AYE FINANCE (P) LTD.,DELHI V. ACIT, CIRCLE-3(2), DELHI, DELHI

ITA 4825/DEL/2024

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Aye Finance (P) Ltd., a private limited company engaged in providing micro and small business loans, appealed against the order of the Commissioner of Income-tax (Appeals), which sustained the addition made by the Assessing Officer (AO) regarding cash deposits amounting to Rs.2,54,80,348 during the demonetization period. The AO had treated these deposits as unexplained cash credits under section 68 of the Income Tax Act, 1961, and taxed them under section 115BBE. The Tribunal examined the nature of the business, the context of the cash deposits, and the regulatory framework governing the assessee's operations. It was concluded that the deposits were legitimate repayments from borrowers, who were mostly from the unorganized sector and used demonetized currency for loan repayments.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 23834 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHISH TRIPATHI
• Assessee Lawyers: RAKESH GUPTA
• Keywords: Unexplained cash credit; Principle of natural justice; Earning of tax free income
• Section: 143(3); 142(1); 143(2); 68

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: A : NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.4825/Del/2024 Assessment Year: 2017-18 Aye Finance (P) Ltd., M-5, Magnum House-I, Mezzanine Floor, Community Centre, Karampura, ESI SO, Karampura, Delhi – 110015. PAN: AABCD8717B Vs ACIT, Circle 3(2), Delhi. (Appellant) (Respondent) Assessee by : Dr. Rakesh Gupta, Advocate; Shri Somil Agarwal, Advocate & Shri Saksham Agarwal, Advocate Revenue by : Shri Ashish Tripathi, Sr. DR Date of Hearing : 20.02.2025 Date of Pronouncement : 26.03.2025 ORDER PER ANUBHAV SHARMA, JM: This appeal is preferred by the Assessee against the order dated 23..09.2024 of the Commissioner of Income-tax (Appeal), NFAC, Delhi (hereinafter referred as the ‘Ld. First Appellate Authority, or ‘the ld. FAA’ for short) in Appeal No.CIT(A), Delhi-1/10462/2019-20 arising out of the appeal before it against the order dated 28.12.2019 passed u/s 143(3) of the Income Tax ITA No.4825/Del/2024 2 Act, 1961 (hereinafter referred as ‘the Act’) by the ACIT, Circle-3(2) Delhi (hereinafter referred to as the Ld. AO). 2. The assessee is a private limited company and is engaged in providing micro and small business loan registered with the RBI. The return of income for the year was filed at a loss of Rs.5,45,62,060/- which was revised declaring a loss of Rs.5,22,42,666/- and the case of the assessee was picked up for complete scrutiny for the following reasons:- 1. Expenses debited to P&L Account for earning exempt income as per schedule BP of ITR if significantly lower as compared to investments made to earn exempt income. 2. High value receipt of cash shown from third parties in response data. 3. Large share premium received during the year. 4. Introduction of large capital in NBFC/investment companies. 5. Low income in comparison to high loans/advances/investment in shares appearing in balance sheet. 6. Large value cash deposits during demonetisation period reported. 3. During the course of scrutiny proceedings, the AO examined cash deposit of Rs.2,54,80,348/- during demonetization period and after raising necessary queries and seeking explanation, had made the addition which has been sustained by the ld.CIT(A) for which the assessee is in appeal raising the following grounds:- “1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in ITA No.4825/Del/2024 3 making aggregate addition of Rs.2,54,80,348/- on account of cash deposits in the bank account by treating it as alleged unexplained cash credits u/s 68 and taxing the same u/s 115BBE and that too by recording incorrect facts and findings and in violation of principles of natural justice and without considering the facts and circumstances of the case and without appreciating the submissions and evidences filed by the assessee. 2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making aggregate addition of Rs.2,54,80,348/- on account of cash deposits by treating it as alleged unexplained cash credits u/s 68/115BBE, is illegal, bad in law and against the facts and circumstances of the case and the same is not sustainable on various legal and factual grounds. 3. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.” 4. The case of the assessee is that the AO has failed to understand that the customers of the assessee are in unorganized sector and most of them do not have PAN or VAT or service tax or excise registrations and for that reason, they are paying high interest of around 26-28% per annum. It was submitted by the ld. counsel that these small and marginal labourers who borrow, make repayments in cash and the same were deposited during demonetization period. The ld. counsel has submitted that as these borrowers had small savings of demonetized currency, they had deposited the amounts of outstanding loan in cash which was deposited by the assessee against the loan accounts. 5. The ld. DR has, however, supported the findings of the ld. tax authorities below submitting that very reasoned observations have been made on the basis of discrepancies noted from the reply of the assessee. ITA No.4825/Del/2024 4 6. As for convenient discussion, we would like to reproduce the broad conclusions of the AO which formed basis for considering the deposits to be unexplained and para 6.4.4 of the assessment order is accordingly reproduced below:- “6.4.4. Details/information lacking in the reply of the assessee company: 1. The assessee company has provided the details of EMI it has received on 08.11.2016 or during the demonetisation period but has not provided as to what was the actual amount due customer-wise at the commencement of demonetisation period or at the time of payment of EMI during the demonetisation period. 2. The assessee company has not furnished as to whether it has received EMI which were not even due from the customers during the demonetisation period, 3. The assessee company has not provided any justification of having received only one EMI on 08.11.2016 during the entire period of FY 2016- 17. 4. Also, vide submission dated 19.12.2019, the assessee company has submitted that it need some time to prepare the details as physical files are not available with the assessee company. As per the provisions of Companies Act, 1956, the books of accounts should be kept at the registered office of the assessee company or at the business premises. Under no circumstances, the assessee company should keep the important documents with the other company leading to failure on part of the assessee company to submit evidences in support of its submissions. 5. The assessee company has requested for additional working days to compile the details vide letter dated 19.12.2019. The first such notice u/s 142(1) asking for details of cash deposit was sent on 24.05.2019 and after that further notices were also issued. The cash deposit was made during November-December, 2016 i.e. almost 3 years ago. Despite these facts, the assessee company is still seeking time for compiling such critical details to justify the cash deposit made during the demonetisation period given the fact that the assessee company was fully aware of the fact that these cash deposits are subject to detailed scrutiny ever since the notice u/s 143(2) of the Income-tax Act, 1961 was issued on 28.08.2018. ITA No.4825/Del/2024 5 6 The assessee company has totally failed to substantiate how much cash was supposed to be collected or received in the month on November, 2016 specifically on 08.11.2019 in the form of EMIs and how much excess cash has been collected against the actual due/receivable from customers.” 7. After taking into consideration the material on record and submissions, we find that the undisputed facts are that the assessee is an NBFC and is regulated by the Rules for its lending business as provided by the RBI. There is no material taken into consideration or brought on record showing that at any stage the working of the assessee in grant of loans or the acceptance of the repayments of loan have been considered suspicious or otherwise found to be not in conformity with any regulatory measures. 8. Then assessee had provided the details of the deposits along with the loan account head under which these deposits were received. There is substance in the contention of the ld. counsel that as the customers of the assessee are mostly from unorganized sector, they may not be having relevant documents for their banking transactions so as to make repayment of loan only by banking mode. It is quite reasonable and prudent explanation that these borrowers of the assessee may be having the demonetized currency notes and which instead of being deposited with the banks were deposited with the assessee for repayment of the outstanding amounts. Even if the outstanding amounts of loan have been deposited in advance, that cannot be considered a suspicious activity. ITA No.4825/Del/2024 6 9. Nothing is alleged by the ld. tax authorities on the basis of facts and evidences that the loans themselves were fictitious. We find that the assessee had sought opportunity before AO for providing details on the basis of the record which was not immediately available. However, on that basis adverse inference was drawn by AO, as before us and also as set out before the ld. CIT(A), the ld. counsel submitted that the assessee has taken a plea that cash collection between demonetization period has increased by 11 times and increase was rising till July when it was 15 times. During demonetization this rise was by only four times as compared to same period in last financial year. Thus, making it clear that deposit of cash has nothing to do with the demonetization and nothing adverse is established to counter it by the ld. tax authorities below. The assessee had provided copies of four HDFC bank accounts copies of which are placed at pages 90 to 396 of the paper book showing that deposit in cash in bank account was a routine practice in previous years also. Then at page No.129 to 257 of the paper book a chart showing party wise details of loan amount received back as EMI during 04.04.2015 to 31.03.2017 submitting inter alia Branch Name of bank in which cash was deposited by lenders along with their name, PAN and addresses were provided. On pages No. 417 to 421 of the paper book the assessee has provided copy of reply dated 11.12.2019 by which the AO was informed and provided contact details of all lenders/investors/vendors, etc. At pages 21 to 24, copy of audited balance sheet, P&L and cash flow statement showing the amount of loans and advances given/accepted during the previous ITA No.4825/Del/2024 7 and currency were filed and in regard to which no discrepancy was pointed out by the AO. 10. On the basis of the aforesaid, we are of the considered view that the ld. tax authorities below have fallen in error in not appreciating the background of the transactions giving rise to the deposit of cash by the assessee during the demonetization period. Accordingly, we are unable to sustain the addition made by the ld. tax authorities below and consequently allow the grounds raised and the appeal of the assessee is allowed quashing the assessment order. Order pronounced in the open court on 26.03.2025. Sd/- Sd/- (MANISH AGARWAL) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 26th March, 2025. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi "