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Facts
The assessee, Kartha of HUF, failed to file an income return for AY 2017-18. A reassessment was initiated due to unexplained credit of Rs. 1,20,38,849. The assessee declared Nil income but a loan of Rs. 1,12,13,500 was treated as unexplained, as details for 8 out of 11 creditors could not be furnished.
Held
The Tribunal noted that during the remand proceedings, the AO accepted the genuineness, identity, and creditworthiness of the loan creditors after verifying documents and replies to notices. The AO himself concluded that the loan transactions were proved.
Key Issues
Whether the addition of unsecured loans as unexplained money is sustainable when the Assessing Officer, during remand proceedings, accepted the genuineness, identity, and creditworthiness of the lenders.
Sections Cited
144, 147, 139(1), 69A, 133(6), 68
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Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH
(Assessment Year: 2017-18) Income Tax Officer V/S Arvindbhai R Nanavati Ward-3(3)(1), Ahmedabad HUF 398, Shangrila Village, Opp. Saumya Villa, Ghuma Road, Ahmedabad, Gujarat 380058 PAN NO. : AARHA3476K (Appellant) (Respondent) Assessee by : Shri A. K. Khandelwal, AR Revenue by : Shri B. P. Srivastav, Sr.DR (आदेश)/ORDER Date of hearing : 04-02-2025 Date of Pronouncement : 11-04-2025 PER T.R. SENTHIL KUMAR, JUDICIAL MEMBER: This appeal is filed by the Revenue as against the appellate order dated 30.07.2024 passed by Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (in short ‘CIT(A)’) arising out of the exparte re-assessment order passed under Section 144 r.w.s. 147 of the Income Tax Act, 1961, (hereinafter referred to as ‘the Act’) relating to Assessment Year 2017-18.
Brief facts of the case is the assessee is Kartha of HUF has not filed the return of income u/s.139(1) of the Act for the A.Y. 2017-18. The assessee was found to have made unexplained credit of (ITO vs. Arvindbhai R Nanavati HUF) A.Y. 2017-18 Rs.1,20,38,849/- in its bank account. Hence, the case was reopened by issuing notice u/s. 148 to the assessee. In response, the assessee filed a return of income declaring Nil income. Since, there was unsecured loan of Rs.1,12,13,500/- in the bank account maintaining with Bank of Baroda, the assessee was requested to show the genuineness of the transaction, identity and creditworthiness of the lenders. The assessee could file the details of 3 creditors only and could not furnish details for the remaining 8 creditors. Therefore, the AO made entire addition of Rs.1,12,13,500/- as unexplained loan u/s.69A of the Act.
Aggrieved against the reassessment order, the assessee filed an appeal before the Ld. CIT(A). During the appellate proceeding, the assessee filed additional evidences in respect of additions made by the AO. Therefore, the Ld. CIT(A) called for a remand report from the AO to verify the additional documents filed by the assessee. The Ld. AO issued notice u/s.133(6) of the Act to all the 11 creditors. Based on the replies, documents and Affidavits filed by them, the Ld. AO accepted the genuineness of the loan transaction, identity and creditworthiness of the creditors and requested the Ld. CIT(A) to decide the additions on merits of the case. The Ld. CIT(A) called for a rejoinder from the AO and thereby deleted the addition made by the AO by observing as follows:
5.7 Grounds of Appeal No. 2 & 3 are interconnected and hence they are adjudicated jointly. Both these grounds of appeal deal with factual aspects of the case, during the year under consideration the appellant received unsecured loan of Rs 1,12,13,500/- from 11 persons through banking channels which was considered as unexplained by A.O. and additions was made in assessment order. This fact was re- examined by A.O. in remand report and vide remand report dated 11.07.2024 the A.O. has submitted that the parties were examined through notices u/s 133(6) the (ITO vs. Arvindbhai R Nanavati HUF) A.Y. 2017-18 remand report is reproduced vide para no 5.3 of this order. On perusal of remand report and the rejoinder of appellant dated 23.07.2024 it is noted that all the 11 parties have duly submitted their replies and confirmed the loan transactions. Identity is proved in the case of all parties because the notices issued u/s 133(6) were duly served and the parties responded to the notices by submitting necessary documentary evidences. On perusal of assessment order and remand report the A.O. has clearly established the identity and genuineness of transactions. As far as credit worthiness of lending parties is concerned it is noted that all the loans were given by account payee cheques and 9 of the parties are assessed to tax. The two remaining parties have submitted the declaration in form of affidavit that was examined by A.O and no adverse comment has been submitted. Thus based on the above perusal of facts as analyzed by A.O. and submitted by appellant the above grounds of appeal are allowed. Hence ground no. 2 & 3 is allowed.
4. Aggrieved against the appellate order, the Revenue is in appeal before us raising the following Grounds of appeal:
(a) The Ld.CIT (A) has erred in law and on facts in deleting the addition of Rs. 1,12,13,500/- made by the AO on account of unsecured loan received from various lenders treating it as unexplained money u/s 69A of the IT Act. (b) The Ld. CIT(A) has erred in law and on facts in not appreciating the facts that the assessee has failed to discharge the onus cast on him to establish the creditworthiness of the lenders. (c) The Ld. CIT(A) has erred in law and on facts in not appreciating the facts that the lender Shri Kamlesh Mehta extended a loan of Rs. 25,00,000/-to the assessee, however he has filed a meagre income of Rs. 2,52,030/-only for the relevant AY. Source of funds were also not properly explained as only partial bank statement was provided & no books of a/c was provided. (d) The Ld. CIT(A) has erred in law and on facts in not appreciating the facts that the lender Shri Prakash Brother advanced a loan of 5,00,000/- to the assessee. However, no ITR was submitted to prove the creditworthiness of lender. (e) The Ld. CIT(A) has erred in law and on facts in not appreciating the facts that the lender M/s. Shreenathji Textile advanced a loan of Rs. 12,00,000/- to the assessee. However, no ITR was submitted to prove the creditworthiness of lender. (f) The Ld. CIT(A) has erred in law and on facts in not appreciating the facts that the lender M/s. HD organization which is Prop. Concern of Kamlesh Mehta HUF has income of Rs. 3,76,970/- only while giving sum of Rs. 15,00,000/- as (ITO vs. Arvindbhai R Nanavati HUF) A.Y. 2017-18 loan to assessee. Source of funds were also not properly explained as only partial bank statement was provided & no books of a/c was provided. (g) The Ld. CIT(A) has erred in law and on facts in not appreciating the facts that the lender Dishan Agro has given loan of Rs. 7,50,000/-, while reporting meager income of mere Rs. 1,55,790/- Source of funds were also not properly explained as only partial bank statement was provided & no books of a/c was provided (h) The Ld. CIT(A) has erred in law and on facts in not appreciating the facts that the lender M/s. Mahi Enterprise has given loan of Rs. 20,00,000/-against income of Rs. 7,43,940/ declared in relevant AY. Source of funds were also not properly explained as only partial bank statement was provided & no books of a/c was provided. (6) The Ld. CIT(A) has erred in law and on facts in not appreciating the facts that the lender Pratikkumar Jayantilal Patel filed ITR of Rs.2,96,870/-only for the relevant assessment year while advancing loan of Rs. 10,00,000/-. Source of funds were also not properly explained as only partial bank statement was provided & no books of a/c was provided.
We have heard the rival submissions and perused the materials available on record. It is an undisputed fact that during appellate proceedings the additional documents filed by the assessee were sent to the AO calling for a remand report, thereby the AO issued notice u/s.133(6) of the Act to the loan creditors and given his conclusion as follows: “3.3 On the basis of enquiry conducted by the undersigned inter alia documentary evidences fled by the concerned parties/assessee, the following inference can be drawn in his case on the basis of the replies received in response to the notices issued us. 133(6) of the Act, in my considered view, the following conclusion can De drawn in this case: a) This is a fact that none of the unsecured loan parties has denied having the impugned loan transaction with the assessee. All the parties have confirmed the loan transactions vide their Confirmation of Ledger Account and there is no factual discrepancy in the claim of the assessee vis-à-vis confirmation filed by the lenders. So, it can be said that genuineness of the loan transaction stand proved. (b) Identity is proved in all the unsecured loan parties because not only notices issued u/s 133(6) of the Act has been duly served but they have duly responded to the notice (ITO vs. Arvindbhai R Nanavati HUF) A.Y. 2017-18 by submitting the necessary documentary evidences. These parties have also filed copies of PAN/Affidavit to prove their existence. Hence, it can be said that "identity" aspect is satisfactorily proved by the assessee. (c) It is a matter of fact that during the original assessment proceedings, the assessee has submitted the balance confirmation, Income Tax Return copies and respective Bank Statements in the case of three parties namely M/s Royal Traders prop Kamlesh Mehta (Rs. 20,00,000); M/s H.D. Corporation prop Kamlesh Mehta HUF (Rs. 15,00,000); Shri Kamlesh Mehta (Indl.) (Rs. 5,00,000). At the time of assessment proceedings, the then AO did not raise any dispute with regard to identity and genuineness of transaction but did not find creditworthiness upto mark. (d) This is evident from the details available on record that all the loan transactions were taken place through banking channel which is evident from the copies of relevant Cheques (through which loan was given), Bank Statement of the concerned party and Bank Statement of the Assessee's Bank Account (where bank account of the third party is not provided). (e) This is also a fact that none of the parties /No person has clarified/explained the purpose of the loan transaction. (f) As far as creditworthiness of the lenders is concerned, except Prakash Brothers (prop. Prakash B Prajapati) and Shreenathji Textile (Prop. Nirmal K Patel), all other unsecured lenders are assessed to tax. There is no adverse evidence available to reject the claim of the assessee in respect of credit worthiness of all the loan parties except Prakash Brothers and Shreenathji Textile. As far as loan from Prakash Brothers and Shreenathji Textile is concerned, to proved the Identity of the creditors and genuiness of the loan, they have stated that the loan was given by the account payee cheque. However, the final decision in this matter may be taken by your goodself. (g) As pointed out by the assessee, it is a fact that the then AO, while making addition in the concluding para of the assessment order had invoked section 69A of the Income Tax Act but while computing the assessed income, he has mentioned the section for addition as Addition u/s 68'. This seems to be an inadvertent, typographical and bonafide mistake without having any serious ramification. The Impugned addition may be considered u/s.69A of the Act. This fact is substantiated by the concluding words of the AO in the para no.12 of the Assessment Order in which it is mentioned as 'Accordingly the amount of Rs. 1,12,13,500/- is added to the income of the assessee as unexplained money u/s.69A of the Act. However, at any later stage / appellate proceedings, if the assessee produces any books of accounts and claimed that the amount was credited in its books as unsecured loans, this addition will be treated as unexplained cash credit u/s 68 of the IT Act as the assessee has failed to explain the unsecured loans." Hence, the mistake is only a typographical mistake and hence, the same may kindly be ignored.
(ITO vs. Arvindbhai R Nanavati HUF) A.Y. 2017-18 4. In view of the above data and evidences collected during the Remand Report proceedings, the issue of addition in respect of Unsecured Loans may be decided accordingly on merits. Submitted for kind consideration.” 5.1 The Revenue, apart from raising the grounds of appeal, could not point out any defect in the remand report or enquiry conducted by the AO to sustain the additions made in the assessment order. When the Ld. AO accepted the identity, creditworthiness and genuineness of the loan creditors in his Remand Report, after issuing notices u/s.133(6) of the Act and replies from the parties, there cannot be any addition u/s.68 of the Act. Thus, we do not find any merit in the grounds raised by the Revenue.
In the result, appeal filed by the Revenue is dismissed.
Order pronounced in Open Court on 11- 04-2025 Sd/- Sd/- (Dr. BRR KUMAR) (T.R. SENTHIL KUMAR) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad: Dated 11-04-2025 True Copy S. K. SINHA आदेश क� �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु�(अपील) / The CIT(A)- 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,