Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SHRI T.R. SENTHIL KUMAR & SHRI MAKARAND V. MAHADEOKAR
ORDER \nPER MAKARAND V. MAHADEOKAR, AM:\nThese two appeals are filed by the assessee against the separate orders\ndated 01.12.2023 passed by the Learned Commissioner of Income-tax\n(Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as\n“CIT(A)”], arising out of reassessment orders framed under section 147 r.w.s.\n144B of the Income-tax Act, 1961 [hereinafter referred to as “the Act"], by the\nNational Faceless Assessment Centre (NFAC), Delhi [hereinafter referred to\nas \"Assessing Officer /AO\"] for the Assessment Years (AYs) 2015-16 and\n2016-17, respectively. As the issues involved in both the appeals are common\nand interlinked, these were heard together and are being disposed of by this\nconsolidated order.\nFacts of the case:\n2. The assessee filed his return of income for A.Y. 2015–16 on 03.10.2015,\ndeclaring total income of Rs.6,06,900/-. Similarly, for A.Y. 2016–17, the\nreturn was filed on 31.11.2016, declaring income of Rs.8,21,800/-.\nSubsequently, the cases were reopened under section 147 of the Act on the\nbasis of information received from the Principal Commissioner of Income\nTax, Gandhinagar, indicating that the assessee was a beneficiary of\naccommodation entries in the form of unsecured loans arranged through one\nShri Amit Jayantilal Shah, identified as an entry operator. It was reported that\nShri Shah had used more than 130 bank accounts to deposit cash and\nsubsequently issued cheques to various beneficiaries, including the assessee.\nIn response to the information, notices under section 148 were issued on 31st\nMarch 2021 in both years, and reassessment proceedings were initiated. In\ncase of both the years, the assessee filed return of income on 27.04.2021 in\nresponse to notice u/s 148 reiterating the originally declared incomes.\n3. During the course of reassessment proceedings for A.Y. 2015–16, the\nAssessing Officer (AO) made additions under section 68 of the Act\naggregating to Rs.86,62,160/-, comprising Rs.32,50,000/- received from five\nspecific parties connected with the entry operator and Rs.54,12,160/- from\nother lenders. The five parties through whom Rs.32,50,000/- was received\nwere:\nName of the Party:\n(i)\nMeena Rameshbhai Salat\n(ii)\nGovindbhai Arjanbhai Patel\n(iii)\nRiya Bhaveshbhai Pujara\n(iv)\nDipakbhai V. Chauhan\n(v)\nPrakash Dahyalal Shah\nRs.:\n5,50,000/-\n6,00,000/-\n5,00,000/-\n7,00,000/-\n9,00,000/-\n3.
In addition, the AO disallowed Rs.2,35,332/- being interest claimed on\nthe said loans and Rs.52,549/- under Chapter VI-A for lack of substantiating\nevidence, resulting in an assessed income of Rs.95,56,950/-.\n3.
In A.Y. 2016–17, the AO made similar additions under section 68\ntotalling to Rs.70,54,000/-, of which Rs.35,00,000/- pertained to amounts\nallegedly received through entities linked to the same entry operator. The\nfour parties through whom Rs.35,00,000/- was received were:\nName of the Party:\n(i)\nIshvarbhai Karsanbhai Choudhary\n(ii)\nAbhabhai Harjibhai Gohil\n(iii)\nRiya Bhavesh Kumar Pujara\n(iv)\nDineshbhai Rupabhai Gohil\nRs.:\n7,50,000/-\n8,00,000/-\n11,00,000/-\n8,50,000/-\n3.
3. Further, Rs.35,54,000/- was added representing loans from other\nindividuals for which the AO concluded that genuineness and\ncreditworthiness were not established. The AO also disallowed\nRs.15,60,810/- of interest claimed on these loans. The total assessed income\nfor the year was computed at Rs.94,36,610/-.\n3.
4. In both years, the assessee had submitted confirmations, PAN details,\nbank statements, and ITRs of the creditors in support of the loan transactions.\nHowever, upon verification, the AO found that the creditworthiness and\ngenuniness of the transactions remained unsubstantiated. The AO observed\nthat most of the lenders had declared incomes marginally above the threshold\nof taxable limit and that the flow of funds suggested a typical accommodation\nentry structure – where cash was deposited by Shri Amit J. Shah, routed\nthrough these persons' accounts, and ultimately transferred to the assessee's\naccount within a short span of time. On this basis, in case of A.Y. 2015-16, the\nAO concluded that the amount of Rs.32,50,000/- received from five parties\nwas nothing but unaccounted money of the assessee, introduced in the guise\nof unsecured loans. In A.Y. 2016–17, similar findings were recorded by the\nAO based on continued inputs from the Investigation Wing linking the\nassessee to accommodation entries managed through the same entry\noperator. The assessee claimed to have received unsecured loans aggregating\nto Rs.35,00,000/- from four parties. The AO found that these parties too had\nreceived cash deposits in their accounts immediately before transferring\nfunds to the assessee and held that these transactions were part of the same\nmodus operandi. In most cases, the AO found that the incomes declared by\nthe lenders were either below taxable limit or were not filed at all. Many\nconfirmations merely stated the names and PANs without any corroborative\nevidence. Consequently, the entire amount was treated as unexplained credit\nunder section 68 of the Act.\n3.
The assessee filed appeals before the CIT(A), challenging the validity\nof reopening, the additions made under section 68 of the Act, and the\ndisallowances. However, due to non-compliance with multiple notices issued\nby the CIT(A), both appeals were disposed of ex parte vide orders dated\n01.12.2023, without discussing or adjudicating the merits of the grounds\nraised. The CIT(A) relied on the material available on record and upheld the\nassessment in full.\n4.\nAggrieved by the orders of CIT(A), the assessee has preferred the\npresent appeals before us raising following grounds:\nIn ITA No. 137/Ahd/2024\n1. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A)\nhas erred in confirming the reopening of assessment under section 147 of the Act\nin as much as there is no escapement of income and that the notice issued is bad\nin law and is not in conformity of the provisions of law.\n2. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A)\nhas erred in confirming an addition amounting to INR 32,50,000 under section\n68 of the Act on the ground of accommodation entry in as much as the Assessee\nhas borrowed the money from genuine sources and that the same have been repaid\nand therefore, there is no question of any addition.\n3. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A)\nhas erred in confirming addition amounting to INR 54,12,160 under section 68\nof the Act on the ground that the assessee has not proved the genuineness and\ncredit worthiness of the transaction in as much as borrowing have been made\nfrom genuine source and that the same have been repaid by account payee cheque\nand therefore, there is no question of any addition.\n4. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A)\nhas erred in confirming addition amounting to INR 2,35,332 being payment of\ninterest in as much as the interest is paid on genuine borrowing and the funds\nhave been borrowed for the purpose of earning an interest income and therefore\nthe same is allowable as deduction.\nThe Appellant craves leave to add, alter, amend or withdraw any of the above grounds\nat or before the hearing of the appeal.\nAll the grounds of appeal stated above are without prejudice to each other.\nIn \n1. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A)\nhas erred in confirming the reopening of assessment under section 147 of the Act\nin as much as there is no escapement of income and that the notice issued is bad\nin law and is not in conformity of the provisions of law.\n2. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A)\nhas erred in not adjudicating the ground of appeal raised by Appellant that the\nlearned Assessing Officer (learned 'AO') has erred in making impugned addition\nwithout giving sufficient opportunity to the appellant and thereby violating the\nprinciples of natural justice.\n3. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A)\nhas erred in confirming an addition amounting to INR 35,00,000 under section\n68 of the Act on the ground of accommodation entry in as much as the Assessee\nhas borrowed the money from genuine sources and that the same have been repaid\nand therefore, there is no question of any addition.\n4. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A)\nhas erred in confirming addition amounting to INR 35,54,000 under section 68\nof the Act on the ground that the assessee has not proved the genuineness and\ncredit worthiness of the transaction in as much as borrowing have been made\nfrom genuine source and that the same have been repaid by account payee cheque\nand therefore, there is no question of any addition.\n5. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A)\nhas erred in confirming addition amounting to INR 15,60,810 being payment of\ninterest in as much as the interest is paid on genuine borrowing and the funds\nhave been borrowed for the purpose of earning an interest income and therefore\nthe same is allowable as deduction.\nThe Appellant craves leave to add, alter, amend or withdraw any of the above grounds\nat or before the hearing of the appeal.\nAll the grounds of appeal stated above are without prejudice to each other.\nDuring the course of hearing before us, the Learned Authorized\nRepresentative (AR) submitted that the assessee had furnished\nconfirmations, PAN details, and other relevant documents of the creditors in\nsupport of the unsecured loans before the Assessing Officer during the\nassessment proceedings. However, it was contended that the Assessing\nOfficer failed to appreciate the evidentiary value of such documents and\nproceeded to make the additions under section 68 of the Act without\nconducting any independent inquiry or verification. It was further submitted\nthat the CIT(A) had dismissed the appeal ex parte solely on account of non-\ncompliance, without adjudicating the matter on merits. The AR attributed\nthe non-compliance to the assessee's limited awareness of legal proceedings\nand inability to respond adequately to appellate notices due to his rural\nbackground and lack of legal assistance. The AR placed reliance on the Paper\nBook filed during the hearing to demonstrate that the unsecured loans in\nquestion were subsequently repaid through banking channels in the\nfollowing financial years. Details of such repayments were furnished before\nthe Bench. It was, however, fairly conceded that the evidence regarding\nrepayment was not submitted during the course of assessment proceedings.\nThe AR, therefore, expressed no objection if the matter were to be restored to\nthe file of the Assessing Officer for the limited purpose of verification of\nrepayments.\n6. The Learned Departmental Representative (DR), after perusing the\nrecord, submitted that if the assessee is now in possession of evidence\nsubstantiating repayment of the loans, and is willing to furnish the same, the\nDepartment shall have no objection if the matter is restored to the file of the\nAssessing Officer for limited verification of such repayments in accordance\nwith law.\n7.\nDuring the course of hearing, the learned AR submitted that the\nassessee does not wish to press the ground challenging the validity of the\nreopening of assessment under section 147 of the Act in both the captioned\n assessment years, provided that the matter is restored to the file of the\nAssessing Officer for the limited purpose of verifying the repayments of\nunsecured loans claimed to have been made in subsequent years. It was\nfurther submitted that the assessee is prepared to furnish documentary\nevidence regarding the said repayments before the Assessing Officer. In view\nof the above submission made voluntarily by the AR, and having regard to\nthe limited remand being contemplated, the first ground of appeal in both\n assessment years is dismissed as not pressed.\n7.
1. The controversy in these appeals arises out of additions made by the\nAssessing Officer under section 68 of the Income-tax Act, 1961, in respect of\nunsecured loans received by the assessee during the relevant years, which\nwere treated as unexplained cash credits. The reassessments in both\n assessment years were initiated solely on the basis of third-party information\nemanating from investigation reports concerning one Shri Amit Jayantilal\nShah, alleged to be an accommodation entry operator. The Assessing Officer,\nwhile relying on this information, failed to undertake any independent\nverification or enquiry before forming the belief of escapement of income.\n7.
2. During the course of the reassessment proceedings, the assessee had\nfurnished certain documents including confirmations, PAN details, and bank\nstatements of the creditors. However, the Assessing Officer rejected the same\non generalized suspicion, without issuing summons under section 131 of the\nAct or notices under section 133(6) of the Act to examine the identity,\ncreditworthiness, or the genuineness of the transactions. The additions were\nmade purely based on perceived patterns in fund flow, linking them to\nalleged accommodation entry practices. Furthermore, the CIT(A), disposed\nof the assessee's appeals ex parte without adjudicating the matter on merits\nor providing reasoned findings in terms of section 250(6) of the Act.\n7.
Before us, the assessee has now produced documentary evidence to\nshow that the unsecured loans in question were subsequently repaid through\nregular banking channels. Although this material was not placed before the\nAssessing Officer at the time of reassessment, it has now been brought on\nrecord and its relevance in testing the genuineness of the loan transactions\ncannot be ignored.\n7.
It is pertinent to take note of the legal submissions made by the assessee\nduring the course of the assessment proceedings, as forming part of the paper\nbook. The assessee placed reliance on several judicial precedents, particularly\nof the Hon'ble Gujarat High Court in Rohini Builders v. CIT [(2002) 256 ITR\n360 (Guj)], to contend that the initial onus under section 68 of the Act stood\ndischarged. The assessee submitted that the confirmations, PAN, address,\nand complete identification particulars of the creditors were furnished, and\nthe transactions were carried out through account payee cheques or banking\nchannels. Before us, the assessee has filed evidence of repayment of loans\nthrough banking channels in subsequent years, which was not before the AO.\nIt is a well-established legal position that repayment of loans, although not\nconclusive, is a strong corroborative factor supporting the genuineness of the\ntransaction.\n7.5.\nAccordingly, we deem it just and proper to restore the matter to the file\nof the Assessing Officer for limited verification of (i) repayment of loans\nthrough banking channels and (ii) consequential allowability of interest\nexpenditure claimed thereon. If, upon such verification, the AO finds that the\nloans were indeed repaid through verifiable banking transactions and were\ndisclosed in the books of the creditors, appropriate relief shall be granted, and\nthe interest paid on such borrowings shall be adjudicated in accordance with\nlaw. The assessee shall extend full cooperation in the remand proceedings\nand furnish all necessary documents and explanations as may be required.\n7.
In the result, for the reasons set out hereinabove the orders of the\nCIT(A) dated 01.12.2023 for A.Y. 2015–16 and A.Y. 2016-17 are hereby set\naside. The matters are restored to the file of the Assessing Officer for the\nlimited purpose of verifying the following:\n•\nIn respect of A.Y. 2015–16, the AR placed on record (Paper Book Page\nNo. 60A) during the course of hearing, the details of unsecured loans\naggregating to Rs.32,50,000/-, received from five identified parties, and\ndemonstrated that the said loans were subsequently repaid through\nverifiable banking channels. The Assessing Officer shall verify the\ngenuniness of such repayments and reassess the nature of the\ntransactions in accordance with law.\n•\nIn respect of both A.Y. 2015–16 and A.Y. 2016–17, the Assessing Officer\nshall also verify the repayments of all other unsecured loans claimed\nto have been received and subsequently repaid, the evidence for which\nhas now been placed on record.\n•\nThe consequential disallowance of interest expenditure, amounting to\nRs.2,35,332/- in A.Y. 2015–16 and Rs.15,60,810/- in A.Y. 2016–17, shall\nalso be re-examined. If the loans are found to be genuine and duly\nrepaid, the interest claim shall be decided afresh in accordance with\nlaw and based on the nexus of borrowed funds with income-earning\nactivity.\n7.
The ground challenging the validity of reopening of assessment under\nsection 147 of the Act is dismissed as not pressed, in view of the limited\nremand granted.\n8.\nAll other grounds being consequential and dependent on the above\nverification, are left open for fresh adjudication, as necessary.\n9.\nIn the result, both the appeals of the assessee are allowed for statistical\npurposes.\nOrder pronounced in the Open Court on 25th April, 2025 at Ahmedabad.\nSd/-\n(T.R. SENTHIL KUMAR)\nJUDICIAL MEMBER\nSd/-\n(MAKARAND V. MAHADEOKAR)\nACCOUNTANT MEMBER\nअहमदाबाद/Ahmedabad, दिनांक/Dated 25/04/2025\nटी.सी. नायर, व.नि. स. / T.C. NAIR, Sr. PS\nआदेश की प्रतिलिपि अग्रेषित/