CHIRAG NITIN SHAH,BHAVNAGAR vs. THE ACIT, CIRCLE-1, BHAVNAGAR

Aggrieved, the assessee filed an appeal before the CIT(A). The assessee contended that complete details of the lender including returns, bank statements and ledgers were filed and that the loan from Chirag Shah HUF was genuine. It was further argued that the purchase from M/s. Saumil Impex Pvt. Ltd. was duly recorded in the books and supported by purchase bills, confirmations, and payment through banking channels. The assessee also challenged the applicability of section 115BBE and initiation of penalty. The CIT(A), after considering the statement of facts, grounds of appeal, written submissions and the assessment records, upheld the findings of the AO. The CIT(Appeals) held that the assessee merely reiterated the submissions made before the AO without producing any new or conclusive evidence to prove the creditworthiness of the lender or to reconcile the disputed purchases. The factual discrepancies pointed out by the AO in the fund flow of the loan and in the purchase records remained unexplained. Accordingly, the CIT(A) confirmed the additions made by the Assessing Officer.

The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee.

Before us, the Counsel for the assessee submitted that the Revenue Authorities had erred both on facts and in law in sustaining the additions made under section 68 and section 69 of the Act. It was submitted that in respect of the addition of Rs.19,83,889 treated as unexplained cash credit under section 68 of the Act, complete evidences were placed before the Assessing Officer as well as before the CIT(A). These included the confirmation of account and ledger copy of Chirag Shah HUF, copy of its income tax return acknowledgments, bank pass book, Form 26AS, and also the assessee’s own bank statement showing receipt of Rs.15,00,000 and Rs.3,50,000 from the said HUF. The Counsel submitted that the source of the funds in the hands of Chirag Shah HUF came from M/s J. Himatlal & Co., and to substantiate this, the assessee furnished acknowledgment of return of J. Himatlal & Co., its bank statement and ledger accounts evidencing transfer of the amount to Chirag Shah HUF. It was contended that these documents cumulatively establish the three essential requirements of section 68 of the Act, namely the identity of the creditor, genuineness of the transaction, and creditworthiness of the creditor. The Counsel submitted that the use of the same bank for the assessee, J. Himatlal & Co. and Chirag Shah HUF explains why the amounts appeared on the same date, and that mere routing of money through related concerns cannot be a ground to treat genuine loans as unexplained. Reliance was placed on judicial precedents such as CIT v. Patel Ramniklal Hirji (Gujarat HC), CIT v. Ranchhod Jivabhai Nakhava (Gujarat HC), JCIT v. Radhe Developers (ITAT Ahmedabad), and ACIT v. Joit Kumar B. Jain (ITAT Mumbai), to contend that once the assessee discharges its initial burden with documentary evidences, the onus shifts to the department to prove otherwise. Therefore, the Counsel submitted that the proposed addition under section 68 be deleted. With regard to the addition of ₹Rs.,18,175 made under section 69 of the Act as unexplained investment in purchases from M/s Saumil Impex Pvt. Ltd., the Counsel submitted that the assessee had duly recorded this purchase in the books of account, and complete evidences were filed. These included the original purchase invoice from Saumil Impex, the confirmation ledger of the party, the assessee’s purchase register, the bank statement reflecting payment through banking channel, and also Form 26AS which shows TCS collected on the said purchase. It was pointed out that the payment to Saumil Impex was duly made through cheque as reflected in the bank account, and the corresponding entries were also recorded in the purchase register at pages 57 and 65 of the Paper Book. The Counsel explained that the confusion arose only because the name ‘Saumil Impex’ appeared in the transportation expense ledger, but in fact the purchase of Rs. 5,18,175 was recorded and duly reconciled. The Counsel argued that the assessee had fully discharged his onus by providing confirmations, bank statements, purchase bills, registers, and statutory returns. It was pleaded that the additions sustained by the CIT(A) were unjustified and deserve to be deleted in full.

In response, the Ld. DR placed reliance on the observations made by the Assessing Officer and Ld. CIT(Appeals) in their respective orders.

We have heard the rival contentions and perused the material on record. The issue for our consideration is whether the additions made by the Assessing Officer under section 68 and section 69 of the Act and sustained by the CIT(A) were justified. On careful evaluation of the evidence placed on record, we find merit in the submissions of the assessee. In respect of the addition of Rs.19,83,889 made under section 68 of the Act, we note that the assessee had furnished confirmation and ledger account of Chirag Shah HUF, copy of its income tax returns, bank passbook, Form 26AS, and also his own bank statements showing receipt of the loan. The source of the loan was further explained as being funded from M/s J. Himatlal & Co., supported by its return acknowledgments, bank statements, and ledgers. The mere fact that the income declared by the lender was comparatively low or that funds were routed through related parties cannot by itself justify treating the loan as unexplained when documentary evidence demonstrates the source and flow of funds. We find guidance in the decision of the Hon’ble Gujarat High Court in CIT v. Patel Ramniklal Hirji (2014) 222 Taxman 15 (Mag.) / 41 taxmann.com 493, wherein it was held that once identity and genuineness are proved, the loan cannot be treated as unexplained merely due to low income of the lender. Similarly, the Hon’ble Gujarat High Court in CIT v. Ranchhod Jivabhai Nakhava [2012] 21 taxmann.com 159 observed that where the assessee substantiated the transaction with primary evidence including bank records, addition under section 68 was unsustainable. The ITAT Ahmedabad in JCIT (OSD), Circle-3(1)(2) v. Radhe Developers (India) Ltd., with C.O. 95/Ahd/2019 deleted addition where confirmations and supporting evidence were furnished. Likewise, the ITAT Mumbai in ACIT-20(2) v. Shri Joit Kumar B. Jain, (A.Y. 2010-11) held that once confirmations and bank statements are on record, addition cannot rest merely on suspicion. In view of these binding precedents, we hold that the assessee has discharged his onus, and the addition under section 68 is not sustainable.

Coming to the addition of Rs.5,18,175 under section 69 of the Act, we note that the assessee produced the purchase invoice from M/s Saumil Impex Pvt. Ltd., confirmation ledger, purchase register, Form 26AS reflecting TCS collection, and his bank statement evidencing payment through cheque. These documents corroborate that the purchase was genuine and duly accounted for in the books of account. The confusion arose only because the name ‘Saumil Impex’ appeared in the transportation ledger, but the actual purchase was duly reflected in the purchase register.

In view of the above discussion and respectfully following the judicial pronouncements relied upon, we are of the considered opinion that both additions made by the Assessing Officer and confirmed by the CIT(A) are not supported by law or facts. Accordingly, we direct deletion of the addition of Rs.19,83,889 made under section 68 and the addition of Rs.5,18,175 made under section 69 of the Act.

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