suspicion is not sustainable in the eyes of law.

In case any entry made in the bank statement of Shri Mahesh Khandelwal were doubtful, the AO was required to make investigation against him to bring his financial activities to tax. Non production of lender Shri Mahesh Khandelwal by the assessee before the AO is also not in his hand who has merely taken the unsecured loan through banking channel and shown the entire transaction in his return of income. So in view of the matter, the addition made by the AO is not sustainable.

So far as question of disallowance of interest amounting to Rs.71,671/- is concerned, when addition of Rs.20 lakhs made by the AO and confirmed by the Ld. CIT(A) is not sustainable interest claimed thereon by the assessee is also required to be allowed and disallowance made by the AO and Ld. CIT(A) is deleted. 6 M/s. Ramesh V. Shah HUF 13. So far as question of disallowance of Rs.6,50,155/- from the assessee’s claim of deduction on account of interest paid is concerned, assessee claimed to have incurred interest expenses of Rs.81,10,618/- as against interest income of Rs.98,65,259/- and thereby offered the interest income of Rs.17,54,641/- to the charge of income tax.

We have perused the details of interest expenses paid by the assessee in excess of 15% available at page 21 of the Act, there is stark variation between the interest paid in the range of 6% to 24% and no cogent explanation has come on record as to how and under what circumstances the assessee had incurred interest excess of 15% per annum and how the same was incurred wholly and exclusively for earning the interest income. Detail furnished by the assessee himself available at page 21 of the paper book itself shows that in the same year and in the same business how the major difference in earning interest income and incurring interest income excess of 15% per annum has occurred. Since the difference in earning interest and incurring interest by the assessee is irreconcilable the AO as well as the Ld. CIT(A) has rightly made addition/confirmed the same. So we hereby uphold the disallowance of Rs.6,50,155/-.

In view of what has been discussed above, appeal filed by the assessee is partly allowed. Order pronounced in the open court on 18.05.2022.