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Facts
The assessee, a partnership firm, appealed against the order of the CIT(A) which partly allowed their appeal against an assessment order for AY 2010-11. The AO had made an addition of Rs. 35,00,000/- on account of a loan from M/s Atharv Business Private Limited, treating it as an accommodation entry, and further added Rs. 35,000/- as commission expenses.
Held
The Tribunal noted that the assessee had provided several documents to substantiate the loan, including loan confirmation, lender's ITR, PAN, financial accounts, bank statements, and Form 16A. While the AO was not convinced due to the same-day fund transfer and sufficient own funds of the assessee, the Tribunal found that the assessee had discharged the primary onus and the AO failed to bring on record material to justify the addition under Section 68.
Key Issues
Whether the addition of Rs. 35,00,000/- on account of loan from M/s Atharv Business Private Limited is justified under Section 68 of the Income Tax Act, and whether the reassessment proceedings were valid.
Sections Cited
143(3), 147, 68, 133(6)
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Income Tax Appellate Tribunal, SMC BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL "SMC" BENCH, MUMBAI
MS. PADMAVATHY S, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER M/s. Arvind Champaklal Shah, Shop No. 145/147, Abdul Rehman Street, Mumbai - 400003 [PAN: AAGFA1187L] …………. Appellant
Vs ITO Ward 17(1)(1) Aayakar Bhawan, Maharshi Karve Road, New Marine Lines, …………. Respondent Mumbai - 400020
Appearance For the Appellant/Assessee : Shri Rajesh Shah For the Respondent/Department : Shri R.R. Makwana
Date Conclusion of hearing : 16.07.2024 Pronouncement of order : 29.07.2024
O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Assessee has challenged the order dated 19/10/2023, passed by the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as the ‘CIT(A)’] for the Assessment Year 2010-11, whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 30/11/2016, passed by the Income Tax Officer 17(1)(1), Mumbai under Section 143(3)(ii) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The Assessee has raised following grounds of appeal in ITA No. 4385/Mum/2023: Assessment Year: 2010-11 1. On the facts and circumstances of the case, CIT(A) erred in confirming the addition of Rs.35,58,296 which was made u/s. 143(3) r.w.s. 147 of the Income Tax Act, which is bad in law. 2. a) On the facts and circumstances of the case and in law, the AO erred in re-opening of the assessment and which is confirmed by the CIT(A). b) CIT(A) erred in not considering the fact that re- opening was made on borrowed opinion and without satisfaction by the AO as no inquiry or verification done by the AO. The re- opening of the assessment itself is bad in law. 3. a) On the facts and circumstances of the case, CIT(A) erred in confirming the addition of Rs.35,00,000/- though the said amount is not an Income of the appellant. The additions were made without proper application and appreciation of facts and documents available before the authorities. b) The learned CIT(A) erred in not considering the evidences filed and available on record and simply relied on the order of the AO. c) The appellant submits that all the evidences were filed to prove genuineness of the transaction and was also submitted that loan was refunded back by the said party. 4. a) On the facts and circumstances of the case and in law, the CIT(A) erred in adding Rs.35,00,000 of a loan taken from Atharv Business Pvt. Ltd. b) In spite of specific request no cross examination of the said party was allowed and no proper opportunity was provided to the appellant. Therefore, the whole order is bad in law. 5. The learned CIT(A) erred in confirming the disallowance of expenses of Rs.58,296. 6. The appellant craves leave to add, amend, modify, cancel and or substitute any of the grounds of the appeal. 3. The relevant facts in brief are that the Appellant is a registered partnership firm. For the Assessment Year 2010-11, assessment under Section 147 read with 143(3) of the Act was framed on the Appellant vide order, dated 30/11/2016. The Assessing Officer made addition of INR 35,00,000/- in respect of loan received from M/s Atharv Business Private Limited during the relevant previous year holding the same to be loan accommodation entry and 2 Assessment Year: 2010-11 therefore, an unexplained credit in the books of accounts of the Appellant in terms Section 68 of the Act. The Assessing Officer also made additional of INR 35,000/- [computed at the rate of 1% of the aforesaid loan amount of INR 35,00,000/-] holding the same to be amount paid by the Appellant to obtain the aforesaid accommodation entry. Thus, aggregate addition of INR 35,35,000/- under Section 68 of the Act was made in the hands of the Appellant vide order dated 30/11/2016 passed under Section 143(3) read with Section 147 of the Act.
Being aggrieved the Appellant carried the issue in appeal before the CIT(A) challenging the validity of the reassessment proceedings as well as the addition of INR 35,35,000/- made under Section 68 of the Act on merits. The CIT(A) upheld the validity of reassessment proceedings and granted limited relief by deleting the addition of INR 35,000/- in respect of commission expenses. Thus, the CIT(A), vide order dated 19/10/2023, confirmed the addition made under Section 68 of the Act in respect of loan of INR 35,00,000/-. Therefore, the Appellant is now in appeal before us against the order dated 19/10/2023 passed by the CIT(A).
We have considered the rival submission and perused the material on record and analyzed the position in law.
Facts as emerging from the records are that the Appellant is a partnership firm. Reassessment proceedings under Section 147 of the Act were initiated in the case of the Appellant on the basis of information received from Director General Income Tax (Investigation), Mumbai according to which the Appellant was beneficiary of accommodation entry of INR 35,00,000/-. Therefore, it cannot be said that the Assessing Officer did not have any fresh tangible material for initiating re-assessment proceedings. In our view, the Assessing Officer had sufficient tangible material to form a belief that income had escaped 3 Assessment Year: 2010-11 assessment. Therefore, concurring with the CIT(A), we reject Appellant’s challenge to the validity of reassessment proceedings.
We note that during the re-assessment proceedings, the Appellant had contended that the Appellant had taken short term loan from Atharva Business Private Limited which was repaid after a period of around 6 months. To discharge the primary onus cast upon the Appellant under Section 68 of the Act to prove identity & creditworthiness of the lender and the genuineness of the loan transaction, the Appellant placed before the Assessing Officer the following documents/details: (a) Loan Confirmation with address of the lender (b) Copy of Acknowledgement of Income Tax Return filed by the lender (c) copy of PAN of lender (d) Copy of financial accounts of the lender for the financial year 2009-2010 (e) Copy of bank statements of Appellant, (f) Copy of Bank statements of lender, (g) ledger Account from 01.04.2009 to 31.03.2011, and (h) Form 16A showing deduction of tax at source from interest payments. However, the Assessing Officer was not convinced as the Assessing Officer noted that the bank statement of the lender showed transfer of funds to the bank account of lender on the same day the loan of INR 35,00,000/- was granted to the Appellant. According to the Assessing Officer, the Appellant had sufficient own funds and therefore, there was no business necessity to borrow funds. Further, the Assessing Officer noted that the Appellant had repaid the loan under consideration promptly while loans taken from other parties were not repaid. On the basis of aforesaid, the Assessing Officer concluded that the loan transaction under consideration was in the nature of accommodation entry and therefore, addition of INR 35,00,000/- was made by the Assessing Officer in the hands of the Appellant under Section 68 of the Act. In appeal, the CIT(A) agreed with the reasoning given by the Assessing Officer and confirmed the addition. Before us, both the sides had reiterated their respective stands. On perusal of the paper-book containing the aforesaid 4 Assessment Year: 2010-11 details/documents furnished by the Appellant we find that all the relevant details/documents were furnished by the Appellant which included loan confirmation with address, Copy of acknowledgment of filing return by the lender, ledger account, bank statements of lender & appellant, form 16A etc. Thus, the primary onus stood discharged by the Appellant. The reasoning given by the Assessing Officer to reject the documents/details filed by the Appellant were that (a) there were transfer into the account of lender on the date on which loan was given, (b) the Appellant had sufficient own funds, and (c) loan under consideration was repaid promptly while other loans were outstanding. It would be pertinent to note that the contention of the Appellant was that the Appellant had taken a short term loan which was repaid within 7 months. Thus, the facts that loan under consideration was repaid promptly as compared to other loans supports the stand taken by the Appellant. It has not been disputed by the Revenue that entire loan was actually repaid. It has also not been disputed by the Revenue that interest was charged on the loan and tax was deducted at source in respect of such interest as per law. In our view, genuineness of the loan transaction cannot be doubted merely because the Appellant had sufficient own funds. The fact that the bank statements of lender showed that the lender had received funds on the same day before loan was granted to the Appellant called for inquiry by the Assessing Officer. As per the applicable law the Appellant was under obligation to disclose source of loan (and not source of source) to comply with the requirements of Section 68 of the Act. The Appellant had already filed bank statement of the lender shown receipts of money into the bank account through banking channel to discharge its onus. It was for the Assessing Officer to make further inquiry into the matter. The Assessing Officer had issued notice to the lender under Section 133(6) of the Act. In response, the lender had filed bank statement and ledger account statement supporting the stand taken by the Appellant.
5 Assessment Year: 2010-11 However, the Assessing Officer rejected the same on the ground that the lender had failed to provide documentation/correspondences related to loan transaction. No inquiry was made by the Assessing Officer in the aforesaid notice with regard to the funds received in the bank account of the lender. It is admitted position that the loan funds were with the Appellant for only for a short period of 7 months and thereafter, we repaid in trenches along with interest in full. Taking into consideration the facts and circumstances of the present case and on weighing the varied probabilities, we find that the preponderance is in favour of the Appellant. While the Appellant had discharged the primary onus, the Assessing Officer had failed to bring on record any material to justify invocation of provision contained in Section 68 of the Act. Accordingly, we delete the addition of INR 35,00,000/- made by the Assessing Officer.
In view of the above, Ground No. 3(a), 3(b), 3(c) and 4(a) raised by the Appellant are allowed, while Ground No. 2(a) and 2(b) raised by the Appellant are rejected. Ground No. 1 is disposed off as being general in nature, while Ground No. 4(b) are dismissed as being infructuous. Ground No. 5 raised by the Appellant is dismissed as being ‘not pressed’ based upon the statement made by the Learned Authorized Representative of the Appellant during the hearing.
In result, in terms of paragraph 8 above, the present appeal is partly allowed.
Order pronounced on 29.07.2024. (Ms. Padmavathy S) Judicial Member मुंबई Mumbai; िदनांक Dated : 29.07.2024 Poonam Mirashi, Stenographer 6 Assessment Year: 2010-11
आदेश की "ितिलिप अ"ेिषत/Copy of the Order forwarded to : अपीलाथ" / The Appellant 1. ""थ" / The Respondent. 2. आयकर आयु"/ The CIT 3. "धान आयकर आयु" / Pr.CIT 4. िवभागीय "ितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, 5. Mumbai गाड" फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, स"ािपत "ित //// उप/सहायक पंजीकार /(Dy./Asstt.