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Facts
The assessee's income tax return was processed following a search and seizure operation under Section 132. The Assessing Officer (AO) made additions for Rs. 2,15,00,000/- as unexplained cash credit under Section 68 for bogus unsecured loans and disallowed Rs. 43,76,399/- in interest expenses. The assessee appealed these additions to the CIT(A).
Held
The CIT(A) partly allowed the assessee's appeal, deleting the additions made under Section 68 and the disallowance of interest expenses, but confirmed the order under Section 234B. The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, finding that the assessee had discharged its onus by providing sufficient evidence for the genuineness of the loans and their repayment.
Key Issues
Whether the unsecured loans taken by the assessee constituted unexplained cash credit under Section 68 of the Income Tax Act, and if the related interest expenses were allowable.
Sections Cited
143(3), 132, 142(1), 133(6), 68, 234B, VIA
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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri Rajesh Kumar&Shri Pradip Kumar Choubey]
ORDER / आदेश Per Pradip Kumar Choubey, JM: In both the appeals the revenue has preferred appeal against the order dated 31.12.2017 passed by the Ld. CIT(A) against the order passed by the AO u/s 143(3) for AY 2016-17 and order passed by the Ld. CIT(A) on 30.11.2023 passed against the order u/s 143(3) for AY 2017-18. We have taken both the appeals together as the order passed in for AY 2016-17 shall give effect to the order passed in for AY 2017-18. So, we taken ITA No. 1007/kol/2024 for AY.
& 1425/Kol/2024 Assessment Year:2016-17 & 2017-18 Alom Poly Extrusions Limited 2. Brief facts of the case of the assessee are that the assessee filed its return of income on 12.10.2016 after claiming deduction under Chapter VIA of the Act, 1961 declaring total income at Rs. Nil. A search and seizure u/s 132 of the Act was conducted on 26.11.2015 and on subsequent dates against the key person of Jhunjhunwala group of cases and during the course of search and survey operation cash, jewelry and books of accounts were seized. The notices u/s 142(1) of the Act along with set of questionnaires was duly served upon the assessee, notice u/s 133(6) was also issued all the loan creditors and reply was received from most of the parties. In response to the notice, the assessee furnished written submission, AO after going over the written submission passed an assessment order u/s 143(3) determining the total income of Rs. 2,58,76,400/-. The AO made addition in two grounds unexplained cash credit u/s 68 of the Act in the form of bogus unsecured loan of Rs. 2,15,00,000/- and disallowance of interest expenses of Rs. 43,76,399/-.
Aggrieved by the said order the assessee preferred an appeal wherein the appeal of the assessee has been partly allowed as the Ld. CIT(A) has allowed the appeal of the assessee u/s 68 of the Act, allowed the appeal of the assessee on the interest amount of Rs. 43,76,399/- but confirmed the order of AO u/s 234B of the Act.
Being aggrieved and dissatisfied the revenue has preferred an appeal before us.
The Ld. D.R challenges the very impugned order thereby submitting that the Ld. CIT(A) has erred in allowing the appeal of the assessee by holding the addition made u/s 68 of the Act without appreciating the materials brought on record and further erred in deleting the addition of Rs. 43,76,399/- paid on such unsecured loan.
Contrary to that the Ld. AR supports the impugned order thereby submitting that there is no infirmity in the impugned order as the AO made aforesaid addition merely relying on the statement of the third party recorded by the Investigation Wing and without independent examination and without allowing any opportunity to the assessee to cross-examine the same. The ld. Counsel further submits that the assessee had repaid most of the loans with accrued interest to the loan creditors with all the necessary & 1425/Kol/2024 Assessment Year:2016-17 & 2017-18 Alom Poly Extrusions Limited evidential documents. The submission of the Ld. A.R is that there is no illegality in the impugned order.
Upon hearing the submission of the counsel of the respective parties, we have perused the order passed by the Ld. CIT(A) as well as the AO. On perusal of the assessment order, it appears to us that the search and seizure operation u/s 132 of the Act was conducted, we further find that an amount of Rs. 2,15,00,000/- has been declared by the AO as unexplained cash credit on the ground that the assessee company failed to discharge its onus cast on it. It is pertinent to mention here that notice issued u/s 133(6) to all the loan creditors and reply was received from most of the parties. The assessee has fairly submitted that the assessee had repaid most of the loan with accrued interest to the loan creditors. The Ld. CIT(A) has asked the remand report to verify the genuineness of the transaction in respect of repayment of aforesaid loan. The remand report submitted by the Ao which is as follows:
The order of Ld. CIT(A) in this context are essential to reproduce herein below:
& 1425/Kol/2024 Assessment Year:2016-17 & 2017-18 Alom Poly Extrusions Limited 7.1. I have gone through the assessment order, the assessee’s submission as well as the Remand report submitted by the AO. On examining the same, it is observed that the two loan creditors namely Unity Prodev Ventures Pvt Ltd. & Incredible Nirman Pvt. Ltd. had confirmed that they had provided unsecured loans to the assessee company and these two above loan creditors are also being assessed to Income Tax regularly and they have also disclosed the source of the investments in the assessee company with submitted ledger copies and relevant bank statements for the FY 2015-16. Additionally, in the remand report, the AO himself submitted that the two aforesaid loans were repaid by the assessee company in FY 2016-17. The AO’s observation in the remand report that “Now it may be noted that the assessee company has made repayment of loan to every loan creditor after the date of search operation i.e. after 26.11.2015. it is simply inferred that when the modus of the assessee company came to light of department and when the assessee knew that its case would be compulsorily selected for block assessment and unsecured loan would be examined, it made the repayment of loan to avoid tax net on ground of repayment loan.” is just an observation without any proper evidence. It is relevant to mention that in the case of CIT vs. Orissa Corporation P. Ltd. [1986] 159 ITR 78, it is held by the Hon’ble Apex Court that “if the explanation shows that the receipt was not an income in nature, the department could not act unreasonably and reject the explanation to hold that it was income.” Further, reliance may be placed in the case of Dy.CIT vs. Rohini Builders [2002] 256 ITR 360/[2003] 127, The Hon’ble Gujrat High Court has held the following: “The onus of the assessee (in whose books of account credit appears) stands fully discharged if the identity of the creditor is established and actual receipt of money from such creditor is proved. In case, the assessing officer is satisfied about the source of ‘cash deposited in the bank accounts of the creditors’, the proper course would be to assess such credit in the hands of creditors (after making due enquiries from such creditor).” 7.2. In the instant case it is noticed that AO has concluded the aforesaid loans as bogus without making any such enquiry from the aforesaid two loan creditors and his conclusion was only based on statements recorded from certain entry operators of Kolkata during the aforesaid search and seizure operation by the Investigation wing. The similar position of law was observed in the case of Nemi Chand Kothari 136 Taxmann 213 (HC), where the Hon’ble jurisdictional High Court held the following: “A person can be required to prove only such facts which are in his knowledge. Once it is found that an assessee has actually taken money from depositor/lender who has been fully identified, the assessee/borrower cannot be called upon to explain, much less prove the affairs of such third party, which he is not even supposed to know or about which he cannot be held to be accredited with any knowledge.”
Going over the aforesaid facts as discussed by the Ld. CIT(A) we are in this opinion that the assessee company has discharged its onus by providing the details of two loan creditors, relevant ledgers of respective bank statement as well as confirmation letter from the creditors to verify the veracity of the loan taken. Keeping in view the order passed by the Ld. CIT(A) and the facts of the case, we are not inclined to interfere in the impugned order accordingly the appeal of the revenue is hereby dismissed. for AY 2017-18.
The order passed by the Ld. CIT(A) for AY 2016-17 confirmed by the Tribunal in shall give effect to the order passed in AY 2017-18 and as & 1425/Kol/2024 Assessment Year:2016-17 & 2017-18 Alom Poly Extrusions Limited in the present case the revenue has preferred an appeal as there was disallowance of interest expenses of Rs. 25,73,753/- by the AO deleted by the Ld. CIT(A) on the same ground that the aforesaid loan i.e. amounts of Rs. 20,15,00,000/- which was taken by the assessee in the FY 2015-16 and 2016-17 were not as bogus loan. The order of the Ld. CIT(A) passed on 30.11.2023 has been confirmed by the Tribunal vide ITA NO. 1007/Kol/2024. Accordingly, the present appeal of the revenue is hereby dismissed.
In the result, both the appeals filed by the revenue are dismissed.
Order is pronounced in the open court on 25th March, 2025
Sd/- Sd/- (Rajesh Kumar/राजेश कुमार) (Pradip Kumar Choubey /�द�प कुमार चौबे) Accountant Member/लेखा सद�य Judicial Member/�या�यक सद�य Dated: 25th March, 2025 SM, Sr. PS Copy of the order forwarded to: 1. Appellant- DCIT, Central Circle-4(2), Kolkata 2. Respondent – Ms. Alom Poly Extrusions Limited, 7B, Alom House, Pretoria Street, Kolkata-700071 3. Ld. CIT(A)-27, Kolkata 4. Ld. Pr. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail)