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Facts
The assessee declared an income of Rs.59,290/- for AY 2018-19. During assessment, the AO disallowed loans amounting to Rs.11,20,95,800/- from 17 creditors, deeming them not genuine. The CIT(A) deleted this addition.
Held
The Tribunal held that the assessee had discharged its onus by providing evidence like PAN, ledger accounts, loan confirmations, IT returns, and bank statements for the loans. The AO's disallowance was restricted to Rs.86 Lakhs, which was also deleted by the CIT(A).
Key Issues
Whether the addition of unsecured loans amounting to Rs.86 Lakhs was justified when the assessee provided sufficient evidence and repaid the loans, and whether the 'source of source' justification was mandatory for the assessment year.
Sections Cited
143(3), 144B, 68, 133(6)
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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: Ms. SUCHITRA KAMBLE & SHRI NARENDRA PRASAD SINHA
This appeal is filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)- 11, Ahmedabad (in short ‘the CIT(A)’), dated 26.07.2023 for the Assessment Year 2018-19.
The brief facts of the case are that the assessee had filed its return of income for A.Y. 2018-19 on 28.10.2018 declaring income of Rs.59,290/-. The case was selected for complete [DCIT vs. Cloud 9 Infraspace LLP] A.Y. 2018-19 - 2 – scrutiny under CASS. The assessee was engaged in the business of Real Estate activities and was following Percentage Completion Method of Accounting. In the course of assessment, the AO required the assessee to establish the identity, creditworthiness and genuineness of loan transactions of Rs.35,20,34,524/- taken from 49 parties. The AO was not satisfied about the creditworthiness and genuineness of 17 loans creditors from whom total loan of Rs.11,20,95,800/- was taken. Therefore, the AO disallowed the loan taken from those 17 parties and completed the assessment u/s.143(3) r.w.s. 144B of the Income Tax Act, 1961 (in short ‘the Act’) on 20.09.2021 at total income of Rs.11,21,90,860/-.
Aggrieved with the order of the AO, the assessee had filed an appeal before the Ld. CIT(A), which was decided vide the impugned order and the addition as made by the AO was deleted.
Now, the Revenue is in appeal before us against the order of the Ld. CIT(A). The only ground taken by the Revenue in this appeal is as under:
“1 In the facts and on the circumstances of the case, Ld. CIT(A) erred in directing to delete the addition of Rs. 86,00,000/- on account of unexplained cash credits u/s. 68 holding that it is not mandatory for the appellant to justify the source of the source for the year under consideration and has not appreciated that deriving satisfaction about the nature of unsecured loan and its genuineness has been mandated to the Assessing Officer under section 68 of the Act.”
Shri B. P. Srivastava, Ld. Sr. DR appearing for the Revenue submitted that the Ld. CIT(A) had adjudicated the addition in respect of unsecured loan after obtaining remand report of the AO as well as the rejoinder of the assessee. Out of total loan of [DCIT vs. Cloud 9 Infraspace LLP] A.Y. 2018-19 - 3 – Rs.11,20,95,800/- for which addition was made by the AO, loan to the extent of Rs.8,89,95,800/- was taken from 4 persons in respect of whom the AO had conducted enquiry u/s.133(6) of the Act in the course of remand proceeding. It was found that the source of the loan was duly explained by those four persons. Similarly, loan to the extent of Rs.1.45 Crores taken from 7 persons was also accepted by the AO in the remand proceeding. Therefore, there was no dispute in respect of loan amount of Rs.10,34,95,800/- as deleted by the Ld. CIT(A). In the remand proceeding, the AO had not accepted the creditworthiness of 17 lenders in respect of total loan to the extent of Rs.86 Lakhs and the grievance of the Revenue was confined to that extent only. The Ld. Sr. DR strongly supported the order and remand report of the AO in this respect. He submitted that the creditworthiness and genuineness of transactions to the extent of loan of Rs.86 lakhs was not established and, therefore, the ld. CIT(A) was not correct in deleting the same. The Ld. Sr. DR further submitted that the Ld. CIT(A) had admitted certain additional evidence for allowing the relief, which was not correct.
Per contra, Shri Aseem L Thakkar, the ld. AR appearing for the assessee, supported the order of the ld. CIT(A). He submitted that the identity of the loan creditors in respect of loan of Rs.86 lakhs was duly established. Further, there was no doubt about their creditworthiness as well as the genuineness of the transactions and all supporting documents in this respect were duly furnished. The ld. AR further submitted that the these loans were also returned during the current year or in the next year and, therefore, the genuniness of the transactions were not under doubt. He also [DCIT vs. Cloud 9 Infraspace LLP] A.Y. 2018-19 - 4 – relied upon the judgements of the jurisdictional High Court to buttress his point that where the loans were returned, no addition could have been made in respect of such loans.
We have considered the rival submissions. In the course of assessment, total addition of Rs.11,20,95,800/- was made in respect of unsecured loan. In the remand proceeding, the AO had restricted the disallowance to the extent of Rs.86 Lakhs only taken from 17 persons and the other loans were accepted as genuine. It will be relevant here to reproduce the finding of the Ld. CIT(A) in respect of the loan of Rs.86 Lakhs, for which the Department is in appeal:
“5.5.1 In this regard, it is found that the AO had not accepted the creditworthiness of the following lenders in the remand report, which are as under: - [DCIT vs. Cloud 9 Infraspace LLP] A.Y. 2018-19 - 5 – 5.6 On perusal of the records, it is observed that the appellant has filed documentary evidence in respect of all the lenders. It is also observed that the AO had issued notice u/s. 133(6) to all the lenders in the remand report proceedings and all the lenders have made compliance of the notice by furnishing the details called for. Thus, it can be concluded that the appellant has discharged his onus u/s.68 in respect of unsecured loan by furnishing the details of all the lenders. It is also an undisputed facts that provisions regarding the obligation of the appellant to justify the source of source in case of unsecured loan is applicable from 01.04.2023 Thus, it is not mandatory for the appellant to justify the source of the source for the year under consideration It is also important to note that on perusal of bank statement of the above said 8 lenders, it is seen that there was no cash deposit except two lenders i.e. Nidhi D. Khandelwal (cash deposit of Rs.2,00,000/-) & Priya Jaikishan Khandelwal (cash deposit of Rs.2,00,000/-) was made before the transferring the loan amount. Further, on perusal of return of Income filed for A.Y.2018-19 & A.Y.2019-20 of both the said lenders, it is seen that they had shown returned income more than 3 lacs in both the assessment years. Therefore, prima facie, no adverse view can be taken.”
It is found that the assessee had filed evidences to establish the identity, creditworthiness and the genuineness of the loan transactions. The copy of PAN of the creditors, their ledger account, loan confirmations, income tax returns and copy of banks statements were duly filed by the assessee or were submitted by the loan creditors in response to notice u/s.133(6) of the Act issued by the AO in the remand proceeding. In view of these facts, the Ld. CIT(A) has rightly held that the assessee had discharged its onus to establish the identity, genuineness and creditworthiness of loan transactions. The AO had not given any cogent reason to treat these loans as bogus. Further, the assessee was not required to establish the source of source for these unsecured loans, since the amended provision of the Act in this respect was applicable w.e.f. 01.04.2023 and not from this year. Nevertheless, the Ld. CIT(A) had perused the bank statements and found that there was no cash deposit except cash deposit of Rs.2 Lakhs each in the case of 2 lenders, which was much less than the total amount of loan advanced by them. It was also found [DCIT vs. Cloud 9 Infraspace LLP] A.Y. 2018-19 - 6 – that the loan of Rs.86 Lakhs taken from these persons was also repaid back either in the same year or in the next year. In view of these facts, we do not find anything wrong with the order of the Ld. CIT(A). The Revenue has been unable to controvert the findings as recorded by the Ld. CIT(A). He has rightly relied upon the decision of Jurisdictional High Court in the case of CIT, Rajkot vs. Ayachi Chandrashekhar Narsangji, reported in [2014] 42 taxmann.com 251 (Guj.), wherein it was held that where the loan amount was repaid by the assessee in the immediately next financial year, the addition made by the AO was rightly deleted. Reliance was also placed by the Ld. CIT(A) on the judgement DCIT v. Rohini Builders 127 Taxmann 523 (Gujarat), wherein the Hon’ble High Court had held that where the assessee had proved the captivity of creditors and repayment of loans and interest thereon was also made and TDS on interest was deducted as well, the addition made in respect of such loans was rightly deleted
Considering the factual matrix of the case as discussed above and the judgments of the Jurisdictional High Court on the issue, we do not find anything wrong with the order of the Ld. CIT(A). The deletion of unsecured loan of Rs.86 Lakhs by the Ld. CIT(A) is upheld.
In the result, the appeal of the Revenue is dismissed.
This Order pronounced on 24/01/2025
Sd/- Sd/- (SUCHITRA KAMBLE) (NARENDRA PRASAD SINHA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 24/01/2025 S. K. SINHA True Copy [DCIT vs. Cloud 9 Infraspace LLP] A.Y. 2018-19 - 7 – आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��यथ� / The Respondent. 2. 3. संबं�धत आयकर आयु�त / Concerned CIT आयकर आयु�त(अपील) / The CIT(A)- 4. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER,