THE CIT-I, INDORE vs. M/S MAN DEVELOPMENTS, INDORE

Feeling aggrieved by appeal-order dated 17.02.2021 passed by learned Commissioner of Income-Tax (Appeals)-3, Bhopal [“Ld. CIT(A)”], which in turn arises out of assessment-order dated 25.12.2019 passed by learned ACIT, Central-2, Indore [“Ld. AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2017-18, the revenue has filed this appeal on following solitary ground:

Brief facts leading to present appeal are such that the assessee-firm, engaged in the business of real estate, filed return of income for the relevant AY 2017-18 on 31.10.2017 declaring a total income of Rs. 6,77,670/-. The case was subjected to scrutiny by issuing notices u/s 143(2) and 142(1) and ultimately the assessment-order was passed u/s 143(3) at a total income of Rs. 10,54,90,244/- after making certain additions, one of those additions was of Rs. 10,37,78,982/- u/s 68 in respect of unsecured loans (including interest) taken by assessee. The assessee contested the said addition in first-appeal whereupon the Ld. CIT(A) deleted major portion of addition to the extent of Rs. 10,33,73,982/- and upheld the remaining addition of Rs. 4,05,000/-. Now, the revenue is aggrieved by deletion of Rs. 10,33,73,982/- granted by CIT(A) and has come in next appeal before us.

The AO has discussed the impugned addition in Para No. 3 / Page No. 2 to 9 of the assessment-order and noted that during the course of assessment-proceeding the assessee was asked to establish the identity and creditworthiness of loan creditors as well as genuineness of the loan- transactions, but even after giving several opportunities the assessee submitted part-confirmation of accounts and that too without any corroborative documents. The AO further observed that the assesee failed to produce ITR and bank statements of creditors. The AO has also scanned a “List of Unsecured loans” in the assessment-order of as many as 265 creditors, which contains data such as PAN numbers, opening balance, loan taken during year, interest credited, rate of interest, amount repaid during year, TDS out of interest and closing balance. Replying upon decision of Hon’ble Supreme Court in CIT Vs. N. Tarika Properties Investment (2014) 387 (SC) and PCIT Vs. NRA Iron and Steel Pvt. Ltd. (2019), the AO held that supply of PAN data cannot be treated as sufficient disclosure. The AO also relied upon some more decisions as mentioned in assessment-order and Man Development Assessment year 2017-18 ultimately made addition, in Para No. 3.5 of assessment-order, u/s 68 by concluding that the unsecured loans including interest paid during the year were not verifiable and no adequate documentary evidences were furnished by assessee to establish the genuineness of loans taken and interest paid to those parties.

During first-appeal, the assessee invoked Rule 46A and filed additional evidences whereupon the CIT(A) called Remand-Report from AO. The AO filed Remand-Report and thereafter the assessee filed re-joinder to CIT(A). After consideration whereof, Ld. CIT(A) found that during the relevant previous year, the assessee has in fact taken total loans of Rs. 16,91,09,380/- (although the AO made an addition of Rs. 10,37,78,982/-) from 185 lenders. He further noted that in the Remand-Report, the AO has accepted evidences of 102 lenders and raised questioning only on 83 lenders. Thereafter, the CIT(A) dealt with those 83 lenders one by one in a Tabular format on Page No. 34 to 51 of his order. Ultimately, he came to conclude that an addition of Rs. 4,05,000/- only relatable to the loan taken from one Mr. Prakash Jain HUF was sustainable and rest of the addition of Rs. 10,33,73,982/- was not sustainable. Accordingly, he deleted addition to the extent of Rs. 10,33,73,982/-. The observations/findings/conclusions made by CIT(A) in this regard are extracted below for the sake of immediate reference:

Before us, Ld. DR representing the revenue supported the order of AO and very strongly opposed the order of CIT(A) by raising contentions as under:

Per contra, Ld. AR representing the assessee filed a Written- Submission dated 28.02.2023, one Paper-Book and also made oral submissions. The main contentions raised by Ld. AR are as under:

We have considered rival submissions of both sides and perused the material held on record. First of all, we would like to mention that it is an undisputed fact that during assessment-proceeding, the assessee did not file sufficient documentary evidences which led the AO to make addition. However, during first appellate proceeding, the assessee filed additional evidences under Rule 46A whereupon the CIT(A) called remand report from AO, which the AO submitted on 13.10.2020, a copy is placed at Page No. 438 to 448 of the Paper-Book. On perusal of same, it is observed that the AO objected to admission of additional evidences. However, the CIT(A) admitted additional evidences in terms of sub-rule (1)(b) of Rule 46A. Before us, the Revenue-Appellant has not raised any ground to challenge this action of CIT(A); therefore we find that the Revenue has no grievance qua the admission of additional evidences by CIT(A).

Going on merits of the addition, we find from the order of CIT(A) that during the relevant previous year, the assessee has taken total loans of Rs. 16,91,09,380/- from 185 persons. Ld. CIT(A) has further observed that in the Remand-Report, the AO accepted additional evidences of 102 lenders and raised questioning only on 83 lenders. Ld. AR emphasized this point during hearing before us and loudly argued that there is no quarrel with regard to 102 lenders; Ld. DR did not rebut or contradict this aspect. Therefore, we can safely conclude that there cannot be any doubt on the genuineness of loans taken from 102 lenders. Now, we are left with 83 lenders which have been dealt by CIT(A) in Tabular format on Page No. 34 to 51 of his order. On perusal of same we find, as explained by Ld. DR with some illustrations, that the CIT(A) has simple accepted the version of assessee and there is no documentary evidence to support those Man Development Assessment year 2017-18 explanations. In fact, many of the explanations are identical besides being vague and unsupported. Therefore, we do not find any justification in the CIT(A)’s action whereby he has granted relief to assessee based on those vague/unsupported explanations and reduce the entire addition made by AO to just Rs. 4,05,000/-. We also agree with Ld. DR that simply taking loans through finance-broker does not absolve assessee from responsibility to prove the three ingredients of section 68, namely the identity and creditworthiness of the lender and genuineness of transaction. The reasoning given by Ld. AR that PAN data is sufficient, is also not acceptable to us in view of the decisions relied upon by AO in assessment-order. On an overall consideration, we find that in relation to 83 creditors, the assessee’s explanation is weak and not substantiated adequately. However, we agree with the submission of Ld. AR that if the assessee has made repayments in the same year to some of those 83 creditors, the assessee should not be saddled with the addition. Therefore, it requires a complete working at the level of AO to ascertain/verify the data of repayment made in current year against the loans taken in current year. Hence, we think it fit to remand this case back to the file of AO for such limited verification. The AO shall give opportunity to the assessee and the assessee shall furnish a complete working about 83 creditors, specifically showing the loans taken and repayments made during the year, based upon which the AO shall take a final call for the amount of addition to be sustained. It is, however, made clear that no addition shall be made in respect of 102 creditors for which the AO has already accepted additional evidences as narrated earlier. With these directions, this appeal of revenue is allowed.

Resultantly, this appeal of revenue is allowed in terms indicated above.