SHREE SHIVAM COTTON INDUSTRIES,AT ROHISHALA, TAL. TANKARA, DIST. RAJKOT vs. THE ITO WARD-5, MORBI, MORBI

This assessee’s appeal for A.Y. 2017-18, arises from order of National Faceless Appeal Centre (NFAC), Delhi dated 17-09-2021, in proceedings under section 250 of the Income Tax Act, 1961; in short “the Act”.

The assessee has taken the following grounds of appeal:-

On merits, the brief facts of the case are that the assessee is a partnership ship firm engaged in the business of cotton ginning & pressing. During the year under consideration, the assessee had shown total income of Rs. 87,680/-. During the course of assessment, the Assessing Officer observed that the assessee had taken unsecured loan from three depositors Page No 3 Shree Shivam Cotton Industries vs. ITO but the asessee had not submitted any evidence to show the creditworthiness and genuineness of the three depositors. Accordingly, a show cause notice was issued to the assessee to provide evidence in support of the aforesaid depositors. The submissions filed by the assessee taken on record and the Assessing Officer accepted the contentions of the assessee in respect of unsecured loan taken from Shri Jayesh Chandalal for a sum of Rs. 2,50,000/-. However, the Assessing Officer added a sum of Rs. 2,29,000/- in respect of unsecured loan taken from two persons Shri Prakashbhai Shivbhai (Rs. 1,29,000/-) and Shri Shivbhai Manjibhai (Rs. 1,00,000/-).

The assessee appeal filed before ld. CIT(A) and also filed certain additional evidences in the form of confirmation of Shri Prakashbhai Shivbhai and certain other details were also filed before ld. CIT(A). However, the ld. CIT(A) rejected the contentions of the assessee and dismissed the appeal of the assessee with the following observations:-

In respect of loan taken from Prakashbhai Shivlal Koringa amounting to Rs. 1,29,000/- , it is seen that he has a total annual income of Rs. 2,50,000/- only. From his bank account, it is seen that he deposited cash of Rs 1,52,5007- in his bank account which was later on transferred to the appellant by way of a demand draft.

The assessee is in appeal before us against the order passed by ld. CIT(A). The counsel for the assessee submitted that in the instant facts the assessee has clearly proved the identity of the parties, creditworthiness of the parties and the genuineness of the transaction and both the additions in respect of the two depositors were added without any basis in the hands of the assessee. In respect of the first depositor, Shri Prakashbhai Shivbhai, the assessee submitted that Shri Prakashbha Shivbhai is a mechanical engineer and was working with M/s. Ajanta India Ltd. for a long time. His yearly salary was about 2,50,000/-. He is having PAN No. CURPK2255A and had filed return of income for assessment year 2016-17 & 2017-18 even though his income was below taxable limit. The counsel for the assessee submitted that Shri Prakashbhai Shivbhai was receiving salary in cash from the company and he was handing the salary to his father Shri Shivlal Manjibhai who is an agriculturist. At the time of demonetization, his father gave him old currency note of Rs. 1,52,500/- to deposit in the bank account and accordingly on the first day of cancellation of old notes i.e. 09-12-2016 he made cash deposits in his bank account. The depositor/creditor gave loan to the assessee from the aforesaid cash deposits in this bank account. The counsel for the assessee drew our attention to page 18 of the paper book which is the Confirmation of the depositor Shri Prakashbhai Shivbhai. Accordingly, the counsel for the assessee submitted that in the instant facts, Page No 5 Shree Shivam Cotton Industries vs. ITO the identity, genuineness of the transaction and creditworthiness of the party has been clearly established.

We have heard rival contentions and perused the material on record. We observe that the ld. Assessing Officer has made two additions in respect of unsecured loans taken from Shri Prakashbhai Shivbhai of Rs. 1,29,000/- and from Shri Shivlal Manjibhai of Rs. 1,00,000/-. In our considered view from the details placed on record before us, we observe that so far as the first creditor, Shri Prakashbhai Shivbhai is concerned, the assessee has placed on record confirmation from such creditor. Further, we also observe that the creditor is having PAN and had filed return of income of approximately Rs. 2,50,000/- for assessment years 2016-17 & 2017-18, he is a mechanical engineer by profession and has been working for M/s. Ajanta India Ltd. for past many years, copy of his bank passbook was also furnished. We also observe that the aforesaid loan was also repaid back by the company to Shri Shivlal Manjibhai and copy of account statement reflecting the repayment to Shri Prakashbhai Shivbhai has also been produced before us. Accordingly, looking into the above facts, we are of the considered view that the assessee has been able to substantiate identity, creditworthiness and genuineness of transactions in respect of unsecured loan taken from Shri Prakashbhai Shivbhai. Coming to the second creditor Shri Shivlal Manjibhai, we observe that the assessee has filed various details like copy of confirmation from Shri Shivlal Manjibhai before ld. CIT(A), copy of agricultural forms Shri Shivlal Manjibhai, copy of confirmation from Smt. Laxmiben Manjibhai dated 10- 06-2021 to the effect that he had advanced a sum of Rs. 97,000/- to Shri Shivlal Manjibhai, copy of agricultural forms of Shri Shivlal Manjibhai were also furnished before ld. CIT(A) during the course of appellate proceedings. Further, before us, the counsel for the assessee has also produced extracts of the bank statement reflecting repayment of the above Page No 7 Shree Shivam Cotton Industries vs. ITO amount back to Shri Laxmiben Manjibhai which was repaid through banking channel. In the light of the above facts, we are of the considered view that the assessee has been able to establish identity, creditworthiness and genuineness of the transaction in respect of both the unsecured loans. Accordingly, in the light of the above facts, we are of the considered view that in the instant set of facts, the above amount of unsecured loan are not liable to be added to the income of the assessee and accordingly, the additions are directed to be deleted.

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