CHANDULAL C. JAIN,MUMBAI vs. INCOME TAX OFFICER 30(1)(2), MUMBAI

The dispute in the present appeal is confined to the addition of ` 10 lakh under section 68 of the Income Tax Act, 1961 (for short “the Act”).

Brief facts are, the assessee, an individual, is carrying on business as a reseller of fabrics through his proprietary concern M/s. Maharashtra Textiles. For the assessment year under dispute, the assessee filed his return of income on 24th September 2012, declaring total income of ` 2,63,667. During the assessment proceedings, the Assessing Officer noticing that the assessee has shown unsecured loan of ` 5 lakh each from two individuals called upon the assessee to furnish the necessary details of the lenders such as copies of income tax returns, PAN details and bank statement copies. After perusing the documentary evidences filed by the assessee, the Assessing Officer observed that though the lenders have advanced the loans through cheques, however, prior to issuance of cheque to the assessee cash was deposited to the bank account. Further, on verifying the return of income filed by the lenders for the assessment year 2012–13, he found that the income shown by them is not sufficient to advance the loan. As observed by the Assessing Officer, though, as per his direction the assessee produced the lenders before him, however, the lenders did not produce bank book and other books of account. Further, on verifying the details of both the lenders the Assessing Officer ultimately concluded that creditors did not have the creditworthiness to advance loan to the assessee. He also observed that cash deposit in the bank account of the creditors prior to issuance of cheque to the 3 Chandulal C. Jain assessee indicate that the funds were provided by the assessee for advancing the loan. The Assessing Officer also observed that in the returns of income filed by the lenders no interest income is received from the assessee has been shown. Thus, ultimately the Assessing Officer disbelieving the genuineness of the loan transactions treated them as unexplained cash credit under section 68 of the Act and added back to the income of the assessee.

Though, the assessee challenged the aforesaid addition before the first appellate authority, however, learned Commissioner (Appeals) sustained the addition made by the Assessing Officer.

The learned Authorised Representative submitted, before the Assessing Officer, the assessee has not only produced all documentary evidences including loan confirmation from the lenders, but, the lenders were also produced before the Assessing Officer. He submitted, in course of examination by the Assessing Officer, the lenders have categorically admitted of having advanced the loans to the assessee. He submitted, both the lenders are income tax assessees filing their return of income regularly. He submitted, the balance sheet of the lenders was also filed before the Assessing Officer wherein availability of fund to advance the loan to the assessee was demonstrated. He submitted, the assessee has regularly paid interest

The learned Departmental Representative relying upon the observations of learned Commissioner (Appeals) and the Assessing Officer submitted, since the assessee has failed to prove the creditworthiness of the creditors, addition made under section 68 of the Act is proper.

I have considered rival submissions and perused material on record. As could be seen, the disputed addition is with regard to two unsecured loans of ` 5 lakh each availed by the assessee from two individuals namely Shri Kaustubh Bandiwadekar and Shri Dharmendra Jain. The Assessing Officer has treated the unsecured loans as 5 Chandulal C. Jain unexplained cash credit under section 68 of the Act doubting the creditworthiness of the lenders. Learned Commissioner (Appeals) has upheld the decision of the Assessing Officer merely on the reasoning that prior to advancement of loan there were cash deposits in the Bank account of the lenders. Further, learned Commissioner (Appeals) has observed that the assessee has neither paid interest on the loan amount nor has repaid the loan amount before the date of the assessment order. It is observed, in course of assessment proceedings, in compliance to the directions of the Assessing Officer, the assessee has furnished the required documentary evidences including the PAN card copy of the lenders, return of income copies filed by them, loan confirmations, financial statements including balance sheet, his own bank account, etc. It is also a fact on record that both the lenders have appeared before the Assessing Officer in the course of assessment proceedings and have categorically stated on oath that they have advanced the loans to the assessee. The aforesaid statements given under oath by the lenders have not been proved to be false by the Assessing Officer. Merely because in the bank account of the lenders there are cash deposits prior to issuance of cheque to the assessee and further the income returned by the lenders are not substantial, it cannot be presumed that the lenders did not have the creditworthiness to advance the loans to the assessee. Moreover, the 6 Chandulal C. Jain assessee has filed the balance sheet of the creditors to demonstrate availability of fund. Further, the lenders are income tax assessees and filing their return of income regularly. The loan transactions have also been reflected in their return of income for the concerned assessment year. Nothing has been brought to our notice by the Department to indicate that the loan transactions have been disallowed or doubted in case of the lenders. Therefore, merely on presumption and surmises, it cannot be held that the lenders did not have the creditworthiness. Further, the observation of the learned Commissioner (Appeals) that the assessee has not paid interest on the loan to the lenders is factually incorrect. On a perusal of the bank account copy furnished in the paper book we have noticed that the assessee has regularly paid interest on the loan advanced. Merely because the lenders have not shown the interest income in their return of income, does not mean the assessee has not paid interest. It is also seen that the assessee has repaid the loan amount to the lender though subsequent to the date o the assessment order. Therefore, on overall consideration of facts and material on record, I am of the considered opinion that the assessee has discharged the primary onus cast upon him to prove the genuineness of loan transaction as contemplated under section 68 of the Act. That being the case, the addition made of ` 10 lakh is not sustainable. Accordingly, I delete the same. Grounds are allowed.

In the result, appeal is allowed. Order pronounced in the open Court on 20.03.2019