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Facts
The assessee, engaged in used car financing, received loans via HDFC Bank, disbursed through brokers Mayur Vaghela and Ubhay Shah. The Assessing Officer treated unsecured loans of Rs. 1,27,84,253/- as unexplained cash credit, which was upheld by the CIT(A). The assessee contended that the loans were from HDFC Bank and not the brokers.
Held
The Tribunal held that the amounts were received from HDFC Bank and not from the brokers, and the assessee had established the identity and creditworthiness of the lenders and the genuineness of the transaction. The AO and CIT(A) failed to consider the evidence provided.
Key Issues
Whether the unsecured loans received were genuine and from HDFC Bank, or unexplained cash credits from brokers, under Section 68 of the Income Tax Act.
Sections Cited
68, 143(2), 142(1), 133(6), 131, 234A, 234B, 234C, 234D, 271AAC
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Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH
Before: Dr. BRR Kumar & Ms. Suchitra Kamble
आदेश/ORDER Per Suchitra Kamble, Judicial Member:
1. This is an appeal filed against the order dated 28-12- 2023 passed by National Faceless Appeal Centre (NFAC), Delhi for assessment year 2017-18.
The grounds of appeal
are as under:- “1. The Ld. CIT(A) has erred in law and on facts of the case in confirming action of the Ld. AO in treating unsecured loans of Rs. 1,27,84,253/- as unexplained cash credit u/s. 68 of the Act.
2. Both the lower authorities have failed to appreciate the facts of the case and the accounting entries in the books of appellant. The loan amount has been received by the appellant from HDFC Bank and not from the impugned parties, hence addition cannot be made for cash credit w.r.t. impugned parties from whom no amount has been received by the appellant.
3. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various Navin Motors & Estate, A.Y. 2017-18 submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. The action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.
The Ld. CIT(A) has erred in law and on facts of the case in confirming action of the Ld. AO in levying interest u/s. 234A/B/C/D of the Act.
5. The Ld. CIT(A) has erred in law and on facts of the case in confirming action of the Ld. AO in initiating penalty proceedings u/s. 271AAC of the Act.
6. The Appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal
at the time of or before the hearing of the appeal. Total tax effect Rs. 76,70,552/-”
3. The assessee filed return of income for assessment year 2017- 18 on 17-10-2017 declaring total income at Rs. 2,66,910/-. The case was selected for limited scrutiny for verification of large unsecured loans received during the year. Notice u/s. 143(2) of the Act dated 08-08-2018 was issued and served on the assessee. Notice u/s. 142(1) of the Act dated 16-04-2019 was issued and served to the assessee. In response to the notices issued u/s. 143(2) and 142(1), the A.R. of the assessee made submissions and filed the same before the A.O. The assessee is engaged in the business of dealing in used car and its finance and shown turnover of Rs. 1,07,38,201/- and commission income of Rs. 16,86,577/- on which net profit of Rs. 2,66,906/- has been declared. The Assessing Officer observed that audit report of the assessee reflected substantial amount as unsecured loans and therefore issued notice u/s. 142(1) requiring the assessee furnished statement in respect of all bank accounts held by it along with details of name, PAN company postal address from the parties along with copies of accounts duly singed by the parties and bank statement of parties highlighting transactions along with latest acknowlgement of return of parties. The Assessing Officer also pointed out to the assessee to furnish the parities for which loan amount was taken, rate of interest given. The assessee furnished part details but has not given the return of income and bank statements of those parties. The Assessing Officer issued notice u/s. 133(6) to those parties to know reply received. Further, letters u/s. 133(6) of the Act dated 07-08- Navin Motors & Estate, A.Y. 2017-18 2019 were issued and served to them and Shri Ubhay Shah filed part reply stating that he has given loan to M/s Navin Motors & Estate, but has not maintained any books of accounts nor filed return of income. After taking cognizance of the said details, the Assessing Officer doubted the books of account of the assessee. The Assessing Officer further observed that the copy of confirmation signed by Shri Mayurdhwajsingh L Vaghela, the assessee received an amount of Rs. 17,92,316/- on 15-03-2017 which was repaid on 17-03-2017, however for a long time, the assessee and the alleged cash creditors did not furnish any other details. Thus, the Assessing Officer issued summons u/s. 131. The said Shri Mayurdhwajsingh L Vaghela filed return stating that he is not maintaining the books of account. Thus, the Assessing Officer has taken cognizance of the documents filed by Shri Mayurdhwajsingh L Vaghela and stated that the genuineness of the transaction and creditworthiness and capacity of Shri Mayurdhwajsingh L Vaghela is not proved. As regards to Ubhay Shah, the Assessing Officer again reiterated that the said Ubhay Shah’s creditworthiness was not proved and hence the Assessing Officer on the issue of not establishing genuineness and the creditworthiness of these two parties has made addition of Rs. 1,27,84,253/- u/s. 68 of the Act as unexplained cash credit.
4. Aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.
The ld. A.R. submitted that both the parties i.e. Mayur Vaghela and Ubhay Shah are brokers of used cars and regularly approached the assessee for finance of cars for their customers. The assessee in turn applied for finance under its DSA of HDFC bank and bank disbursed following loan in aggregate during the year under consideration.
Sl. No.
Mayurdhwajsinh L. Vahela Rs. 17,92,316/- Sl. No.
2. Ubhay Shah Rs. 56,58,527/- Since the application for loan was filed under DSA of the assessee through HDFC bank, HDFC bank disbursed the loan amount to the bank account of the assessee and said amount was in turn transferred by the assessee to the bank accounts of the brokers. The assessee also placed on record required documents in support of the disbursement of loans for the customers of the brokers. The ld. A.R. further submitted that though the loan amount was received by assessee from HDFC Bank, due to consolidated accounting entries passed by the assessee, the amounts received from HDFC Bank were reflected as "receipt of loan from brokers" and the corresponding transfer of loan amount by the assessee to such brokers was reflected as "repayment of loan to brokers " in the books of accounts of assessee. With respect to balance amount of Rs. 53,33,410/- (1,09,91,937 - 56,58,527) w.r.t. transaction with Shri Ubhay Shah, the assessee submitted that such amount represents receipt of unsecured loan from Shri Ubhay Shah which was repaid in entirety. The assessee also placed on record required documentary evidences to prove the identity and creditworthiness of Shri Ubhay Shah and genuineness of transaction. However, the AO failed to appreciate the submission of the assessee and made an addition of Rs. 1,27,84,253/- as unexplained cash credit u/s. 68 of the Act. The ld. A.R. submitted that the transaction of finance on used cars with brokers to the tune of Rs. 74,50,8437- is explained as under: (i) Assessee is engaged in business of financing used cars and registered as a DS A of HDFC Bank. (ii) The brokers needed finance on used cars for their customers. (iii) The brokers approached the assessee for such finance. (iv) Assessee in turn applied for finance to HDFC Bank under its DSA Code. (v) HDFC Bank disbursed finance amount to the bank account of assessee. (vi) Assessee in turn transferred such finance amount to the bank account of brokers.
Navin Motors & Estate, A.Y. 2017-18 The Ld. A.R. submitted that the accounting entries to be passed under double entry system of accounting for the above transaction are as under: Entry No. Particulars Debit (Rs) Credit (Rs) 1 Bank A/c xxx To, HDFC Loan A/c xxx (being finance received from bank)
2 HDFC Loan A/c xxx To, Ubhay Shah A/c xxx (being finance payable to Shri Ubhay Shah)
3 Ubhay Shah A/c xxx To Bank A/c xxx (being finance transferred to Shri Ubhay Shah)
However, instead of passing above journal entries, the assessee passed the following journal entries in its books of accounts where a "consolidated journal entry" was passed for journal entry no. 1 and 2 above: Entry No. Particulars Debit (Rs) Credit (Rs) 1 Bank A/c xxx To, Ubhay Shah xxx A/c (being finance received from bank which is payable to Shri 2 Ubhay Shah xxx A/c To, Bank A/c xxx (being finance transferred to Shri Ubhay Shah)
Due to the above accounting treatment adopted by assessee, it appears from the ledger of the brokers that the assessee has received loan from them which is repaid thereafter. However, in fact, such amounts represent finance received by assessee from HDFC Bank which in turn was transferred further to the brokers. The ld. A.R. has also given the details of credit entries reflected in the ledger of brokers, Shri Ubhay Shah and Mayur Baghela. The ld. A.R. also placed the documentary evidences which was produced before the Assessing Officer as well as before the CIT(A) as follows: (i) Confirmation ledger of the brokers (ii) DSA Agreement with HDFC Bank (iii) Bank statement of assessee (iv) Loan disbursement letter for customers of Shri Ubhay Shah (v) Delivery notes for customers of Shri Ubhay Shah (vi) Separate ledger of Shri Ubhay Shah for "financing activity" along with his bank statements (vii) Delivery note for customer of Shri Mayur Vaghela (viii) Loan disbursement letter for customer of Shri Mayur Vaghelaj The ld. A.R. submitted that because of this accounting treatment, the AO found discrepancies in entries in ledger and bank statement of Shri Ubhay Shah. However, such discrepancies were reconciled by placing on record loan disbursement letters issued by HDFC Bank whose entries matches with the entries posted in the ledgers of the 6 Navin Motors & Estate, A.Y. 2017-18 brokers. Such loan disbursement letters also fortify the fact that the amounts were received by the assessee from HDFC Bank. Further, the AO is factually incorrect in holding that the delivery notes have no mention about the broker. Please refer to delivery notes wherein the name of the "party delivering the possession" appears to be Shri Ubhay Shah and such delivery notes are also signed by the broker. Both the lower authorities failed to understand the above accounting treatment and submissions of the assessee and proceeded to hold that the assessee failed to discharge onus placed upon him u/s. 68 of the Act w.r.t. both the brokers. However, the fact remains that the amounts were received by the assessee from HDFC Bank and not from these brokers. Since the amount is received from HDFC Bank, no question arises for doubting the identity and creditworthiness of the payer (HDFC Bank) and genuineness of the transaction. Thus, the receipts of Rs. 74,50,843/- from HDFC Bank on account of loan disbursement are wrongly treated as unexplained cash credit u/s. 68 of the Act and such an addition deserves to be deleted.
5.1 With respect to receipt of unsecured loan of Rs. 53,33,410/- (1,09,91,937 -56,58,527) from Shri Ubhay Shah, the assessee has duly established the identity and creditworthiness of Shri Ubhay Shah and genuineness of transaction by placing on record the following details/documentary evidences: i) PAN and address of Shri Ubhay Shah ii) Ledger for the year under consideration (F.Y. 2016-17) iii) Confirmation ledger iv) Bank statement of assessee v) Separate ledger of Shri Ubhay Shah for "unsecured loan" along with his bank statements vi) Ledger for succeeding year (F.Y. 2017-18) vii) Bank statement of Shri Ubhay Shah for succeeding year The Ld. A.R. submitted that out of the total loan receipt of Rs. 53,33,410/-, Rs. 15,65,000/- was repaid during the year under consideration itself and balance amount of Rs. 37,68,410/- was Navin Motors & Estate, A.Y. 2017-18 repaid in succeeding year. Repayment of loan was not doubted by the lower authorities. No separate addition was made for repayment of loan either during the year under consideration or in the succeeding year. It is a settled law that no addition u/s. 68 of the Act towards receipt of loan is permissible when the repayment of such loan is not doubted by the department. The Ld. A.R. relied upon the following decisions: i) CIT v. Ayachi Chandrashekhar Narsangji - [2014] 42 taxmann.com 251 (Gujarat) ii) PCIT v. Ambe Tradecorp Pvt. Ltd. - [2022] 145 taxmann.com 27 (Gujarat) The Ld. A.R. submitted that the CIT(A) is wrong in holding that the assessee is required to prove the "ultimate source" of loan received i.e. "source of source". It is a settled law that the assessee is not required to prove source of source of funds. Once the assessee furnishes the name and address of the lenders, burden shifts on department and it is the department who shall make inquiry into cash/credit entries in the bank account of the lenders. Reliance is placed on the following: i) CIT v. Orissa Corpn. Pvt. Ltd. - [1986] 159 ITR 78 (SC) ii) DCIT v. Rohini Builders - [2002] 256 ITR 360 (Gujarat)
In view of the above, the Ld. A.R. submitted that the addition of Rs. 53,33,410/- u/s. 68 of the Act w.r.t. unsecured loan received from Shri Ubhay Shah deserves to be deleted.
The ld. D.R. relied upon the order of the CIT(A) and the order of the CIT(A).
We have heard both the parties and perused the material available on record. It is pertinent to note that the assessee has given the details of the ledger book entry of Shri Ubhay Shah as well as Shri Mayur Vaghela and also the details of loan disbursement statements from HDFC on various dates to these two persons. The Assessing Officer as well as CIT(A) has totally ignored the confirmation, ledger of Navin Motors & Estate, A.Y. 2017-18 the brokers as well as the DSA Agreement with HDFC bank supported by the bank statement and loan disbursement letter for customers of Shri Ubhay Shah and Shri Mayur Vaghela. These documents very well prove that these two parties have taken unsecured loans for their customers as these two parties were the brokers and receiving commission. In fact these loans were repaid immediately in the next assessment year which can be seen on page no. 200 and 201 of the paper book. Thus, the Assessing Officer as well as CIT(A) totally ignored these aspects and therefore the addition made by the Assessing Officer does not sustain. Hence, the appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 18-06-2025 Sd/- Sd/- (Dr. BRR Kumar) (Suchitra Kamble) Vice President Judicial Member Ahmedabad : Dated 18/06/2025 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद