TARACHAND M KUMAWAT,MUMBAI vs. ITO 3(4), THANE

Brief facts of the case are that the assessee filed return of income for relevant AY on 14.02.2010 declaring total income of Rs. 1,88,316/-. The return of income was selected for scrutiny. While framing assessment order, the AO observed that during the year under consideration the assessee purchased a house for consideration of Rs. 40,00,000/-. The assessee was asked to provide the source of investment in the said house. The assessee submitted his reply dated 18.11.2011 and contended that he has taken a loan of Rs. 13,45,000/- from 18 persons (creditors). The AO issued letter to all person and after making enquiries, the AO concluded that assessee could not prove the creditworthiness and genuineness of 9 creditors who had given the loans of Rs. 9,60,000/-. Thus, out of loan of Rs. 13,45,000/-, a sum of Rs. 9,60,000/- was added u/s. 68 of the Act, in the income of assessee. Aggrieved by the order of AO, the assessee filed an appeal before the CIT(A) but without any success. Fact of Similarly, the assessee in ITA No. 415/M/16, while framing assessment, the AO asked the assessee to prove the genuineness of a loan of Rs. 5,24,000/- from one Smt. Purnima. The assessee furnished the confirmation from the creditor. The assessee was again asked to produce bank account, I.T. Returns and a creditworthiness of the person. The AO issued notice u/s 133(6) through registered AD to the creditor but no response was received, thus the loan amounting to Rs. 5,24,000/- was added u/s 68 of the Act in the income of assessee. Aggrieved by the order of AO, the assessee filed appeal before the CIT(A). Thus, both the appeals were heard by CIT(A) and decided by a common order impugned in both the appeals.

We have heard the ld Authorised Representative (AR) of the assessee and ld Departmental Representative (DR) for Revenue and perused the material available on record. AR of the assessee argued that during the relevant AY, the assessee purchased a flat in Kandivali for a total consideration of Rs. 42,38,000/- in joint name with his wife Smt. Veena T. Kumawat (appellant in ITA No. 415/M/16). The assessee arranged loan from his relatives and friends. Before the AO, the assessee furnished necessary confirmation from 18 creditors. The AO disputed the creditworthiness and genuineness of loan from 9 creditors of Rs. 9,60,000/-. The assessee further furnished the confirmation letter from all the creditors which include Shri Madanlal (father of assessee), Nilesh Varma, Purnima, Puranmal, Mahesh Kumar, Jagdish Prasad, babulal, Ganesh Lal and Mahadev Prasad. The AO despite giving sufficient evidence about the genuineness of transaction and creditworthiness of the creditor and identity of the creditors added the loan amount u/s 68 of the Act in the income of assessee. The AR of assessee further argued that assessee in ITA No. 415/M/16 also availed loan of Rs. 5.24 lacs from one Smt. Purnima Prajapati. The assessee filed confirmation of creditor along with details of cash book. To prove the creditworthiness of Smt. Purnima Prajapati, the assessee filed copy of appointment letter/contract for special services of Smt. Purnima with Kotak Mahindra Bank. The assessee further furnished a copy of details of compensation/salary package of Smt. Purnima Prajapati along with copy of bank statement of HDFC Bank. Ld. AR of assessee argued that despite giving sufficient documentary evidences, the AO instead of considering the genuineness of transaction and creditworthiness of the creditor, added the amount of loan in the income of assessee u/s 68 of the Act. The identities of the creditors were not disputed by the AO. On the other hand, ld. Ld DR for Revenue strongly supported the order of authorities below.

We have considered the rival contentions of the parties and perused the material available on record. The AO, on the basis of enquiry treated the unsecured loan of Rs. 9,60,000/- out of total loan of Rs. 13,45,000/- as unexplained details of which has been referred in paragraph no. 3 of its order. During the appellant proceeding, the CIT(A) sought the remand report on furnishing the confirmation by Shri Nilesh Varma along with his income-tax return, copy of bank passbook. Confirmation of Smt. Gulabi Devi wife of Shri Madanlal Kumawat, confirmation of Purnima Prajapati, confirmation from Jagdish Prasad, Babulal, Ganeshlal, Nilesh Varma. In the remand report, the AO referred that Nilesh Verma filed his reply in Tapal on 25.06.2015 and not attended the proceedings personally. For Madanlal Kumawat (father of assessee/creditor), assessee submitted that his father has expired and assessee is unable to furnish the Bank Passbook. For Smt. Purnima Prajapati, the AO referred that Smt. Purnima Prajapati filed her PAN Card, extract of Bank Passbook and Appointment Letter from ING Vysya Life Insurance, Pay-in-Slip of loan confirmation. On summoning u/s 131 of the Act, she did not personally attend the proceedings. However, the AO referred that on perusal of bank statement that there were major cash deposit in and around on the dates when cheques were issued in favour of assessee or assessee’s wife and for remaining unsecured loan of Rs. 1,20,000/-, the AO referred that except the copy of Voter ID/PAN Card and referred that the creditors could not prove the genuineness of cash deposit in their submissions. Similarly, in case of Veena T. Kumawat, a remand report was sought from ITO/AO. In remand report the AO referred that she had filed copy of PAN Card, extract of bank passbook, appointment letter of her employer, Pay-in-Slip and loan confirmation. The AO referred that though reply was filed by the creditor but creditor did not attend the proceeding personally and concluded in his report that perusal of bank statement, the major cash deposit in her account were in and around on the dates which cheques were issued in favour of the assessee. We have noticed that in case of Tarachand (assessee in the major loan transaction of Rs. 25,00,000/- from Madanlal, who is father of assessee and from Nilesh Varma, Rs. 5,50,000/- and rest of the credit are very meager amount i.e. Rs. 20,000/- each from six person and Rs. 40,000/- from Purnima Prajapati. Shri Nilesh Varma has given the confirmation-cum-declaration declaring that he had given a loan of Rs. 5,50,000/- to the assessee through cheques, details of which is referred in confirmation letter. Which are duly supported by the copy of bank statement of assessee. The revenue authorities have not disputed the transaction through banking channel. The other major amount was taken from Madanlal, who happens to be father of the assessee whose death of certificate is placed on record. Mother of assessee (wife of Madanlal) filed a confirmation letter that her husband gave Rs. 2,50,000/- to her son to purchase a house. Smt. Purnima Prajapati also gave a confirmation letter along with his PAN Number a loan of Rs. 40,000/-. Rest of the loan amount for remaining six persons are very meager amount of Rs. 20,000/- each. Considering the peculiarity of fact, that major amount was given by Nilesh Varma that too though banking transaction. The major doubt of the Revenue is that there was no major cash deposit in the bank account of Nilesh Varma and the cash were deposited in and around on the dates when cheques were issued in favour of the assessee. The identities of any of the creditors were not disputed by the Revenue. The assessee proved the genuineness of transaction and the creditwortyness of the creditors by way of documentary evidences. As per our considered view, the mere suspicion for deposit of amount in the account of creditor cannot be a basis for rejecting the confirmation which duly supported and corroborated by documentary evidences of banking transaction, thus, the addition of Rs. 5,50,000/- is deleted. The other major amount of Rs. 2,50,000/- was given by the father of assessee. The father of assessee was employed, though not income-tax assessee. The transaction of Rs. 2,50,000/- which was made by creditor(father) for purchase of house can also not be doubted. Thus, this amount is also deleted from the addition u/s 68 of the Act. Remaining amount are very meager amount and all the creditor gave their confirmation letter, keeping in view the smallness amount which was arranged/borrowed by assessee for acquiring the house is also deleted from the addition u/s 68 of the Act.

Similarly Smt. Veena Kumawat availed a loan of Rs. 5,54,000/- from Smt. Purnima Prajapati. Smt. Purnima Prajapati was employed in Kotak Mahindra Bank. The assessee availed the loan through account payee cheque, details of which were provided by creditor in his confirmation letter. As per details (Page No. 42 of PB), the assessee filed the details of cash-book maintained by creditor. The creditors were employed in Bank, thus, the assessee proved the creditworthiness of creditor, genuineness of transaction and identity of the creditor. The Revenue authority has not disputed the identity of the creditor and the banking transaction. The creditors were employed in a Bank, thus in our considered opinion, creditworthiness of creditor cannot be doubted. In our opinion the assessee proved the identity of creditor, creditworthy and genuineness of transaction. Thus, the addition made by AO and confirmed by the CIT(A) for Rs. 5,24,000/- made u/s 68 of the Act against the assessee is deleted.

In the result, both the appeals filed by the assessee are allowed. Order pronounced in the open court on this 07/09/2016.