YASH VIKRAM DEVELOPERS,MUMBAI vs. ACIT CIR- 33(3) , MUMBAI

The issue in challenge in the present appeal is the addition of ` 86,49,448, as unexplained cash credit under section 68 of the Income Tax Act, 1961 (for short "the Act").

Brief facts are, the assessee, a partnership firm, is engaged in the business of builder and developer. For the assessment year under consideration, the assessee filed its return of income on 21st September 2014, declaring total income of ` 52,50,000. During the assessment proceedings, the Assessing Officer, while examining the details available on record, noticed that the assessee had availed unsecured loans of ` 75 lakh during the year. Further, on such unsecured loans, the assessee had claimed payment of interest. Additionally, the assessee had paid interest of ` 10,12,500, on unsecured loan availed in earlier assessment years. The total unsecured loan availed during the year and interest paid on unsecured loan during the year aggregated to ` 86,49,448. Therefore, he called upon the assessee to prove the genuineness of such loan transactions. In response, the assessee furnished confirmations from the concerned parties. However, as alleged by the Assessing Officer, the assessee did not furnish copies of the returns of income and bank statements of the concerned parties to prove the identity, creditworthiness and genuineness of the transactions. Therefore, the Assessing Officer issued a show cause notice on 2nd December 2016, calling upon the 3 Yash Vikram Developers assessee to produce the concerned parties / lenders for examination. In reply to the said show cause notice, the assessee expressed its inability to produce the lender. Therefore, the Assessing Officer issued summons under section 131 of the Act to the lenders for appearing before him. However, as alleged by the Assessing Officer, the lenders neither attended nor furnished any submissions. Faced with such situation, the Assessing Officer undertook independent enquiry to verify genuineness of loan transactions. In this context, he was able to obtain the returns of income and the bank statements of the lenders. On analyzing the return of income of one of the lenders Rightlink Infra Projects Pvt. Ltd., he found that in the assessment years 2013–14 and 2014–15, it has offered income of ` 14,730, and ` 76,470, respectively. Further, the turnover shown by the assessee in the aforesaid assessment years were ` 17,28,240 and ` 25,74,892, respectively. On examining the Bank statement of the lenders, he did not find any entry to support the loan transactions. He further observed, though, the lender is filing its return of income at a place in Solapur District, however, he is operating a Bank account at Kalbadevi, Mumbai, and keeps changing to different places. Thus, from the aforesaid facts, the Assessing Officer concluded that, though, the identity of the creditor was established, however, neither its creditworthiness nor the genuineness of the transaction could be 4 Yash Vikram Developers proved. Accordingly, he held that the unsecured loan availed from the said lender and interest paid thereon has to be treated as unexplained cash credit under section 68 of the Act. In respect of the second lender Jayshyam Investment and Finance Pvt. Ltd., the Assessing Officer noted that it has offered income of ` 76,549 and ` 48,963, in assessment years 2013–14 and 2014–15, respectively. The turnover declared by the said party in these two assessment years were ` 3,29,420 and ` 5,63,672, respectively. The party had also a very insignificant capital available with him in these two assessment years. The Bank statement of the party also revealed that it has credit of ` 10 lakh only. Thus, from the aforesaid facts, the Assessing Officer concluded that though the identity of the creditor is established, however, neither its creditworthiness nor the genuineness of the transaction could be established. Insofar as Madan Impex Pvt. Ltd. is concerned, the Assessing Officer observed that the assessee had availed unsecured loan of ` 1.25 crore from this party in the earlier years and has paid interest of ` 10,12,500, in the impugned assessment year. The Assessing Officer observed, the income returned by the party in assessment years 2013–14 and 2014–15 is ` 2,18,667 and ` 3,73,060, respectively. It had a very insignificant capital of ` 1 lakh in the aforesaid two assessment years. He observed, though the lender is filing its return of income at Surat, but it is maintaining a 5 Yash Vikram Developers bank account at Opera House, Mumbai, and keeps changing from one place to another from time–to–time. Thus, from the aforesaid facts, the Assessing Officer concluded that though the identity of the party is established, however, neither its creditworthiness nor genuineness of the transactions is established. Accordingly, he held the interest paid as non–genuine expenditure and disallowed it. The assessee challenged the aforesaid additions before the first appellate authority.

The learned Commissioner (Appeals), however, having not found merit in the submissions of the assessee, sustained the addition made by the Assessing Officer.

The learned Authorised Representative submitted, the genuineness of the loan transactions cannot be doubted as all the loan transactions were carried out through proper banking channel. He submitted, the assessee has availed the unsecured loan through cheque and has also paid interest on such unsecured loans from time– to–time after deducting TDS. He submitted, in course of assessment proceedings, the assessee had furnished confirmations of the creditors/lenders to prove the genuineness of the loan transactions. He submitted, merely because the assessee was unable to furnish return of income of the lenders and could not produce them in person before the Assessing Officer, unsecured loans have been treated as 6 Yash Vikram Developers unexplained cash credit and the interest paid thereon was also disallowed. Drawing our attention to the Bank account of the assessee as well as the lenders placed in the paper book, the learned Authorised Representative submitted, the unsecured loans have been re–paid with interest much prior to the assessment proceedings. Therefore, the Assessing Officer was completely wrong in making addition as unexplained cash credit on the wrong premises that the transactions are not genuine and the parties do not have the creditworthiness. The learned Authorised Representative submitted, in respect of Madan Implex Pvt. Ltd., the loan was availed in earlier assessment years and during the year under consideration, the assessee had only paid interest. He submitted, neither the availing of loan nor payment of interest thereon in the earlier years was doubted by the Assessing Officer. Therefore, the interest paid in the impugned assessment year on such loan cannot be held as non–genuine. In this context, he drew our attention to the scrutiny assessment order passed for the assessment year 2013–14. Thus, he submitted, the addition made should be deleted. In support of his contentions, he relied upon the following decisions:–

The learned Departmental Representative submitted, merely because the loan transaction was through banking channel it cannot be held as genuine unless the creditworthiness of the lenders are established. He submitted, the assessee failed to produce the lenders either before the Assessing Officer or before learned Commissioner (Appeals). He submitted, even the summons issued under section 131 of the Act to the lenders were not responded to. He submitted, on a specific request of the Assessing Officer, the assessee expressed his inability to produce the lenders. Therefore, in such circumstances, the loan transactions cannot be treated as genuine. He submitted, the Assessing Officer on the basis of independent enquiry conducted by him has obtained the copies of return of income as well as bank statement of the lenders. On verifying them, he has come to a categorical conclusion that none of the lenders have the 8 Yash Vikram Developers creditworthiness to advance such huge loans. Thus, he submitted, since the assessee failed to discharge the onus cast upon it to prove the creditworthiness and genuineness of the transactions, the additions made is justified.

We have considered rival submissions and perused the material on record. We have also applied our mind to the decisions relied upon. As could be seen from the facts on record, the Assessing Officer has disbelieved the unsecured loan availed from three parties viz. Rightlink Infra Project Pvt. Ltd., Jayshyam Investment and Finance Pvt. Ltd. and Madan Impex Pvt. Ltd. Undisputedly, in the course of assessment proceedings the Assessing Officer called upon the assessee to prove the genuineness of loan transactions. In response, though, the assessee furnished confirmations from the lenders, however, as alleged by the Assessing Officer, the assessee could not furnish the return of income and bank statement of the lenders. Further, when the Assessing Officer requested the assessee to produce the lenders before him for examination, the assessee expressed its inability to produce them. Even, the summons issued under section 131 of the Act by the Assessing Officer requiring the presence of the lenders though were served, however, they were not responded to by the lenders. From the aforesaid facts, it becomes clear that, though, the identity of the lenders were established, however, the genuineness of the loan

In the result, appeal is allowed for statistical purposes.