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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SHRI SIDDHARTHA NAUTIYAL & SHRI MAKARAND V.MAHADEOKAR
The present appeal is preferred by the Revenue against the order dated 05.11.2024 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”], under section 250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”] for the assessment year 2018–19, whereby the Ld. CIT(A) deleted the addition of Rs.5,00,00,000/- made by the Assessing Officer (“AO”) under section 69 of the Act, treating it as unexplained investment in the hands of the assessee vide order dated 14.03.2024 passed under section 147 read with section 144B of the Act.
Facts of the Case 2. The facts of the case, as emanating from the record, are that the assessee company, Sunpoint Trading Limited (formerly known as Sun 2 Finlease (Gujarat) Limited), engaged in investment and financing activities, had e-filed its return of income for A.Y. 2018–19 on 29.09.2018, declaring total income at ‘NIL’. The assessment under section 143(3) of the Act was originally completed on 22.03.2021 accepting the returned income.
Subsequently, based on information flagged on the Insight Portal under the Risk Management Strategy formulated by CBDT, it came to the notice of the Assessing Officer that the assessee had allegedly advanced a sum of Rs. 5,00,00,000/- to M/s Shankar Growth Fund Private Limited during the relevant previous year. Accordingly, proceedings under section 148A of the Act were initiated, and a notice under section 148 was issued on 07.04.2022. The order under section 148A(d) dated 06.04.2022 recorded the satisfaction that the said amount represented unexplained investment under section 69 of the Act, which had escaped assessment for F.Y. 2017–18.
During the reassessment proceedings, the assessee submitted that the said amount was not a fresh loan advanced during the year but was in fact a repayment by M/s Shankar Growth Fund Private Limited of the loan earlier advanced to it during F.Y. 2016–17 (A.Y. 2017–18). The assessee submitted ledger accounts, bank statements, Form 26AS, TDS certificates, and a contra-confirmation from the borrower. The assessee also stated that the transaction was routed through banking channels, and TDS was deducted on interest received. The assessee further claimed that the said amount had been sourced from its capital reserve and surplus.
The AO noted that the assessee had claimed to have advanced the loan from its Capital Reserves and Surplus. However, upon scrutiny of the audited balance sheet, it was observed that the assessee’s total Capital Reserves were only Rs.70,12,853/- and General Reserve stood at 3 Rs.65,405/-, which were grossly insufficient to justify the alleged advance of Rs. 5 crores. The AO further observed that the assessee company had failed to substantiate the source of the alleged investment with corroborative documentary evidence. While the assessee relied on ledger accounts and Form 26AS of M/s. Shankar Growth Fund Pvt. Ltd., it could not establish the creditworthiness of the assessee for making such a substantial advance. The financial profile of the assessee, as reflected in its returned income (NIL) and lack of significant reserves or borrowings during the relevant period, did not support the capability of extending a loan of Rs.5 crore. The AO also pointed out that the assessee’s bank statements and books of accounts did not clearly reflect the transaction as a loan repayment. The AO emphasised that the borrower, M/s. Shankar Growth Fund Pvt. Ltd., in its own assessment proceedings for A.Y. 2018–19, had shown the amount of Rs. 5 crore as received from the assessee, but no corresponding loan balance was recorded in the assessee’s books. Moreover, the opening balance discrepancy in the borrower's books (Rs. 7.90 crore) versus that in the assessee's books (Rs. 5 crore) raised serious doubts about the genuineness and reconciliation of the transaction. In the final conclusion, the AO held that the assessee failed to satisfactorily explain the nature and source of the amount of Rs. 5 crore loan advanced during the year. The AO concluded that the transaction represented unexplained investment within the meaning of section 69 of the Act. Accordingly, the AO made an addition of Rs. 5,00,00,000/- under section 69 of the Act and taxed the same under section 115BBE of the Act. The assessment was completed under section 147 r.w.s. 144B determining the total income at Rs. 5,00,00,000/-, and penalty proceedings under section 271AAC(1) of the Act were separately initiated.
In appeal, the Ld. CIT(A), considered the submissions of the assessee, including voluminous documentary evidence placed in the paper book, such as Ledger and bank statements of both the assessee and the borrower, Form 26AS and TDS certificates showing interest payments and deductions, Order passed in the case of M/s. Shankar Growth Fund Pvt. Ltd. accepting the returned income and not making any corresponding addition, Certificate of registration with RBI as an NBFC, confirming lending activity as part of its regular business and explanation for the mismatch in opening balances on account of accounting treatment.
The Ld. CIT(A) issued a notice for remand report to the AO on 04.07.2024 and posted the case for hearing on 23.07.2024. Despite multiple reminders dated 24.07.2024, 07.08.2024, 27.08.2024, 19.09.2024 and 01.10.2024, the Assessing Officer did not submit the remand report. On the basis of material on record, the CIT(A) accepted the assessee's contention that the amount in question was a genuine loan repayment and not unexplained investment. He further held that the source of funds for advancing loan in A.Y. 2017–18 stood explained and was not required to be re-examined in A.Y. 2018–19. The addition under section 69 was deleted.
Aggrieved by the said order, the Revenue has preferred the present appeal before us on the following grounds:
(a) The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.5,00,00,000/- made by AO on account of loan advanced to M/s Shankar Growth Fund Ltd treated as unexplained investment u/s 69 of the Act without appreciating that: i) During the course of assessment proceedings, the assessee has claimed that it has advanced loan amounting to Rs.5 Crores to M/s Shankar Growth Fund Ltd from its Capital Reserves and Surplus, which was found factually incorrect after verification of record. ii) During the course of appellate proceedings, the assessee has changed his stand and has denied the fact that it has given loan to M/s Shankar Growth Fund Ltd during F.Y. 2017-18. Now, the assessee has claimed that Rs. 5 Crores is not a loan advanced, but it is a repayment of the loan advanced in the previous year to M/s. Shankar Growth Fund Ltd. In view of this, it can be stated that the assessee is deliberately misguiding the department by producing 5 documents related to loan given in previous A. Y. to M/s Shankar Growth Fund Ltd. Further, the assessee has failed to submit any corroborative evidence/ documents to substantiate the source of fund advanced to M/s Shankar Growth Fund Ltd. (b) The CIT(A) has erred in law and on facts in accepting the reasoning that the addition in the hands of appellant is untenable merely because no addition was made in the recipient's case. (c) The Ld. CIT(A) has erred in admitting additional evidences submitted by the assessee without recording the reasons for their admission, which is in violation of Rule 46A(2) of Income Tax Rules. (d) The Ld. CIT(A) has erred in relying upon the additional evidences without providing sufficient opportunity to the Assessing Officer to examine the additional evidences and submit remand report under rule 46A(3) of Income Tax Rules. (e) The appellant craves leave to add, alter and /or to amend all or any the ground before the final hearing of the appeal.”
The learned Departmental Representative supported the reassessment order passed by the Assessing Officer and relied upon the detailed findings recorded therein. It was submitted that the assessee had failed to establish the source of the loan transaction, and the financial profile of the assessee did not justify the advancement of Rs.5 crore. The DR emphasised that although the CIT(A) admitted additional evidences, the Assessing Officer was not afforded a meaningful opportunity to examine the same, as no remand report was received despite multiple reminders. It was contended that in the absence of AO’s comments, the CIT(A) ought not to have deleted the addition, and the matter may be restored to the file of the AO for proper verification.
The learned Authorised Representative submitted that the addition made under section 69 was wholly unjustified, as the amount of Rs. 5 crore did not represent any investment or loan advanced during the year under consideration. It was contended that the said amount was a repayment received from M/s. Shankar Growth Fund Pvt. Ltd. in respect of a loan earlier advanced during A.Y. 2017–18 in the regular course of the assessee’s NBFC business. The transaction was routed through 6 proper banking channels, and interest income received thereon had been offered to tax with TDS duly reflected in Form 26AS. The AR relied on ledger accounts, bank statements, and contra-confirmation from the borrower, all of which were placed before the CIT(A), and submitted that the same fully established the genuineness of the transaction. It was also pointed out that the Department had accepted the transaction in the borrower’s assessment for A.Y. 2018–19, where no adverse inference was drawn.
We have carefully considered the rival submissions and perused the orders of the lower authorities as well as the material placed on record. The principal issue in the present appeal is whether the CIT(A) was justified in deleting the addition of Rs.5,00,00,000/- made by the Assessing Officer under section 69 of the Act, treating the same as unexplained investment allegedly advanced by the assessee to M/s. Shankar Growth Fund Pvt. Ltd. during the previous year relevant to A.Y.2018–19.
The Assessing Officer proceeded on the basis that the assessee had advanced a loan of Rs.5 crores during the year, which did not commensurate with its financial profile. The AO found the explanation regarding the source of funds, particularly the claim of availability of capital reserves and surplus, to be factually incorrect. Consequently, the amount was brought to tax under section 69. It is also not in dispute that during reassessment proceedings, the assessee initially referred to the advance from its own capital reserves, whereas before the CIT(A), it clarified that the amount was a repayment of a loan advanced in the earlier year.
The CIT(A), after considering the explanation of the assessee, accepted the contention that the amount of Rs. 5 crore was a repayment of loan given in A.Y. 2017–18 in the ordinary course of NBFC lending 7 activity. This was supported by ledger account of the borrower, bank statements evidencing inflow of funds through banking channels, Form 26AS showing interest with TDS, and a contra-confirmation from the borrower. It was also noted that in the case of M/s. Shankar Growth Fund Pvt. Ltd., the said transaction had been examined and accepted in its assessment order passed under section 143(3) r.w.s. 147, and no adverse inference had been drawn.
It is true that the CIT(A) had called for a remand report and issued multiple reminders dated 24.07.2024, 07.08.2024, 27.08.2024, 19.09.2024, and 01.10.2024 to the Assessing Officer. However, no report was furnished despite adequate opportunity. In such circumstances, the CIT(A) had no option but to proceed on the basis of available material and documentary evidence filed by the assessee. The assessee had disclosed all relevant facts and placed supporting evidence which remained uncontroverted by the Revenue at the appellate stage.
As regards the objection under Rule 46A, we find that the CIT(A) had called for remand comments and provided full opportunity to the Assessing Officer. The failure of the AO to respond cannot be a ground to vitiate the order of the CIT(A), particularly when the evidences were contemporaneous, relevant, and necessary for adjudication of the dispute.
It is well-settled that when the assessee explains a transaction as a repayment of a past loan, duly evidenced by bank records, interest income with TDS, and corresponding disclosure in books, such explanation cannot be rejected without cogent reasons. In the present case, the Revenue has not brought on record any evidence to disprove the repayment nature of the transaction or to show that a fresh loan was advanced during the year.
8 17. As regards sub-grounds (i) and (ii) of ground (a), we find that the assessee’s initial reference to capital reserves was made during preliminary proceedings, but the assessee subsequently clarified that the amount in question was a repayment of a loan advanced in an earlier year, not a fresh advance. This explanation was supported by contemporaneous evidence including bank statements, ledger accounts, and Form 26AS. The mere change or clarification in stand, when backed by verifiable documentation, cannot be treated as misleading or contradictory. Hence, these sub-grounds do not warrant any interference with the order of the CIT(A).
In view of the above, we find no infirmity in the findings of the CIT(A). The addition under section 69 has been rightly deleted. Accordingly, we uphold the order of the CIT(A).
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the Court on 9th May, 2025 at Ahmedabad.