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Facts
The assessee, engaged in real estate development, filed its return for AY 2012-13. The AO made additions including Rs.17,00,000/- for unexplained cash credits under Section 68 of the Act. The CIT(A) confirmed these additions.
Held
The Tribunal held that the loan of Rs.7,00,000/- from Shri Narayan P. Ahuja was satisfactorily established in terms of identity, creditworthiness, and genuineness, and thus the addition related to it was deleted. However, for the loan of Rs.10,00,000/- from Supreme Gold, the Tribunal found a lack of complete documentation and remanded the matter back to the AO for fresh examination.
Key Issues
Whether the additions for unexplained cash credits under Section 68 of the Act are justified when the identity, creditworthiness, and genuineness of the lenders are established or require further verification. Whether disallowances under Section 40(a)(ia) are warranted.
Sections Cited
68, 40(a)(ia), 2(24)(x), 36(1)(va), 143(3)
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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: MS. SUCHITRA KAMBLE & SHRI MAKARAND V. MAHADEOKAR
O R D E R
PER MAKARAND V. MAHADEOKAR, AM:
This appeal has been preferred by the assessee against the order of the Commissioner of Income Tax (Appeals)-11, Ahmedabad [hereinafter referred to as “CIT(A)”], dated 30.03.2022, for the Assessment Year (AY) 2012-13, whereby the CIT(A) has confirmed the additions made by the Assessing Officer [hereinafter referred to as “AO”] under Section 68 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”]. Aaryavart Infrastructure Pvt.Ltd. vs. DCIT Asst. Year : 2012-13 2 Facts of the Case:
2. The assessee is a Private Limited Company engaged in the business of real estate development. The return of income for the AY 2012-13 was filed on 30-09-2012 declaring a total income of Rs.55,04,490/-. The assessment was completed under Section 143(3) of the Act, vide order dated 09.03.2015, determining the total income at Rs.73,57,487/-. The AO made the following additions/disallowances: i. Disallowance of Rs.1,06,269/- under Section 40(a)(ia) of the Act, on account of non-deduction of TDS on financial charges paid to a Non-Banking Financial Company (NBFC). ii. Addition of Rs.46,728/- under section 2(24)(x) r.w.s. 36(1)(va) of the Act. iii. Addition of Rs.17,00,000/- under Section 68 of the Act, treating unsecured loans received from two parties as unexplained cash credits.
The assessee filed an appeal before the CIT(A) against the said additions. The CIT(A), after considering the submissions of the assessee and remand reports of the AO, confirmed the additions made by the AO. Regarding the issue under appeal, the addition of Rs.17,00,000/- under Section 68 of the Act, the CIT(A) held that – - The assessee failed to satisfactorily establish the identity and creditworthiness of the lenders and the genuineness of the transactions. - The explanation provided by the assessee was inconsistent, as the identity of one of the lenders, Neelam Ahuja, was later changed to Narayan P. Ahuja, creating doubts about the authenticity of the loan. Aaryavart Infrastructure Pvt.Ltd. vs. DCIT Asst. Year : 2012-13 3 - The bank statement of Narayan P. Ahuja showed a cash deposit of Rs.10,00,000/- before issuing the loan to the assessee, suggesting accommodation entry. - The confirmation letter from Supreme Gold, another lender, was unsigned, and no sufficient evidence regarding the lender’s creditworthiness was furnished.
Aggrieved by the order of the CIT(A), the assessee raised following grounds of appeal before us:
1. The learned CIT(A) has erred in law and on facts in confirming the addition of Rs.17,00,000/- made by AO on account of unexplained cash credit in respect of two parties without proper consideration and appreciation of the facts of the case and submissions filed. In view of the facts of the case and elaborate submissions filed coupled with supporting documentary evidences and legal position, no addition is warranted and the Id. CIT(A) ought to have deleted the same. The impugned addition of Rs.17,00,000/- thus requires to be deleted.
The learned CIT(A) has erred in law and on facts in confirming the disallowance u/s. 40(a)(ia) of the Act of Rs.1,06,269/- made by AO in respect of financial charges paid to NBFC without proper consideration and appreciation of the facts of the case and submissions filed. In view of the facts of the case and elaborate submissions filed, the impugned disallowance Rs.1,06,269/- is required to be deleted.
During the course of hearing before us, the Authorized Representative (AR) of the assessee explained that the facts and submitted that the assessee, in response to the CIT(A)’s notice dated 24-03-2022, had furnished a detailed reply along with supporting documents. However, certain supporting documents related to Supreme Gold could not be uploaded, and the AR requested that they be admitted as additional evidence. The AR contended that the addition of Rs.17,00,000/- made by the AO under section 68 of the Act in respect of loans received from Shri Narayan P. Ahuja (Rs.7,00,000/-) and Supreme Gold (Rs.10,00,000/-) was unjustified and ought to be deleted. Aaryavart Infrastructure Pvt.Ltd. vs. DCIT Asst. Year : 2012-13 4 Regarding the addition of Rs.7,00,000/- relating to the loan from Shri Narayan P. Ahuja, the AR further contended that the conclusion drawn by the CIT(A) that there was a cash deposit of Rs.10,00,000/- in the lender’s bank account before the issuance of the cheque is not factually correct. The AR explained that the loan advanced to the assessee was not out of the said cash deposit, as evident from the bank statement of Shri Narayan P. Ahuja. The AR explained that the loan of Rs.7,00,000/- was received in two parts, with Rs.6,00,000/- being transferred on 24-08-2011 via cheque no.430188, and Rs.1,00,000/- being transferred on 25-08-2011 via cheque no. 430187. The AR further explained that post debit of these cheques, there are credits of same or more amounts in the same bank account amounting to Rs.6,00,000/- and Rs.44,000/- and Rs.47,000/-. Addressing the earlier inconsistencies regarding the lender’s name, the AR clarified that the loan was initially recorded in the books of the assessee as received from Neelam Ahuja, but upon later verification, it was established that the actual lender was Shri Narayan P. Ahuja. Consequently, a rectification entry was passed in FY 2012- 13 to correctly reflect the transaction under the correct lender’s name, which was also supported by the relevant ledger accounts. The AR also submitted that this loan has been repaid in the subsequent financial years. The AR pointed out that the ledger account of subsequent years to support the repayment of loan which were submitted to AO and CIT(A).
The Departmental Representative (DR) strongly opposed the admission of additional evidence, contending that the assessee had been provided sufficient opportunity to explain its case during the assessment proceedings, appellate proceedings before the CIT(A), as well as in the remand proceedings. The DR further emphasized that the assessee had Aaryavart Infrastructure Pvt.Ltd. vs. DCIT Asst. Year : 2012-13 5 failed to clearly establish the identity of the actual lender, as there were inconsistencies regarding whether the loan was received from Neelam Ahuja (daughter) or Shri Narayan P. Ahuja (father). With respect to the assessee’s explanation for not submitting detailed documentation related to the loan from Supreme Gold, the DR argued that the assessee’s reasoning—citing the financial difficulties faced by the party—itself raises serious doubts about the creditworthiness of the lender. The DR maintained that this lack of clarity and supporting evidence reinforced the findings of the lower authorities and justified the disallowance.
After considering the rival contentions and the material placed on record, we find merit in the assessee’s submission regarding the loan of Rs.7,00,000/- received from Shri Narayan P. Ahuja. The assessee has satisfactorily established the identity and creditworthiness of the lender, who was a retired senior officer (DGM/AGM) of State Bank of India (SBI). The bank account analysis further supports the contention that the loan was not sourced from any recent cash deposits but was disbursed through an overdraft facility, as evidenced by the account description “OD IVP/KVP (STAFF)”. Additionally, the assessee has rectified the initial misreporting of the lender’s name and has submitted sufficient corroborative evidence to establish the genuineness of the transaction.
7.1. We also take cognizance of various judicial precedents, including those of the jurisdictional Gujarat High Court, which establish that when a loan has been subsequently repaid through proper banking channels, the addition under Section 68 of the Act cannot be sustained. These decisions emphasize that once the identity and creditworthiness of the lender are established and Aaryavart Infrastructure Pvt.Ltd. vs. DCIT Asst. Year : 2012-13 6 the loan is repaid, the transaction attains genuineness, thereby negating the scope for addition under Section 68 of the Act. Accordingly, the addition of Rs.7,00,000/- under Section 68 of the Act is deleted.
7.2 However, with respect to the loan of Rs. 10,00,000/- received from Supreme Gold, we find that the assessee failed to furnish complete documentation before the AO. The AR contended that certain additional evidence, which was intended to be submitted before the CIT(A), could not be uploaded and has now been furnished before us as additional evidence. However, we observe that the CIT(A), in para 9.8(iii) of the order, has recorded the following observations:
"Regarding the alleged loan received from Supreme Gold amounting to Rs. 10,00,000/-, the AO in the assessment proceedings as well as remand report had held that the appellant had not discharged its onus regarding identity, genuineness, and creditworthiness of the lender by furnishing complete/necessary evidence. The AO had also pointed out that the appellant had furnished an unsigned copy of letter/copy of account purportedly issued by Supreme Gold along with its bank statement. Further, on perusal of the bank statement, it is seen that there is the same amount of cash deposit on the same date in that account. In fact, the entire bank statement of the said lender shows cash deposits of the same amounts just before the remittances. Further, the appellant has not furnished any satisfactory/plausible reason for the same. It is further noticed that the appellant has also failed to furnish the copy of ITR of the above said lender." 7.3 In our opinion, this conclusion of the CIT(A) is factually incorrect, as the bank statement of Supreme Gold was never submitted at all. Even the additional evidence submitted before us does not include the bank statement of the said lender. The DR also could not satisfactorily explain how the CIT(A), based on the remand report, arrived at the conclusion that the bank statement of Supreme Gold was on record and that there were cash deposits Aaryavart Infrastructure Pvt.Ltd. vs. DCIT Asst. Year : 2012-13 7 of identical amounts just before the remittances. It is evident from the records that the bank statement of Supreme Gold was never submitted at any stage of the proceedings. Despite this, the CIT(A) proceeded to make adverse inferences regarding the genuineness of the transaction based on purported cash deposits without verifying whether such details were actually available before the AO. Given this inconsistency, and the fact that crucial evidence remains unverified, we find it appropriate to remand the matter back to the AO for a fresh examination of the lender’s identity, creditworthiness, and genuineness after considering all relevant documents, including the bank statement of Supreme Gold. The AO shall decide the issue afresh after affording the assessee an adequate opportunity to present its case.
7.4. In light of the above, the appeal is partly allowed, with the addition of Rs.7,00,000/- deleted, and the issue of Rs.10,00,000/- remanded to the AO for fresh adjudication.
In the result, the appeal of the assessee is partly allowed for statistical purposes.