AKHIL K DALAL,MUMBAI vs. ITO RG 4(1)(1), MUMBAI

In this appeal, the solitary issue raised by the assessee is with regard to the action of income-tax authorities in holding that the loan of Rs.30,00,000/- received from Mr. M.K. Meattle is ‘unexplained’ within the meaning of Sec. 68 of the Act.

In brief, the relevant facts are that the appellant is an individual who was engaged in the business of share broking during the relevant previous year relating to the captioned assessment year of 1991-92. Initially, assessee filed a return of income for Assessment Year 1991-92 on 31.10.1991 declaring a loss of Rs.41,89,960/-. The assessment was originally completed on 31.3.1994 determining the total income at Rs.4,43,950/-. The said assessment was subsequently reopened and an assessment u/s 143(3) r.w.s. 147 of the Act was made on 23.3.2001. At the time of original assessment, notices u/s 131 were, inter-alia, issued to certain parties which included Mr. M.K. Meattle. The assessee had filed the confirmation of loan from Mr. M.K. Meattle in the original proceedings. Subsequently, the Assessing Officer made inquiries and found the transaction with Mr. M.K. Meattle as not genuine and, therefore, the reopening of assessment. In the reassessment proceedings, the Assessing Officer, inter-alia, made an addition treating the loan of Rs. 30,00,000/- received from Mr. M.K. Meattle as ‘unexplained’ vide assessment order dated 23.3.2001. Subsequently, this addition travelled to the Tribunal after the CIT(A) had deleted it vide order dated 23.12.2002. The Tribunal, vide order in dated 11.5.2007 in the appeal filed by the Revenue against the order of CIT(A) dated 23.12.2002, remanded the issue relating to addition of Rs. 30,00,000/- treating the loan from Mr. M.K. Meattle as ‘unexplained’ to the file of the Assessing Officer with the following directions :-

In pursuance of such directions, the Assessing Officer has passed the impugned order. As per the Assessing Officer, assessee has not furnished copy of bank account of Mr. M.K. Meattle and the PAN number of Mr. M.K. Meattle and, therefore, the genuineness of the transaction could not be proved, though the Assessing Officer accepted that the identity of the creditor stood proved. The Assessing Officer added the amount of Rs.30,00,000/- to the total income. For similar reasons, the CIT(A) has also upheld the addition, against which the assessee is in appeal before me.

Before me, the learned representative for the assessee pointed out that after remanding of the matter by the Tribunal, assessee had duly explained the transaction. It was pointed out that since the matter was almost 20 years old, assessee could not produce the bank statement, but so far as the confirmation from Mr. M.K. Meattle was concerned, same was duly available on record which, inter-alia, also contained the particulars of PAN, etc. The learned representative explained that the assessee had strained relations with the said creditor, a fact which has been also communicated to the Assessing Officer vide communications dated 18.12.1995 and 21.12.1995, a copy of which is placed on record at pages 117-118 of the Paper Book. In the said communications, it is also evident that the assessee pointed out that there were counter-complaints made by the parties and that the matter was also referred for arbitration proceedings. In the said communication, assessee has also furnished the last known address of Mr. M.K. Meattle with a request that summons should be issued directly to him for appearance before the Assessing Officer. Again, vide communication dated 13.2.1996, copy of which is placed at page 120 of the Paper Book, assessee contended that due to strained relations, assessee was not in a position to produce him but requested the Assessing Officer to ensure his presence by issuing summons u/s 131 of the Act.

On the other hand, Ld. Departmental Representative has reiterated the stand of the Assessing Officer pointing out that the furnishing of confirmation letter was not enough to prove the genuineness of the transaction. In this manner, he has defended the addition made under section 68 of the Act.

I have carefully considered the rival submissions. The sum and substance of the dispute in this appeal is with regard to loan of Rs.30,00,000/- received by the assessee from Mr. M.K.Meattle. The said loan has been treated as ‘unexplained’ within the meaning of section 68 of the Act. Section 68 of the Act casts a burden on the assessee to demonstrate the nature and source of the credit appearing in the books of account. With respect to the impugned loan, the identity of the creditor is not in dispute. In fact, the present proceedings are as a result of the order of the Tribunal dated 11/05/2007(supra), whereby the matter was remanded back to the file of the Assessing Officer for verification of the details, which were to be filed by the assessee; such details being, PAN of the creditor, bank statement confirmation and the copy of bank account. In so far as the PAN details and the confirmation of the creditor is concerned, the same are on record. So however, the other details could not be furnished by the assessee and, therefore, it has been held that the assessee has not proved the genuineness of the transaction and the capacity of the creditor. Before us, Ld. Representative for the assessee pointed out that in assessment year 1993-94, there were certain transactions with Mr. M.K.Meattle, though not relating to loans. Such transactions were a subject matter of scrutiny and in fact, the matter also travelled to the Tribunal and the business transactions carried out by the assessee with Mr. M.K.Meattle have been accepted. According to the Ld. Representative for the assessee, the proceedings for assessment year 1993-94 clearly show that the genuineness and existence of Mr. M.K.Meattle, who had carried out purchase and sale of shares through the assessee has been accepted. The aforesaid aspect has been brought out to support the plea of the assessee that Mr. M.K.Meattle was not a stranger to the assessee and that merely because assessee could not produce bank statement, etc. of the said creditor, the impugned loan transaction could not be treated as non-genuine. Even the reasons for non-furnishing of the required information has been explained, being the strained relationship with the said creditor. Considering the entirety of facts and circumstances of the case, it is quite evident that assessee has been able to produce whatever material that was available with him, and because of the strained relationship with the creditor, no further information could be produced. In fact, assessee had requested the Assessing Officer to issue the requisite summons under section 131 of the Act to the creditor to ensure his attendance. All these aspects suggest that the averments made by the assessee, about the nature and source of the impugned credit has not been found to be false or contrary to the facts. Clearly, on account of certain exceptional circumstances, the bank statement of the creditor could not be produced and for this reason, the transaction could not be treated as ‘unexplained’ within the meaning of section 68 of the Act , since none of the factual assertions otherwise made by the assessee have not been found to be false. Therefore, in my considered opinion, it would in the fitness of things that the impugned addition is deleted. I hold so.

In the result, appeal of the assessee is allowed, as above.