ACIT,CIR.20(1), MUMBAI V. GIRISH SHAMJI CHHEDA, MUMBAI

ITA 3123/MUM/2025

AI Insights

The case involves an appeal by the Assistant Commissioner of Income Tax (ACIT) against the order of the Commissioner of Income-tax (Appeals) which had allowed the assessee's appeal. The primary issues in the appeal were the disallowance of interest expenses under section 36(1)(iii) and the addition of unexplained cash credits under section 68. The Tribunal examined whether the CIT(A) had erred in deleting these additions, considering the nature of the transactions and the evidences provided. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had consistently declared interest income under 'Income from other sources' in previous years, which had been accepted by the Revenue.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 786275 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2020-2021
• Appeal Filed On: 02-05-2025
• Other Referred Cases: PCIT-8 V. Quest Investment Advisors (P) Ltd., PCIT V. Banzai Estates (P) Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: FENIL BHATT
• Assessee Lawyers: SWAPNIL CHOUDHARY
• Keywords: Business income; Additional evidence; Business expenditure; Unexplained cash credit; Rule of consistency
• Section: 143(3); 68

Judgement Text

"IN THE INCOME-TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER & SMT.RENU JAUHRI, ACCOUNTANT MEMBER ITA No.3123/MUM/2025 (A.Y.2020-21) ACIT,CIR. 20(1) 3rd Floor, Piramal Chambers, Lalbaug, Lower Parel, Mumbai-400012. Vs. Girish Shamji Chheda 227, Sukh Sagar, Sir Bhalchandra Road, Matunga, Mumbai-400019. \u0001थायी लेखा सं./जीआइआर सं./PAN/GIR No:ACYPC2995G Appellant .. Respondent Appellant by : Shri Fenil Bhatt, Adv. Respondent by : Shri Swapnil Choudhary- Sr. AR Date of Hearing 01.10.2025 Date of Pronouncement 30.10.2025 आदेश / O R D E R PER RENU JAUHRI [A.M.] :- This appeal is filed by the assessee against the order of the Learned Commissioner of Income-tax (Appeals), Mumbai/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] dated 05.03.2025 passed u/s. 250 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for the Assessment Year [A.Y.] 2020-21. Printed from counselvise.com P a g e | 2 ITA NO. 3123/mum/2025. 2. The grounds of appeal are as follows: “1. Whether on the facts and circumstances of the case, the CIT(A) has erred in deleting the addition made on account of interest income and interest expenses under the head income from Business without appreciating the nature of transactions of the assessee. 2. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition made by the AO u/s.36(1)(iii) of Rs. 1,47,99,790/-, when the entire process is treated as assessee's business and as per section, direct nexus of the amount taken by the assessee for the investment is also proven. The expenses claimed is also treated as business expenses. 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made u/s.68 as unexplained cash credits of Rs.3,61,16,600/- without apprecinting the fact that the assessee failed to prove the genuineness and creditworthiness of transactions of unsecured loans when the onus of proving the same is cast upon the assessee. 4. The appellant prays that the order of the National Faceless Appeal Centre (NFAC), Delhi on the above grounds be reversed and that of the AO be restored. 5. The appellant craves leave to amend or alter any ground or submit additional ground which may be necessary.” 3. Basic facts of the case are that the assessee filed his return declaring income of Rs. 93,62,000/- for A.Y. 2020-21, on 29.12.2020. The assessee derives income from the proprietory business in the name of M/s. Viraj Highway Inn. The case was selected for limited scrutiny and after considering the partial details filed by the assessee, the assessment was completed vide order u/s. 143(3) r.w.s 144B at an income of Rs. 5,43,74,336/-. Following additions were made to the returned income: i. Disallowance u/s. 36(1)(iii) -1,47,99,790/- ii. Unexplained Cash Credits u/s. 68 -36,116,600/- Printed from counselvise.com P a g e | 3 ITA NO. 3123/mum/2025. Aggrieved, the assessee preferred an appeal before ld. CIT(A). Vide order dated 21.09.2022, ld. CIT(A) allowed the assessee’s appeal on both grounds after examining the additional evidences filed by the assessee during the course of appellate proceedings. Aggrieved, the revenue is now in appeal before the Tribunal. 4. Ground no. 1 &2 : Addition on account of disallowance u/s. 36(1)(iii) – Rs. 1,47,99,790/- 4.1 Brief facts related to this issue are as under: The assessee had invested an amount of Rs. 51,23,88,382/- with M/s. Shivam Megastructure Pvt. Ltd. on which interest of 2,83,07,147/- was earned during the year. On the other hand, loans have been taken for making this investment and interest @15% has been paid to the concerned parties. Total interest of Rs. 2,23,23,670/- thus paid by the assessee has been claimed as expenses u/s. 57 of the Act against interest income which has been shown under the head ‘Income from other sources’. Ld. AO held that the assessee is paying interest @15% while earning interest @ 5.52% from M/s. Shivam Megastructure Pvt. Ltd. He, therefore, disallowed differential interest @ 9.48% [15%-5.52%] on the opening balance of loans accepted (Rs. 15,61,15,928/-) and an amount of Rs. 1,47,99,790/- was accordingly disallowed u/s. 36(1)(iii) of the Act after treating the transactions as business activity of the assessee. 4.2 Aggrieved, the assessee preferred an appeal before ld. CIT(A), challenging the action of the AO on several counts. It was contended by the assessee Printed from counselvise.com P a g e | 4 ITA NO. 3123/mum/2025. that ld. AO had violated the Principle of consistency and ignored past history of the case. Secondly, the ld. AO exceeded the scope of limited scrutiny by changing the head of the income. Thirdly, the assessee own funds and personal capital was much more then the loans taken. Ld. CIT(A) examined in detail the submissions of the assessee and allowed relief with the following observations: “8.7.5. The appellant has own capital of Rs. 43.35 Cr as on 31.03.2020. The appellant also has sources from Loans from LIC and others. Thus the sources of funds are 'mixed funds'. The investment in Loans and advances is Rs. 53 19 Cr. It has been held by higher judiciary, that in cases of 'mixed funds', it is presumed that the appellant has first utilized his 'own' capital for advancing the Loans. If I confine myself to the examination carried out by Ld. AO, with respect to Loans and advances to Shivam megastructure private Limited, it can be said that source of Loan of Rs. 51.23 Cr to Shivam megastructure is sourced from appellant's own interest free capital account of Rs. 43.35 Cr. The balance amount of about Rs. 8 Cr can be said to be attributable to the interest-bearing sources fund. So, the only point of consideration with AO should have been the amount of Rs. 8 Crore, even if he had embarked on a journey under section 36(1)(iii). The AO has mentioned a rate of 5.52% on which loan has been advanced to Shivam megastructure. This would amount to Rs. 2.82 Cr, at the rate of 5.52 percent on Loans and advances of Rs. 51.23 Cr. While the interest outgo on interest bearing funds of Rs. 8 Cr, even at the rate of 15% adopted by the AO would be Rs. 1.20 Crores. The transaction is net positive for the appellant to the extent of Rs. 1.62 Crores. Thus even under sec 36(1)(iii), even at assumed rate of interest inflow and outgo of 15% adopted by the AO and broad computations, the conclusions of Ld. AO are not supported by the factual matrix. The conclusions of Id. AO cannot be accepted and are hence rejected. There is no basis of addition of Rs. 1.48 Crores, without appreciating that the appellant had 'mixed sources' of funds, of which capital account had substantial interest free funds. 8.7.6. In his submissions, the appellant has emphasized on non-examination of factual matrix by the AO, and ignoring that there were substantial interest free funds available with the appellant. The appellant has contended that the department cannot question the commercial decision of a business man, and that the records to show valid connection between the loans and interest has been placed before the department and direct nexus has been established. The appellant has contended that personal loans from personal capital account has been advanced to earn passive income on the available capital, and the appellant has multiple other business venture. The rationale for treating the activity as business just because 44 entities are involved has been contended. 8.7.7. Further, in the actual context of 'limited scrutiny', i.e. examination of expenses under the provisions of section 57, on the touchstone of 'wholly and exclusively,\" Ld AO has not given any adverse comments. I have also examined the material on record. I am also of the considered opinion that the material on record do-not suggest that there has been a violation of provisions Printed from counselvise.com P a g e | 5 ITA NO. 3123/mum/2025. of section 57 in this case. The expenses have been incurred towards the purpose of lending and advancing loans, as can be seen from the detailed ledger accounts, capital account of the appellant, and the balance-sheet and the Return of Income. The substantial deduction under IFOS appears actually for IFOS, and is mainly the outgo on interest bearing loan, and, from the historical records of the appellant, is justifiable. One cannot ignore the fact that by permutations and combinations, and decisions of the appellant, there is a taxable IFOS of about Rs. 60.51 Lakhs during the year. It is held that on the facts and circumstances of the case for the impugned assessment year, there is no case for making any disallowance under section 57, and to such extent, the assessment order is acceptable. The additions u/s 36(1) (iii) made by AO are not sustainable.” 4.3 Before us, ld. DR has argued that the AO had not gone beyond the scope of limited scrutiny as the CBDT circular no. 20 of 2015 provides for examination of connected issues during limited scrutiny and the issue related to the claim of interest expenses was well within the scope of limited scrutiny which was on the grounds as under: “\"Assessee has claimed substantial deduction under the head income from other sources, u/s 57 of the Act\" and \"As per tax audit report substantial amount of loans has been squared up by the assesse during the year. The genuineness of the transaction, identity of persons who has given the loans, whether the loans has been genuinely returned to the creditors and whether the amounts were returned as per the provisions of section 269SS\".” Further on the issue of consistency, ld. DR reiterated the well settled principle that Res Judicata does not apply to tax proceedings. On the merits of the issue, ld. DR has requested that the matter may be remanded to the AO as additional evidences filed during the appellate proceedings have not been examined by the AO. 4.4 Ld. AR, on the other hand, has strongly relied on the order of ld. CIT(A). He has also placed on record relevant documents in the form of a paperbook in support of his arguments. It has been demonstrated by way of a chart placed on record that the lenders are from earlier years as there are opening balances in their ledger accounts. Further, no such issue was Printed from counselvise.com P a g e | 6 ITA NO. 3123/mum/2025. raised in the earlier years by the ld. AO even though the cases were assessed under limited/complete scrutiny. Further he opposed the proposition of ld. DR to remand the matter to the ld. AO for examination of evidence and pointed out that the revenue had not raised any such ground against admission of additional evidences by the ld. CIT(A). Further, ld. AR places reliance on the following decisions of Hon’ble Jurisdictional High Court in support of his arguments on the principle of consistency. i. PCIT-8 V. Quest Investment Advisors (P) Ltd. [2018]96 taxmann.com 157(Bom) wherein it was held that principle followed by revenue for 10 earlier years was that entire expenditure of assessee was to be allowed against professional income and no expenditure was to be allocated to capital gain, in the absence of any change in circumstances, following the principle of consistency. ii. PCIT V. Banzai Estates (P) Ltd. [2024] 265 taxmann.com 412(Bom) wherein it was held that where the assessee had been consistently showing income from house property owned by it under the head ‘Income from house property’ which was accepted by the revenue. Ld. AO was not justified in treating the same as business income, even though the assessee was in the business of settling properties. 4.5 We have heard the rival submission and examined the material placed on record as well as the judicial pronouncements on the issue at hand. Printed from counselvise.com P a g e | 7 ITA NO. 3123/mum/2025. Admittedly, the assessee has been declaring the interest income under the head ‘Income from other sources’ in earlier years and the same had been accepted by the Revenue as per chart below: Sr No AY Details of order Details of order Returned Income ( in Rs.) Assessed Income Claim of IFOS similar to current Appeal 1 2017-18 Complete scrutiny u/s. 143(3); 24/12/2019 7,05,64,360 7,05,64,360 Yes `2 2018-19 Limited scrutiny 143(3); 21/01/2021 7,09,27,600 7,09,27,600 Yes 3 2022-23 Complete scrutiny 143(3); 23/03/2024 19,69,440 19,69,440 Yes Further the yearwise disclosure of interest was made as under: Asst. Year Interest Income Interest Expenses Difference of Interest 2017-18 5,69,25,020 67,67,745 5,01,57,275 2018-19 3,94,18,406 87,87,025 3,06,31,381 2019-20 6,13,74,408 2,70,84,802 3,42,89,606 2020- 2021 2,83,74,866 2,23,23,670 60,51,196 2021-22 1,46,578 2,27,59,344 -2,26,12,766 (restricted to - 26,32,457/- i.e to Income) 2022-23 2,54,29,435 2,38,37,902 15,91,533 From the above, it is clear that the assessee has been declaring net interest as ‘Income from other sources’ in earlier as well as subsequent years and the revenue has also accepted the same after complete scrutiny. Hence, there was no justification for making the impugned addition in the year under consideration. We do not find any infirmity in the order of ld. CIT(A) in allowing relief to the assessee on this issue and accordingly Printed from counselvise.com P a g e | 8 ITA NO. 3123/mum/2025. the revenue’s ground of appeal challenging allowance of interest paid u/s. 57 is hereby dismissed. 5. Ground No. 3 : Unexplained cash credits u/s. 68 – Rs. 3,61,16,600/- Facts relating to this issue are that issue regarding verification of squared up loans during the year, as reflected in the Audit report was flagged for limited scrutiny. Accordingly, details relating to the unsecured loans were sought by the ld. AO, in response to which, a list containing details of lenders was submitted by the assessee. Out of these, ld. AO identified the following loans in respect of which requisite details such as confirmation, copy of ROI and bank statement of lenders were not furnished: 1 Asian Petrolium Centre 1,56,16,600 `91,00,000 65,16,600 2 Rajen Petroleum 84,00,000 32,20,000 51,80,000 3 Broadway automobile 20,00,000 Nil 20,00,000 4 Airoli Service Centre 12,00,000 Nil 12,00,000 5 Ashish Ojha 10,00,000 Nil 10,00,000 6 NarendraFuria 25,00,000 Nil 25,00,000 7 Rajesh T Shah 20,00,000 Nil 20,00,000 8 Tarachand S Shah 34,00,000 Nil 34,00,000 Total 3,61,16,600 Total 2,37,96,600 As requisite compliance was not made despite three show cause notices issued by the ld. AO, these loans totaling Rs. 3,61,16,600/-were treated as unexplained and added u/s. 68 of the Act. 5.2 During the appellate proceedings, the assessee filed additional evidences before ld. CIT(A) to demonstrate the identity, creditworthiness of these lenders and genuineness of the transactions in the form of bank statements, confirmations letters and copies of IT returns etc. Ld. CIT(A) proposed to admit the additional evidence and forwarded the same to Printed from counselvise.com P a g e | 9 ITA NO. 3123/mum/2025. submit to the ld. AO a remand report. As no remand report was submitted by the ld. AO despite reminders to him and his supervising authorities, ld. CIT(A) admitted the additional evidences after noting that there has not been any objection from the side of AO in this regard. After considering the documentary evidence in support of each of the lenders, ld. CIT(A) accepted the loans as genuine and deleted the addition of Rs. 3,61,16,600/- made u/s. 68 of the Act. 5.3 Before us, ld. DR has argued that there was no proper examination of the additional evidences by ld. CIT(A). He pointed out that in several lenders bank accounts, cash had been deposited immediately before issuing the cheque for the loan amount. He has accordingly, requested for remanding this issue to the ld. AO for requisite verification of the additional evidences filed before ld. CIT(A). 5.4 Ld. AR, has however, opposed the contention of ld. DR and has pointed out that neither before the ld. CIT(A) nor in the grounds taken before the Tribunal, ld. AO has raised objection to the admission of additional evidences. He has also submitted the following documents in the form of a paper book before us: “Documentary Evidence to establish of Lender Identity, Creditworthiness and Genuineness of Transaction under Section 68: I. Asian Petroleum Centre i. Ledger Confirmation. ii. ITR Ack of 3 Years (AY 2019-20 to AY 2021-22). iii. Extract of Bank Statement of Asian Petroleum Centre for the period 01-04- 2019 to 30-04-2019. Printed from counselvise.com P a g e | 10 ITA NO. 3123/mum/2025. iv. Extract from Additional Written Submission dated 19.02.2025-Ledger of Asian Petroleum Centre in the Books of Viraj Highway Inn (Prop. Girish S. Chheda) [FY 2016-17 to FY 2020-21]. II. Rajen Petroleum i. Ledger Confirmation. ii. ITR Ack of 3 Years (AY 2019-20 to AY 2021-22). iii. Extract of Bank Statement of Rajen Petroleum for the period 16-10-2019 to 19-11-2019 and 01-02-2020 to 31-03-2020. iv. Extract from Additional Written Submission dated 19.02.2025 - Ledger of Rajen Petroleum in the Books of Viraj Highway Inn (Prop. Girish S. Chheda) [FY 2016-17 to FY 2020-21]. III. Broadway Automobile i. Ledger Confirmation. ii. ITR Ack of 3 Years (AY 2018-19 to AY 2020-21). iii. Extract of Bank Statement of Broadway Automobile for the period 27-06- 2019 to 29-06-2019. iv. Extract from Additional Written Submission dated 19.02.2025-Ledger of Broadway Automobile in the Books of Viraj Highway Inn (Prop. Girish S. Chheda) [FY 2017-18 to FY 2020-21]. IV. Airoli Service Centre i. Ledger Confirmation. ii. ITR Ack of 3 Years (AY 2018-19 to AY 2020-21). iii. Extract of Bank Statement of Airoli Service Centre for the period 01-09-2019 to 11-09-2019. iv. Extract from Additional Written Submission dated 19.02.2025 - Ledger of Airoli Service Centre in the Books of Viraj Highway Inn (Prop. Girish S. Chheda) [FY 2016-17 to FY 2020-21]. V. Ashish Ojha i. Ledger Confirmation. ii. ITR Ack of 3 Years (AY 2019-20 to AY 2021-22). iii. Extract of Bank Statement of Ashish Ojha for the period 09-08-2019 to 10- 02-2020. iv. Extract from Additional Written Submission dated 19.02.2025- Ledger of Ashish Ojha in the Books of Viraj Highway Inn (Prop. Girish S. Chheda) [FY 2016-17 to FY 2020-21]. Printed from counselvise.com P a g e | 11 ITA NO. 3123/mum/2025. VI. Narendra Furia i. Ledger Confirmation. ii. ITR Ack of AY 2020-21. iii. Extract of Bank Statement of Narendra Furia for the period 01-10-2019 to 20-12-2019 and 01-04-2020 to 30-06-2020. iv. Extract from Additional Written Submission dated 19.02.2025 - Ledger of Narendra Furia in the Books of Viraj Highway Inn (Prop. Girish S. Chheda) [FY 2019-20 to FY 2020-21]. VII. Rajeshwari T Shah i. Ledger Confirmation. ii. ITR Ack of 3 Years (AY 2018-19 to AY 2020-21). iii. Extract of Bank Statement of Rajeshwari T Shah for the period 01-11-2019 to 30-11-2019. iv. Extract from Additional Written Submission dated 19.02.2025-Ledger of Rajeshwari T Shah in the Books of Viraj Highway Inn (Prop. Girish S. Chheda) [FY 2016-17 to FY 2020-21]. VIII. Tarachand S Shah i. Ledger Confirmation. ii. ITR Ack of 3 Years (AY 2018-19 to AY 2020-21). iii. Extract of Bank Statement of Tarachand S Shah for the period 01-08-2019 to 31-08-2019 and 01-11-2019 to 30-11-2019. iv. Extract from Additional Written Submission dated 19.02.2025-Ledger of Tarachand S Shah in the Books of Viraj Highway Inn (Prop. Girish S. Chheda) [FY 2016-17 to FY 2020-21].” In view of above, ld. AR has argued that the onus to establish the identity and creditworthiness of the lenders and to prove the genuineness of the transactions has been successfully discharged by the assessee and therefore ld. CIT(A) has rightly deleted the addition after detailed discussion in para 9 of the appellate order and his order deserves to be upheld. Printed from counselvise.com P a g e | 12 ITA NO. 3123/mum/2025. 5.4 We have heard the rival submissions and perused the material placed on record. Admittedly, the requisite evidences were not filed by the assessee during the assessment proceedings, resulting in the impugned addition u/s. 68 of the Act. However, before ld. CIT(A), the assessee duly filed an application for admission of additional evidences which was accepted. Accordingly, ld. CIT(A) after detailed examination of evidences furnished in respect of each of the loans, came to the conclusion that the assessee has discharged his onus u/s. 68 with regard to proving the identity and creditworthiness of the lenders as well as genuineness of the transactions and allowed relief to the assessee with the following observations: “10.2.1. Decision: This issue has been extensively dealt with in paragraph 9, (paras 9.1-9.5.13), supra. Based on the discussion, it is held that there is no case for deeming additions u/s 68 of the IT Act. The appellant has been able to discharge the onus under section 68 and to satisfactorily explain the unsecured loan appearing as credits from various entities. The nature and source of the credits has been explained. The addition of Rs. 36116,600/- is ordered to be deleted. The ground of appeal is allowed.” We also note that ld. AO did not object to the admission of additional evidence nor submitted any remand report despite reminders to him and his superior authorities as mentioned in the order of ld. CIT(A). Even before us, no specific ground against admission of addition evidence by ld. CIT(A) has been raised by the revenue. 5.5 Considering the totality of facts and circumstances, we are of the considered view that the addition u/s. 68 has been rightly deleted by ld. CIT(A) as the onus has been successfully discharged by the assessee. Accordingly, this ground of revenue challenging deletion of addition of Printed from counselvise.com P a g e | 13 ITA NO. 3123/mum/2025. Rs. 3,61,16,600/- on account of unexplained cash credits u/s. 68 is hereby rejected. 6. In the result, the revenue’s appeal is dismissed. Order Pronounced in Open Court on 30.10.2025 Sd/- Sd/- (PAWAN SINGH) (RENU JAUHRI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Place: Mumbai Date 30.10.2025 Anandi.Nambi/STENO आदेश की \u0015ितिलिप अ\u001aेिषत/Copy of the Order forwarded to : 1. अपीलाथ\b / The Appellant 2. थ\b / The Respondent. 3. आयकर आयु\u0011 / CIT 4. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण DR, ITAT, Mumbai 5. गाड\u001b फाईल / Guard file. स ािपत ित //True Copy// आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण/ ITAT, Bench, Mumbai. Printed from counselvise.com "