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Facts
The assessee, engaged in silver and gold trading, received unsecured loans totaling Rs. 71,08,000/- from various creditors. The Assessing Officer (AO) added this amount to the assessee's income, alleging that the creditworthiness and genuineness of the loans were not proven, and also disallowed interest expenses of Rs. 2,40,000/-.
Held
The Tribunal observed that the assessee did not fully comply with the Assessing Officer during assessment proceedings and the CIT(A) did not pass a speaking order. The Tribunal, therefore, set aside the orders of both the AO and CIT(A) and restored the matter to the AO for fresh adjudication, allowing the assessee a reasonable opportunity of being heard.
Key Issues
Whether the additions made under Section 68 of the Income Tax Act for unexplained unsecured loans and disallowance of interest are sustainable without proper verification and adjudication.
Sections Cited
68, 115BBE, 143(3), 133(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AGRA BENCH ‘DB’ AGRA
Before: SHRI SUNIL KUMAR SINGH & SHRI BRAJESH KUMAR SINGH
ORDER PER BRAJESH KUMAR SINGH, AM,
This appeal by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi/Ld. CIT(A) dated 11.05.2024, arising out of assessment order passed u/s 143(3) r.w.s. 143(A) & 143(3B) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’), dated 25.03.2021 for Assessment Year 2018-19.
2. The grounds of appeal raised by the assessee are as under:-
1. That the Commissioner of Income Tax (Appeals) (NFAC) has erred in law and on facts in sustaining the additions amounting to Rs. 71,08,000/- made u/s 68 of the Income Tax Act, 1961 on account of alleged unexplained unsecured loan (including addition of Rs.2,40,000/- made on account of disallowance of payment of interest) without properly appreciating the facts brought on record by the Appellant during the course of assessment and appellate proceedings.
That the learned Commissioner of Income tax (Appeals) (NFAC) has grossly misconceived the provisions of section 68 of the Income tax Act, 1961 through which the onus automatically shifts upon the Assessing Officer to make independent enquiry about the genuineness of the loans when necessary information about the lender is provided by the Assessee.
3. That the learned Commissioner of Income Tax (Appeals) (NFAC) has miserably failed to appreciate the case laws relied upon by the Appellant.
Brief facts of the case: The assessee was engaged in the business of silver and gold trading during the year under consideration. The Assessing Officer noted that the assessee had received substantial loan from unsecured creditors amounting to Rs.71,08,000/- (Rs.163,73,000- Rs.92,65,000/-). The Assessing Officer asked the assessee to prove the identity, creditworthiness and genuineness of the transaction with respect to the said five unsecured creditors. The Assessing Officer noted that the assessee provided the details of land and ITR of the lenders but failed to establish creditworthiness of the lenders. On 01.03.2021, the Assessing Officer issued questionnaire asking the assessee to explain the justification for creditworthiness/capacity of the unsecured lenders and to provide interest expenditure for each lender. Prior to this, the Assessing Officer had observed that the lent amount by the lenders varied between 156.21% to 640.84% of the total income shown by the lenders in their respective return as tabulated on page no.2 of the assessment order, which is reproduced as below:-
3.1. According to the Assessing Officer with remarks noted against the said lender in the said show-cause notice remained unanswered by the assessee and further notice u/s 133(6) of the Act issued to the said creditors was not answered. Taking note of the fact that the assessee had provided the ITRs PAN, ledger to establish the genuineness of the loan but he observed that these are merely corroborative documentary evidences viz. KYC forms, loan confirmations, or copy of bank statement which could not make a sham transaction as genuine. The Assessing Officer also noted the fact that the all the money trail which became obvious was that the money was first deposited in the creditors account and then the lending was made to the assessee and thus such transaction does not prove the creditworthiness of the unsecured lender.
Thereafter, the Assessing Officer relied upon the various case laws and ultimately held that the assessee had failed to prove the creditworthiness of the respective creditors. The Assessing Officer also noted that creditors were found to be shell/jamakharchi company and added a sum of Rs.71,08,000/- u/s 68 r.w.s. 115BBE of the Act. Further, the Assessing Officer disallowed the interest of Rs.2,40,000/- paid on such loan of Rs.71,08,000/-.
Against the order of the Assessing Officer, the assessee preferred an appeal before the ld. CIT(A). The Ld. CIT(A) as per his observation in para no.5 of his order confirmed the addition of Rs.71,08,000/- u/s 68 of the Act and dismissed the appeal of the assessee, which is reproduced as under:-
“5. During the course of faceless appellate proceedings, I have gone through the facts of the case, submission of the appellant, assessment order of the assessing officer and material available on records. It is seen that the AO has passed the assessment order wherein an addition of Rs. 70,02,968/- was made for unexplained cash credit under section 68 of the Act. The appellant has failed to prove the creditworthiness of the creditors. The onus was on the appellant to prove the creditworthiness of the creditors but the appellant failed to prove the same in this regard. The creditors have been found to be shell companies. The documents produced by the appellant merely prove the case of the appellant superficially, which is far from the reality or truth. Therefore, it is unbelievable to accept the contention of the appellant that said persons or creditors were having creditworthiness to advance any loan to the appellant. It is crystal clear that the appellant has not adduced any sufficient evidence neither before the AO nor during the appellate proceedings in this regard. Thus, the addition made by the AO of amounting to Rs. 71,08,000/- on account of unexplained cash credit under section 68 of the I.T. Act, 1961 is hereby confirmed and the ground no. 1,2 and 6 are decided in negative and against the appellant.”
4.1. Similarly, the ld. CIT(A) also confirmed the disallowance of interest of Rs.2,40,000/- on the loan of Rs.71,08,000/- by observing in para no.5.1 and 5.2 as under:-
5.1 In the ground no. 3, the appellant has challenged the disallowance of interest to the extent of Rs. 2,40,000/-. In this regard, the submission of the appellant is reproduced as under:
"This loan was interest bearing loan and interest is paid to lender after deduction of TDS and she has shown interest income in her return filed to Income Tax, since the loan is genuine and proved the interest cannot be added.
From the perusal of above, your honor will appreciate that all the lenders are assessed to income tax, there identity, capacity, source and credit worthiness is proved from their income tax return along with computation of income, bank account/passbook. The assessee has also proved genuineness of transaction and therefore the assessee has discharged his onus lay upon her.
5.2 During the course of appellate proceedings, it is seen from the assessment order that the appellant has earned interest of Rs. 2,40,000/-on the loans of Rs. 71,08,000/- The appellant has not produced any sound reasons with regard to it. The appellant has failed to satisfy the belief of the Assessing Officer, Thus, Ido not find any infirmity in the addition made by the assessing officer and accordingly the addition of Rs. 2,40,400/-, is hereby confirmed & the ground no. 3 is decided in negative and against the appellant."
Aggrieved with the said order of the ld. CIT(A), the assessee is in appeal before us.
During the hearing before us, the assessee filed a paper book and a synopsis and submitted that all the documents from serial No.1 to 3 were also filed before the authorities below and no fresh documents was filed in this paper book. The index of the said paper book is reproduced as under:-
6.1. Relying upon the above documents and the submissions, the ld. AR submitted that the ld. CIT(A) has summarily rejected the above evidences and the submissions, which was placed before him. The ld. AR further submitted that the order of the Ld. CIT(A) may be set-aside and the addition made by the Assessing Officer should be deleted.
The ld. Sr. DR relied upon the orders of the authorities below.
We have heard both the parties and perused the material available on record. On perusal of the assessment order, it is seen that the AO passed the assessment order and made the addition of Rs.71,08,000/- being unsecured loan received from five persons u/s 68 of the Act on the ground that the creditworthiness and capacity of the said lender were not proved. Moreover, the AO also noted that the notice u/s 133(6) of the Act issued to the creditors were also not answered. The Ld. CIT(A) confirmed the above findings of the AO without making any further enquiry or by calling any remand report from the AO in this case in view of the fact that the queries of the show-cause of the AO remained unanswered, whereas the documents and explanation as listed in the above ‘Index’ and case laws cited in the synopsis placed at pages no.1 to 11 of the paper book were filed before the Ld. CIT(A). Moreover, the assessee filed two tabular charts (placed on page no.14 and 15 of the paper book) in which, it was claimed that loan of Rs.13,50,000/- added as received from Shri Anil Kumar Agarwal was an old loan and therefore no addition of the same could have been made by the Assessing Officer during the year.
Further, it is stated in the said chart that there is a discrepancy in the amount considered as unsecured loan taken from the above five parties and also in the total quantum of fresh unsecured loan received during this year. As per the chart on page no.14 of the paper book, total fresh loan taken during the year was Rs.80,29,300/- and there were also repayments amounting to Rs.11,61,300/- during the year. Moreover, the assessee in his written submission before the Ld. CIT(A) (placed at page no.13-18) had given detailed explanation about the source of all the five lenders which inter-alia includes on illustrative basis the claim of receipt of capital of Rs.9 lakhs by Shri Ravi Kumar Agarwal from his partnership firm for advancing the unsecured loan of Rs.10,29,300/- to the assessee.
Similarly, it is claimed that Ms. Asha Devi Agarwal had encashed her FDRs (maturity value of Rs.20,60,798/-), who had advanced an unsecured loan of Rs.20 lakhs to the assessee. The above explanation and the documents filed by the assessee has not been dealt by the Ld. CIT(A) person-wise while confirming the addition and dismissing the appeal of the assessee.
8.1. However, it is seen that the assessee did not comply before the Assessing Officer during the assessment proceedings and the ld. CIT(A) has not passed a speaking order in confirming the addition of the Assessing Officer and did not give any specific reasons for rejecting the explanation and the documents submitted by the assessee. Therefore, in the given facts of the case, the above submissions of the assessee and documents relied upon by the assessee requires verification by the Assessing Officer. Therefore, in the interest of justice, we, set-aside the order of the Assessing Officer as well as the Ld. CIT(A) and restore the addition of Rs.71,08,000/- made u/s 68 of the Act and the disallowance of interest amounting to Rs.2,40,000/- to the file of the Assessing Officer for fresh adjudication after giving a reasonable opportunity of being heard to the assessee in light of the above observations and as per law.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 18th July, 2025.