MURAD KHETANI,HYDERABAD vs. DCIT., CIRCLE-10(1), HYDERABAD

The brief facts of the case are that, the assessee is an individual, who filed his return of income for A.Y. 2016-17 on 10.02.2017 admitting total income of Rs. 1,08,64,820/-. The case was selected for limited scrutiny under CASS to verify the issue as to whether unsecured loans are genuine and from disclosed sources. During the course of assessment proceedings, the A.O. noticed that, as per the ITR, the assessee has shown unsecured loans as on 31.03.2016 to the tune of Rs. 23,51,23,750/-. The A.O. called upon the assessee to furnish details of unsecured loans. In response, the assessee has furnished breakup of unsecured loans and the names of the loan creditors. As per the details submitted by the assessee, out of total unsecured loans outstanding as on 31.03.2016, the opening balance as on 01.04.2015 was at Rs. 15,82,10,000/-. Fresh unsecured loans taken during the financial year 2015-16 relevant to A.Y. 2016-17 was for Rs. 10,07,50,000/-. Total loan repaid during the financial year 2015-16 relevant to A.Y. 2016-17 was for Rs. 2,60,30,000/- and closing balance as on 31.03.2016 was for Rs. 23,26,80,000/-. The A.O. vide notice issued under Section 142(1) of the Act dated 13.02.2018 called upon the assessee to furnish the address and PAN details of the loan creditors. In response, the assessee did not 3 Murad Khetani submit any details. Therefore, summons under Section 131, dated 19.12.2018 were issued to the assessee. In response to the summons, the assessee filed a letter on 24.12.2018 requesting for an adjournment. The A.O., after taking relevant submissions of the assessee, observed that, though the assessee has submitted most of the loans are brought forward balances from the earlier financial years and only a few loans were taken in financial year 2015-16, no documentary evidence was submitted by the assessee to substantiate his claim. However, it is noticed that, the ITR filed by the assessee for A.Y. 2014-15 was selected for complete scrutiny and assessment was completed on 14.12.2016 by DCIT, Circle 10(1), Hyderabad. The claim of the assessee that most of the loans were only brought forward balances from earlier years were verified from the details of loan creditors as on 31.03.2014 and from the above, it is noticed that, as on 01.04.2015, loans from three parties were not reflected in the list of creditors. Further, it is pertinent to note that, in the ITR filed by the assessee for A.Y. 2015-16, the unsecured loans were shown as nil. In this regard, it was submitted by the assessee that the ITR for A.Y. 2015-16 was filed as “No books of account case”. As the details of the creditors as on 31.03.2015 are 4 Murad Khetani not available from the ITR, the details of creditors as on 31.03.2014 were taken into account to establish the genuineness of the brought forward balance of creditors. Further, it is seen from the list of creditors as on 31.03.2016 that an amount of Rs. 20,00,000/- was shown as suspense and in absence of the identity of the loan creditors, the amount of Rs. 20,00,000/- cannot be considered as genuine. Therefore, taking into account the relevant details, the A.O. has worked out loans taken by the assessee by considering opening balance as on 31.03.2014 which were not reflected in the list of unsecured loans and fresh unsecured loans taken during the year and also amount of ‘suspense creditors’ and has worked out total unexplained credit of Rs. 11,14,10,000/- and added to the total income of the assessee under Section 68 of the Income-tax Act, 1961. 3. Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee has reiterated his submissions made before the A.O. and argued that, out of the total unsecured loans appearing in the balance sheet as on 31.03.2016, only an amount of Rs. 10,07,50,000/- was taken during the financial year, for which the assessee has furnished

Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.

The learned counsel for the assessee, Shri Ajay Tulsiyan, C.A. and Shri Kapil Shah, C.A., referring to the assessment order passed by the A.O. and the addition made towards unsecured loans under Section 68 of the Act, submitted that, the A.O. has made addition of Rs. 10,60,000/- towards Suspense (Vistas account difference), even though the above account was carried forward from earlier financial years for which the assessee has furnished relevant details, including copies of financial statements and schedule of loan creditors as on 31.03.2015. The learned counsel for the assessee further submitted that, the A.O. has erred in making addition towards unsecured loans taken from Sri Aravind Agarwal for Rs. 70,00,000/- even though the assessee has discharged the identity,

The learned counsel for the assessee, further referring to unsecured loans of Rs. 8,60,00,000/- obtained from M/s. Infinite Media Holdings, submitted that, the assessee has furnished confirmation letter from the loan creditor, bank statement of the 8 Murad Khetani assessee, ITR and bank statements of the loan creditor to substantiate the credits received by the assessee. Further, the A.O. never disputed the fact that the assessee has furnished all the details. However, rejected the explanation on the ground that the creditor has shown meagre income or loss for the year under consideration and failed to establish the creditworthiness. However, fact remains that to establish creditworthiness, the income declared for the year under consideration alone is not relevant and what is relevant is the other evidence filed by the assessee, including source of said funds. In the present case, the assessee has furnished relevant bank statements and proved that, the loan has been paid through proper banking channel and from the above, it is very clear that the creditworthiness of the loan creditor has been established. The A.O. and Ld. CIT(A), without appreciating the relevant facts, simply sustained the addition made by the A.O. In this regard, the learned counsel for the assessee relied upon certain judicial pronouncements, including the decision of the Hon'ble High Court of Bombay in the case of Principal CIT vs Ami Industries India Private Limited (2020) 424 ITR 219 (Bombay). The assessee had also relied on the decision of the Hon'ble Gujarat High Court in the case of CIT

The learned CIT-DR for the Revenue, Ms. U. Mini Chandran, on the other hand, supporting the order of the Ld. CIT(A), submitted that, the assessee could not furnish any details before the A.O., which is evident from the assessment order passed by the A.O., where the assessee, except filing the details of unsecured loans, no further details have been furnished to establish the identity and creditworthiness of loan creditors and genuineness of transactions. The case was selected for scrutiny for verifying unsecured loans and the A.O. has provided sufficient time to the assessee to furnish details, however, no evidence was filed to substantiate the unsecured loan. Further, the assessee has filed return of income for A.Y. 2015-16 as “No books category” and from the above, it is very clear that there is no detail as to unsecured loan as on 31.03.2015. The A.O., after considering relevant facts, has rightly considered unsecured loans appearing as on 31.03.2014 and reported in ITR filed for A.Y. 2014-15 and then worked out the unexplained cash

The provisions of Section 68 of the Income-tax Act, 1961 deal with unexplained cash credit, as per which, where any sum is found credited in the books of the assessee maintained for the previous year and the assessee offers no explanation about the nature and source thereof and the explanation offered by him is not, in the opinion of the A.O., satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. From the provisions of Section 68 of the Act, it is very clear that if any credit appearing in the books of account of the assessee maintained for that year and the assessee has not offered any satisfactory evidence, then the credits may be charged to income-tax as income of the assessee for that financial year. In the present case, the A.O. has made addition towards unsecured loans (suspense accounts) which have been brought forward from earlier financial years as claimed by the assessee and also proved by filing relevant evidences. Since the credits being suspense (Vistas account

Coming back to the addition of unsecured loan received from M/s. Infinite Media Holdings for Rs. 8,60,00,000/-, unsecured loan received from Shri Abdul Sultan Panjwani for Rs. 50,00,000/- and unsecured loan received from Shri Aravind Agarwal for Rs. 70,00,000/-. Admittedly, all three loan credits were received in the financial year 2015-16 relevant to A.Y. 2016-17. In respect of loan received from Shri Aravind Agarwal amounting to Rs. 70,00,000/-, the assessee has furnished details of loan creditor along with his PAN, confirmation letter from the creditor, bank statements of the assessee, bank statements of the loan creditor, ledger and bank statements evidencing the repayment of loan in the subsequent year. From the above, it is undisputedly clear that the assessee has proved identity of the loan creditor and also the genuineness of the 15 Murad Khetani transaction. In respect of creditworthiness of the loan creditor, there is no dispute, because the transactions were routed through proper banking channel and also the loan has been repaid in the subsequent financial year. Since the assessee has discharged the onus cast upon him under Section 68 of the Act, in our considered view, the A.O. ought not to have made addition towards unsecured loan received from Shri Aravind Agarwal for Rs. 70,00,000/-. Once the loan taken has been evidently repaid in the same financial year or in the subsequent financial year, in our considered view, it is a clear case of discharging the burden of establishing the identity and creditworthiness of the parties as held by the Hon'ble Gujarat High (supra) and CIT vs. Karaj Singh (2014) 15 taxmann.com 70 (Hon'ble High Court of Punjab and Haryana). A similar view has been taken by the coordinate bench of the Tribunal of ITAT, Delhi Bench in the case of JS Exim Vs. DCIT in ITA No. 854/Del/2020. Therefore, we direct the A.O. to delete the addition made towards unsecured loans received from Sri Aravind Agarwal for Rs. 70,00,000/-.

In respect of unsecured loan from Sri Abdul Sultan Panjwani amounting to Rs. 50,00,000/-, there is no dispute with regard to the fact that the assessee has furnished confirmation from the legal heir of the loan creditor, namely, Ms. Habiba Abdul Panjwani, because the loan creditor Shri Abdul Sultan Panjwani died on 13.04.2017, which is evident from the copy of Death Certificate, which is available in the paper book filed by the assessee. Further, the loan has been received through proper banking channel, which is evident from the relevant bank account statement of the assessee and the bank account statement of the loan creditor. The loan amount received from Shri Abdul Sultan Panjwani has been repaid in the subsequent financial year, which is evident from the relevant bank account statement. Since the loan has been routed through proper banking channel and the assessee has also furnished relevant evidence for repayment of loan, in our considered view, the addition cannot be made under Section 68 of the Act when the said loan has been subsequently repaid through proper banking channel, as held by the Hon'ble Gujarat High Court in the case of CIT vs. Ayachi Chandrashekhar Narsingji (supra). Therefore, we direct the A.O. to 17 Murad Khetani delete the addition made towards unsecured loan received from Shri Abdul Sultan Panjwani for Rs. 50,00,000/-.

Coming back to unsecured loan of Rs. 8,60,00,000/- from Infinite Media Holdings. It is an admitted fact that during the course of appellate proceedings, the assessee has submitted confirmation letter from the loan creditor, bank statements of the assessee, ITR and bank statements of the loan creditor to prove the identity of the loan creditor, genuineness of the transaction and the creditworthiness of the party. Although the A.O. has accepted the fact that, the assessee has furnished all these evidences, but made addition only on the ground that, the assessee has failed to prove the creditworthiness of the transaction and the said finding has been recorded on the basis of income reported in the ITR filed for the year under consideration. In our considered view, the income reported by the loan creditor for any particular assessment year cannot be the reason for doubting the creditworthiness of the loan creditor, more particularly when the said loan has been routed through proper banking channel. In our considered view, income of a person alone cannot be the criteria to judge the creditworthiness of a person and his capability to advance the loan. The 18 Murad Khetani creditworthiness can be established by showing the source from where the money has been paid by the creditor which may be either out of his net worth or income or out of loan received, as held by the Hon'ble Bombay High Court in the case of Principal CIT vs. Ami Industries India Pvt. Ltd (supra). A similar view has been held by the ITAT, Delhi Bench in the case of Prayag Polytech Pvt. Ltd. vs. ACIT in ITA No. 6625/Del/2019, order dated 07.11.2019. Since the assessee has discharged his onus by filing relevant details, in our considered view, the A.O. ought not to have made addition towards unsecured loans received from M/s. Infinite Media Holdings, as unexplained cash credit under Section 68 of the Act, as held by the Hon'ble Supreme Court in the case of CIT vs. Lovely Exports (P) Ltd., (2009) 319 ITR 5 (SC) wherein it has been clearly held that, once the identity of the loan creditor has been proved by filing relevant evidences, then the Department is free to reopen the case of the loan creditor, but the sum received from the loan creditor cannot be regarded as undisclosed income of the assessee. Therefore, we direct the A.O. to delete the addition made towards loan taken from M/s. Infinite Media Holdings.

In this view of the matter and considering the facts and circumstances, we are of the considered view that, the assessee has discharged the burden by filing various evidences to prove the unsecured loans received during the year under consideration. The A.O., without appreciating relevant facts, simply made addition towards unsecured loans received by the assessee. The Ld. CIT(A), although accepted the fact that the assessee has furnished relevant evidence, but sustained additions only on the ground that, the creditworthiness of the parties has not been discharged. Since the assessee has discharged the identity, genuineness of transaction and creditworthiness of the parties, in our considered view, the addition made by the A.O. cannot be upheld. Thus, we set aside the order of the Ld. CIT(A) and direct the A.O. to delete the addition made towards unsecured loans under Section 68 of the Income-tax Act, 1961. 20 Murad Khetani

In the result, the appeal of the assessee is allowed. Order pronounced in the Open Court on 11th March, 2026. श्री विजय पाल राि (VIJAY PAL RAO) उपाध्यक्ष /VICE PRESIDENT (मंजूनाथ जी) (MANJUNATHA G.) लेखा सदस्य/ACCOUNTANT MEMBER

निर्धाररती/The Assessee : Mr. Murad Khetani, R/o.1-8-309/1 & 1-8-309/2, Lake View Residency, Patigadda, Secunderabad, Hyderabad, 500003. 2. रधजस्व/ The Revenue : The Deputy Commissioner of Income Tax, Circle 10(1), Hyderabad. 3. The Principal Commissioner of Income Tax, Hyderabad. 4. नवभधगीयप्रनतनिनर्, आयकर अपीलीय अनर्करण, हैदरधबधद / DR, ITAT, Hyderabad 5. गधर्ाफ़धईल / Guard file