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Facts
The assessee, a civil works contractor, was subjected to scrutiny for A.Y. 2018-19 due to a large increase in unsecured loans and low net profit. The AO made an addition of Rs. 2,67,27,507/- under Section 68 for unsecured loans and Rs. 11,39,000/- for unexplained cash credits, as the assessee failed to establish the identity, creditworthiness, and genuineness of the lenders/credits. The CIT(A) largely confirmed these additions.
Held
The Tribunal deleted the addition related to M/s. Balaji Infra and M/s. Sri Sai Balaji (except for minor unreconciled balances) and K. Ashok, finding that the loans were through banking channels and, for K. Ashok, only repayments were made. However, additions for other parties (G. Mohan Rao, G. Rinivasa Rao, Jasti Madava Rao Guntur, P. Chalapathi, Rafuddin) were confirmed as the assessee failed to prove their creditworthiness and genuineness.
Key Issues
The primary issue was the addition of unsecured loans and cash credits under Section 68 of the Income Tax Act due to the assessee's alleged failure to prove the identity, creditworthiness, and genuineness of the loan creditors/credits.
Sections Cited
143(3), 143(2), 142(1), 68, 234B, 234C
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Income Tax Appellate Tribunal, VISAKHAPATNAM “DIVISION” BENCH, VISAKHAPATNAM
Before: SHRI VIJAY PAL RAO, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
आदेश /O R D E R
PER SHRI S BALAKRISHNAN, ACCOUNTANT MEMBER:
This appeal is directed against the order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter in short “Ld.CIT(A)”] vide DIN & Order No.
I.T.A.No.365/VIZ/2024 Jasti Venkatapathi Rao ITBA/NFAC/S/250/2024-25/1066389048(1) dated 04.07.2024 arising out of order passed under section 143(3) of the Income Tax Act, 1961 (in short ‘Act’) dated 09.04.2021.
The facts of the case are, the assessee being an individual who is engaged in the business of execution of civil works contracts, filed his return of income for the A.Y. 2018-19 admitting a total income of Rs. 1,14,47,890/-. The case was selected for scrutiny through CASS to verify (i) Large increase in unsecured loans during the year (ii) low net profit shown by construction contractor and claim of large refunds. Statutory notices under section 143(2) and 142(1) of the Act were issued and served on the assessee. In response to the notices assessee submitted the details online. On perusal of the balance sheet, Ld. Assessing Officer [hereinafter in short “Ld. AO"] observed that the assessee has claimed unsecured loans at Rs.2,10,11,665/- as on 31.03.2018 as against Rs.1,52,19,157/- for the A.Y. 2017-18. During the course of assessment proceedings, assessee was asked to furnish the details of unsecured loans for which assessee submitted copies of loan confirmations and ledger account of loan creditors. On a perusal of the ledger account copy of the loan creditors, Ld. AO observed that the assessee has received following new loans during the impugned assessment year: -
Page. No 2
I.T.A.No.365/VIZ/2024 Jasti Venkatapathi Rao New Loan S.No. Particulars Amount (Rs.) 1. M/s. Balaji Infra 1,02,29,000 2. G. Mohan Rao 9,98,359 3. G. Rinivasa Rao 4,50,000 4. Jasti Madava Rao Guntur 13,73,000 5. K. Ashok 1,15,000 6. P. Chalapathi 9,98,359 7. Rafuddin 13,23,789 8. M/s. Sri Sai Balaji 1,12,40,000 Grand total 2,67,27,507
Since assessee has not filed the copies of bank statements, ITR and financial statements of these loan creditors to establish the identity and genuineness of these loan transactions, letter was issued to the assessee on 09.03.2021 seeking assessee to provide the above details. Since the assessee did not respond another notice dated 18.03.2021 was issued. In response, assessee filed reply on 22.03.2021. Considering the submissions made by the assessee, Ld. AO found it to be not acceptable as the three essential ingredients i.e., identity, creditworthiness and genuineness was not established by the assessee. Ld. AO observed that the onus is on the assessee to file the details which the assessee has failed to do so and therefore made an addition of Rs. 2,67,27,507/- under section 68 of the Act. Further, Ld. AO also observed that assessee has made cash deposits amounting to Rs.11,39,000/- in Andhra Bank Accounts as detailed in assessment order for which assessee failed to prove the nature and source of credits. He therefore added an amount of Rs. 11,39,000/- as unexplained cash credit under section 68 of the Act.
Page. No 3
I.T.A.No.365/VIZ/2024 Jasti Venkatapathi Rao 4. On being aggrieved by the order of the Ld. AO, assessee filed the appeal before the Ld. CIT(A). Since the assessee failed to prove the genuineness of the loans during the first appellate proceedings, the Ld. CIT(A) partly allowed the appeal of the assessee by confirming the addition of unsecured loans amount of Rs. 2,67,27,507/-.
On being aggrieved by the order of the Ld. CIT(A), assessee is in appeal before us by raising following grounds of appeal: -
“Ground of Objection 1 The order passed by the Learned Assessing Officer, National e-Assessment Center, Delhi (“Ld. AO") under section 143(3) of the Income-tax Act, 1961 ("the Act"), is contrary to law, facts and circumstances of the case. Ground of Objection 2 The Ld. AO has made the following erroneous additions to the total income of the Appellant. • INR 2,67,27,507/- as Unexplained cash credits U/s 68 on Account of Loans for non-submission of Bank Statements, ITR Copies of Persons who provided Loans to the Assessee. • INR 11,39,000/- as Unexplained cash credits U/s 68 on Account of Cash Deposits by the Appellant in the bank Accounts. • The Ld. AO has not rejected our request made on 07-04- 2021 to provide us with additional time till 12-04-2021 however has passed an order without considering the same. Ground of Objection 3 The Learned AO has erred in levying consequential interest under section 234B & 234C of the Act as applicable.”
Ground No. 1 is general in nature and needs no adjudication.
Page. No 4
I.T.A.No.365/VIZ/2024 Jasti Venkatapathi Rao 7. Ground No. 2 is with respect to sustaining the addition of Rs.2,67,27,507/- under section 68 of the Act as unexplained. On this issue, Ld.Authorised Representative [hereinafter “Ld.AR”] submitted that in the case of M/s. Balaji Infra and M/s. Sri Sai Balaji, the unsecured loans were taken by way of bank transactions which is evidenced by the bank statements of the assessee. Further he also submitted that loan creditors have submitted their bank statements wherein the unsecured loans transactions are being reflected in the bank accounts of the loan creditors. Further, with respect to the loan creditor namely K. Ashok there are no fresh credits but the assessee has made repayments of Rs. 1,15,000/- which was wrongly considered by AO as loans taken by the assessee. He also further pleaded that with respect to other parties’ loan confirmations statements have been provided during the assessment proceedings which was not accepted by the revenue authorities. He therefore pleaded that the additions made by the Ld. AO be deleted.
Per contra, Ld. Departmental Representative [hereinafter in short “Ld.DR”] submitted that in Para No. 5.2 Ld. AO has observed that assessee has not furnished details proving identity and creditworthiness of the loan creditors. Ld. DR further submitted that the assessee has furnished the standard format of loan confirmation and confirming the balances as on 31.03.2018 without mentioning the mode of payment of unsecured loans to the assessee. Ld. DR further submitted that even before the Ld. CIT(A), assessee has failed to submit
Page. No 5
I.T.A.No.365/VIZ/2024 Jasti Venkatapathi Rao the statement of bank accounts to verify the payments and receipts. She therefore pleaded that the Ld. AO has rightly made the additions since the identity, creditworthiness was not satisfactorily proven to the Ld. AO.
We have heard both the sides and perused the material available on record. The fact of the case is that the assessee has received the following amounts of loans during the impugned assessment year : -
New Loan S.No. Particulars Amount (Rs.) 1. M/s. Balaji Infra 1,02,29,000 2. G. Mohan Rao 9,98,359 3. G. Rinivasa Rao 4,50,000 4. Jasti Madava Rao Guntur 13,73,000 5. K. Ashok 1,15,000 6. P. Chalapathi 9,98,359 7. Rafuddin 13,23,789 8. M/s. Sri Sai Balaji 1,12,40,000 Grand total 2,67,27,507
However, the contention of the revenue is that the assessee has not filed the copies of bank statements, ITR’s and financial statements of these loan creditors to establish the creditworthiness and genuineness of these transaction. Before us, Ld.AR referred to the paper book wherein the bank statements of M/s. Balaji Infra and M/s. Sri Sai Balaji is available from Page Nos. 26 of the paper book. Ld.AR also further demonstrated before us the random transactions wherein the assessee has received unsecured loans through banking channels from the loan creditors. Even though the ledger account copies and the ITR’s
Page. No 6
I.T.A.No.365/VIZ/2024 Jasti Venkatapathi Rao including the PAN of the unsecured loans creditors were furnished before the Revenue Authorities, but which was not considered by them. From the observations made by the Ld. CIT(A), we notice that assessee has filed two different sets of ledges wherein the claim of assessee is that the two different ledgers represent the assessee in the books of accounts of the unsecured loan creditors and in the books of accounts assessee. Ld.AR also conceded to the fact that except for the following un-reconciled entries from the following parties all of the transaction have been recorded in the books of accounts and has been made through banking channels:
Sr.No Name Amount in Rs. (i) Balaji infra : Rs.1,35,000/- (ii) Sri sai Balaji infra : Rs.1,85,000/-
There is also merit in the argument of the Ld.AR that the assessee has taken unsecured loans and partly repaid during the impugned assessment year through cheques and other banking channels. In these circumstances, we are of the considered view that the creditworthiness, genuineness and identity had been proved by the assessee in the cases of the following parties and hence we are inclined to delete the addition made with respect to the following parties: - Sr. Name Amount in Rs. No (i) M/s. Balaji infra : Rs.1,00,94,000/- [Rs.1,02,29,000 (-) un-reconciled balance Rs. 1,35,000/-] (ii) M/s. Sri Sai Balaji Infra : Rs.1,10,55,000/- [Rs.1,12,40,000 (–) un-reconciledbalanceRs.1,85,000/-]
Page. No 7
I.T.A.No.365/VIZ/2024 Jasti Venkatapathi Rao 12. Further, with respect to the unsecured loans from Shri K. Ashok it was established by the Ld.AR that the assessee has not availed any fresh loans during the impugned assessment year but has only made repayment of Rs.1,15,000/- which was wrongly considered as new loan by the Revenue Authorities. Therefore, we also direct the Ld. AO to delete Rs.1,15,000/- which assessee has made only the repayment of the unsecured loans and no fresh loans during the impugned assessment year.
With respect to the other parties, it is a fact that assessee has not proven beyond doubt the creditworthiness and genuineness of the loan transactions, we are therefore confirming the additions made by the Revenue Authorities with respect to the following parties: - Loan Amount S.No. Particulars (Rs.) 1. G. Mohan Rao 9,98,359 2. G. Rinivasa Rao 4,50,000 3. Jasti Madava Rao Guntur 13,73,000 4. P. Chalapathi 9,98,359 5. Rafuddin 13,23,789 14. Accordingly, Ground No. 2 raised by the assessee is partly allowed.
Ground No.3 is consequential in nature and hence not adjudicated.