Loading judgment…
Facts
The assessee appealed against the NFAC's order confirming the addition of Rs. 34,50,000 as unexplained cash credit for loans from Shweta Jain and Vijay Kumar Jain HUF, and disallowance of interest on these loans. The AO treated the loans as bogus, alleging the lenders lacked creditworthiness and funds were routed within family members to evade taxes.
Held
The Tribunal held that the creditworthiness of both Shweta Jain and Vijay Kumar Jain HUF was established through various documents, including their account statements, bank statements, and prior acceptance of similar loans by the AO. The claim that funds were merely rotated within the family was based on surmises without material evidence.
Key Issues
Whether the loans from Shweta Jain and Vijay Kumar Jain HUF were genuine and whether the disallowance of interest on these loans was justified. Additionally, whether the disallowance of salary under Section 43B was correctly applied.
Sections Cited
68, 43B, 36(1)(ii), 139(1), 250, 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JAIPUR BENCH “B”, JAIPUR
Before: Dr. S. SEETHALAKSHMI & SHRI GAGAN GOYAL
This appeal by the assessee is directed against the order of the NFAC, Delhi dated 29.04.2025 passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’). The assessee has raised the following grounds of appeal:
the Ld. CIT (A), NFAC has erred on facts and in law in confirming the addition of Rs. 34, 50,000/- u/s. 68 of the Act by treating the loan received from Smt. Shweta Jain (Rs.7 lacs) and M/s. Vijay Kumar Jain HUF (Rs.27.50 lacs) as unexplained cash credit.
the Ld. CIT (A), NFAC has erred on facts and in law in confirming the disallowance of Rs. 1, 25,000/-, being interest on unsecured loan paid to Smt. Shweta Jain (Rs.70, 000/-) and M/s. Vijay Kumar Jain HUF (Rs.55, 000/-).
The Ld. CIT (A), NFAC has erred on facts and in law in confirming the disallowance of Rs. 1, 70,000/- u/s. 43B of the Act on account of salary paid to Sh. Mukul Sogani after due date of filing of return ignoring that section 43B(c) r.w.s. 36(1) (ii) of the Act is applicable only on bonus or commission paid to the employees. 4. the appellant craves to alter, amend and modify any ground of appeal
5. Necessary cost be awarded to the assessee.
2. Ground no.1 and ground no. 2 relate to one issue of addition u/s. 68 of the Act by treating the loan received from two persons as unexplained and disallowing the interest paid on such loan. Hence both these grounds are decided together.
3. The brief facts of this ground are that the AO required the assessee to explain the genuineness and creditworthiness of the unsecured loan taken during the year under consideration. After considering the reply of the assessee, AO observed that in the bank statement of Smt. Shweta Jain and Vijay Kumar Jain HUF there is no other significant transaction except with the assessee firm. These persons have only income from dividend and interest from loan given and bank interest. Shweta Jain has not filed return for earlier years except for A.Y. 2018-19 and Vijay Kumar HUF has not filed return for A.Y. 2015-16 & 2016-17. These persons are not having enough capital to give loan to any other persons and therefore their creditworthiness is not satisfied. All the partners of the assessee firm are their family members. All the related transaction are the money of the firm and are routed through banking channel within the family members to eye wash the department. Accordingly AO treated the unsecured loan of Rs.7, 00,000/- received from Shweta Jain and Rs. 27, 50,000/- received from Vijay Kumar Jain HUF during the year as bogus cash credit u/s. 68 of the Act and made addition for the same. He further disallowed interest of Rs. 70,000/- paid to Smt. Shweta Jain and interest of Rs. 55,000/- paid to Vijay Kumar Jain HUF on such unsecured loan.
The Ld. CIT(A), NFAC dismissed the appeal of the assessee by observing in para 5.3 of the order that Shweta Jain is D/o. Arun Jain, partner of the firm, who has made deposit with the firm prior to 2006-07. Assessee submitted copy of her account in the books of the form along with the bank statement but it is seen that she was filing the return of income earlier but failed to file the return of income for the year under consideration. The assessee has not submitted the loan (bank) account statement received from the bank which confirmed that the assessee had taken unsecured loan from Shweta Jain. Further from the bank account statement it can be noted that there was no other significant transactions. The transactions carried out are of the firm and are routed through banking channel within the family members. In case of Vijay Kumar Jain HUF, all the partners of the assessee firm are family members and the funds are routed through their accounts to mislead the department. Merely stating that the assessee had received the unsecured loans from Shri Vijay Kumar is not satisfactory as the same has to be clarified with proper documentary evidences in support of the same. Accordingly he confirmed the addition of Rs. 34.50 lacs made by AO u/s. 68 of the Act by treating the loan received from Smt. Shweta Jain and M/s Vijay Kumar Jain HUF as unexplained cash credit. The Ld. CIT (A), NFAC also confirmed the disallowance of interest of Rs. 70,000/- paid to Smt. Shweta Jain and interest of Rs. 55,000/- paid to Vijay Kumar Jain HUF on such unsecured loan.
We have heard the rival submission and also perused the material available on the record in the case laws referred by the AR. Each of the loan creditors is discussed hearing after.
We find that Shweta Jain is daughter of Arun Jain, one of the partners of the firm. She had deposit with the firm even prior to F.Y. 2006-07. Copy of her account in the books of firm from F.Y. 2006-07 to 2017-18 along with her bank statement was provided to the AO (PB 30-55). She had earlier filed her return of income for A.Y. 2010-2011 and 2011-12 (PB 21-25). Thereafter she had not filed her return as her income was below the maximum amount chargeable to tax. However for A.Y. 2018-19 she filed the return on 25.03.2019 declaring gross total income of Rs. 5, 01,407/- (PB 26-29). As on 31.03.2006 she had deposit of Rs. 8, 93,222/- with the assessee firm which as on 31.03.2017 stood at Rs. 21, 94,621/- (PB 30-44). During the year under consideration the assessee has repaid Rs. 14,60,000/- to her on various dates and received Rs.7,00,000/- from her on two different dates as is evident from copy of her account for F.Y. 2017-18 (PB 45) and also reproduced at Pg 2-3 of the assessment order. The amount received is out of the payment made to her. All these amounts are duly verifiable from her bank statement (PB 51-55). She had income not only from bank interest and interest from unsecured loan given to the assessee but also have income from salary, income from business & profession and income from capital gain as is evident from her return of income (PB 26-29). As per the Balance Sheet for the year ended 31.03.2018 (PB 56-57) provided to the AO vide letter DT. 10.12.2019, against her capital of Rs. 23, 25,895/-, advance given to M/s. Ram Sukh Chunni lal is Rs. 16, 21,052/-. In A.Y. 2016-17 and 2013-14, the AO has accepted the loan received by the assessee from Shweta Jain in the assessment framed u/s. 143(3) of the Act dt. 27.08.2018 (PB 58-64) & 28.10.2015 (PB 65-71) after examining the confirmation and the bank statement filed by her. In course of assessment proceedings assessee has also filed affidavit of Shweta Jain (PB 72-74) which is not controverted by the AO. Tax has also been deducted at source on the interest credited to her account. The lower authorities without considering all these facts has observed that all the transactions with her are the money of the firm routed through banking channels to eye wash the department which is only on surmises and conjectures without bringing any material on record. From all these evidences creditworthiness of Shweta Jain is fully established and therefore the addition of Rs. 7, 00,000/- and consequent disallowance of interest of Rs. 70,000/- confirmed by Ld. CIT (A) is deleted.
In case of Vijay Kumar Jain HUF we note that it is the HUF of Vijay Kumar Jain who is son of Arun Kumar Jain, one of the partners of the firm. It has made deposit with the firm from F.Y. 2014-15. Copy of its account in the books of firm from F.Y. 2014-15 to 2017-18 was provided to the AO (PB 87-90). It is regularly assessed to tax from A.Y. 2017-18 (PB 75-79). For earlier years returns were not filed as its income was below the maximum amount chargeable to tax. For A.Y. 2018-19 returns was filed on 11.07.2018 declaring gross total income of Rs. 4, 81,708/- (PB 80-83). As on 31.03.2015 it had deposit of Rs. 4,36,800/- with the assessee firm which as on 31.03.2017 stood at Rs.10,94,381/- (PB 87-89) and as on 31.03.2018 stood at Rs. 9,89,174/- (PB 90). During the year under consideration there is rotation of funds in its account in as much as amount debited to its account is Rs. 29,41,588/- and amount credited is Rs. 28,36,381/- (Rs. 39,30,762/- minus Rs. 10,94,381/-) on various dates (PB 90). The amount credited in the account is out of the amount paid to it as is evident from the bank statement (PB 91-95). It had income not only from bank interest and interest from unsecured loan given to the assessee but also have income from business & profession and income from capital gain as is evident from its return of income (PB 81). As per the Balance Sheet for the year ended 31.03.2018 (PB 84-85) provided to the AO vide letter dt. 10.12.2019, against its capital of Rs. 12, 02,626/-, advance given to M/s. Ram Sukh Chunni lal is Rs. 9, 89,174/-. In A.Y. 2016-17 the AO has accepted the loan received by the assessee from the HUF in the assessment framed u/s. 143(3) of the Act dt. 27.08.2018 after examining the confirmation and bank statement filed by it (PB 58-64). In course of assessment proceedings assessee has also filed affidavit of Sh. Vijay Kumar Jain, Karta of HUF (PB 96-98) which is not controverted by the AO. Tax has also been deducted at source on the interest credited to its account. The lower authorities without considering all these facts has observed that all the transactions with it are the money of the firm routed through banking channels to eye wash the department which is only on surmises and conjectures without bringing any material on record. From all these evidences creditworthiness of Vijay Kumar Jain HUF is fully established and therefore the addition of Rs. 27, 50,000/- and consequent disallowance of interest of Rs. 55,000/- confirmed by Ld. CIT (A) is deleted. Thus ground no. 1 & 2 of the assessee are allowed.
In respect of ground no. 3 we note that the AO observed that assessee has paid salary of Rs. 1.70 lacs to Mukul Sogani on 27.02.2019 which is after the due date of filing of return. This violates section 43B of the Act. Accordingly he disallowed the claim of salary of Rs.1.70 lacs u/s 43B of the IT Act. The Ld. CIT (A), NFAC confirmed the disallowance made by the AO.
We find that addition made by AO and confirmed by Ld. CIT (A) invoking section 43B of the Act is factually incorrect. This is for the reason that as per section 43B(c) of the Act, any sum referred to in clause 36(1) (ii) of the Act, i.e. bonus or commission paid to the employees is allowable in the year in which it is actually paid if the same is not paid before the due date of filing the return u/s. 139(1) of the Act. Thus this section is applicable only on bonus or commission paid to the employees. Salary is not covered under this section. Hence disallowance of salary of Rs.1.70 lacs paid to Mukul Sogani on 27.02.2019 u/s. 43B is not as per law. Hence the same is deleted by allowing the ground of the assessee.
In the result, the appeal of the assessee is allowed with above directions.
The Order is pronounced in the open court on 15th Day of SEPTEMBER 2025.