The ACIT Central-2, Indore V. M/s Man Developments, Indore

ITSSA 171/Ind/2021

AI Insights

The case involves the Income Tax Department (Revenue/Appellant) appealing against the order of the Commissioner of Income-Tax (Appeals) which had deleted the additions made by the AO on account of bogus unsecured loans and related interest deductions. The AO had initially made these additions during the scrutiny assessment for the Assessment Year 2018-19, suspecting the genuineness of the unsecured loans and the creditworthiness of the lenders. The CIT(A) found that the assessee had provided sufficient evidence to establish the identity and creditworthiness of the lenders and the genuineness of the transactions, leading to the deletion of the additions. The Tribunal, however, found contradictions and insufficient verification of facts and thus remanded the case back to the AO for further investigation.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 130418 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 12-09-2023
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 04-07-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 05-12-2021
• Other Referred Cases: CIT Vs. N. Tarika Properties Investment, PCIT Vs. NRA Iron and Steel Pvt. Ltd., Ayachi Chandrashekhar Narsangji, H.K. Pujara Builders, Umesh Electricals vs. ACIT, Aseem Singh vs. ACIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: SUDHIR PADLIA
• Keywords: TDS
• Section: 68; 69C; 143(3); 251

Judgement Text

Page 1 of 12 आयकर अपीलȣय अͬधकरण, इंदौर Ûयायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER IT(SS)A No. 171/Ind/2021 Assessment Year: 2018-19 ACIT, Central-2, Indore बनाम/ Vs. Man Developments, G-9, Man Heritage-62, South Tukoganj, Indore. (Revenue / Appellant) (Assessee / Respondent) PAN: AAKFM2713N Assessee by Shri Sudhir Padlia, CA Revenue by Shri P.K. Mishra, CIT DR Date of Hearing 05.07.2023 Date of Pronouncement 13.09.2023 आदेश / O R D E R Per B.M. Biyani, A.M.: Feeling aggrieved by appeal-order dated 08.09.2021 passed by learned Commissioner of Income-Tax (Appeals)-3, Bhopal [“Ld. CIT(A)”], which in turn arises out of assessment-order dated 24.02.2021 passed by learned ACIT, Central (Circle)-2, Indore [“Ld. AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2018-19, the assessee has filed this appeal on following grounds:- “1. On the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in law in deleting the addition amounting to Rs. 1,95,00,000/- on account of bogus unsecured loans u/s 68 of the Income-tax Act, 1961. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in law in deleting the addition of Rs. 16,01,853/- on account of claim of interest paid on bogus unsecured loans u/s 69C of the Income-tax Act, 1961. M/s Man Developments, Indore ITA No.171/Ind/2021 Assessment year 2018-19 Page 2 of 12 3. On the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in law in deleting the addition of Rs. 1,06,78,995/- on account of claim of interest paid for the lenders of unsecured loans of previous year i.e. 2017-18 u/s 69C of the Income-tax Act, 1961.” 2. Heard the learned Representatives of both sides at length and case- records perused. 3. Brief facts leading to present appeal are such that the case of assessee-firm was subjected to scrutiny assessment wherein these additions were made, namely (i) addition u/s 68 of Rs. 1,95,00,000/- on account of bogus unsecured loans; (ii) disallowance of Rs. 16,01,853/- on account of interest-deduction related to the unsecured loans of Rs. 1,95,00,000/-; and (iii) disallowance of Rs. 1,07,28,203/- on account of interest-deduction related to the unsecured loans treated as bogus in immediately preceding AY 2017-18. Aggrieved, the assessee carried matter in first appeal and got part- relief to a large extent. Now, the revenue has come in this appeal before us assailing the relief granted by in first-appeal. Ground No. 1: 4. This ground relates to the addition of Rs. 1,95,00,000/- made by AO on account of bogus unsecured loans u/s 68 but deleted by CIT(A). 5. The AO has discussed the impugned addition in Para No. 3, more particularly Para No. 3.1 and 3.5, of assessment-order and noted that during the course of assessment-proceeding the assessee was asked to establish the identity and creditworthiness of lenders as well as genuineness of the loan-transactions, but even after giving several opportunities the assessee failed to documentary evidences. In assessment-order, the AO has also made a Table of 32 lenders from whom the assessee has taken the impugned loans; the said Table contains data such as Names, PAN, Loan taken during year, Interest paid, A/c confirmation/ITR/Bank statements filed or not filed. Ultimately, in the last Column of Table titled “Remarks”, M/s Man Developments, Indore ITA No.171/Ind/2021 Assessment year 2018-19 Page 3 of 12 the AO has given his adverse observations/conclusions for each of the lenders wherein broadly he has concluded that the assessee failed to submit even the ITR or Bank statements of lenders. Thereafter, relying 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 eventually made addition u/s 68 by holding the impugned loans as bogus. 6. During first-appeal, Ld. CIT(A) deleted the addition made by AO. The observations/findings/conclusions made by CIT(A) in this regard are extracted below for the sake of immediate reference: “4.1 Ground No. 1 to 3: Through this ground of appeal, the appellant has challenged the addition of Rs. 1,95,00,000/- on account of unexplained unsecured loans u/s 68 of the Act, Rs. 16,01,853/- on account of disallowance of interest expenses and Rs. 1,07,28,203/- on account of interest expenses paid for loan taken in A.Y. 2017-18. The AO during the course of assessment proceedings observed that assessee has taken unsecured loan of Rs. 1,95,00,000/- during A.Y. 2018-19, however, has failed to establish identity and creditworthiness of the lender and genuineness of the transaction and, therefore, made addition to the income of the appellant. 4.1.1 I have considered the facts of the case, plea raised by the appellant and findings of the AO. The appellant before me as well as before AO has admitted that it has taken unsecured loan of Rs. 1,95,00,000/- from 32 different individuals/companies/firms and has paid interest on these loans after deducting applicable TDS. The appellant in support has filed copies of confirmation from lenders and other documents before the AO which has been summarized by the AO in tabulated form in the body of assessment order. The AO in the table reproduced on page 14 to 21 of the assessment order has accepted that appellant has filed confirmation and PAN details of all the lenders. The only reason given by the AO before making huge addition is that the appellant has not furnished copies of ITR or bank account statement. 4.1.2 The appellant has also contended that it has made repayment of loan in various cases and has paid interest after deducting TDS. As discussed above and as evident from the assessment order, the appellant has furnished all details such as documents relating to identity, creditworthiness of the lender and genuineness of the transactions and M/s Man Developments, Indore ITA No.171/Ind/2021 Assessment year 2018-19 Page 4 of 12 if few of the details were not filed, the AO could have called information internally or from bank whose details were given by the lenders while filing their ITRs. Thus, prima facie liability of the assessee to prove the genuineness of the transaction and to establish the identity and creditworthiness of the lender stands discharged. Thus, considering the fact that the lender is group person and is regular tax assessee’s and have given the loan through account payee cheque and have confirmed the transaction the liability of the assessee of explaining the genuineness of the transaction stands discharged and the addition cannot be made on mere suspicion how so strong the reasons of suspicion may be. The evidences furnished by the appellant in the case of above mentioned 32 lenders are either not considered for want of bank account statement or ITR of the lenders. The AO could have called bank account statements of the lenders on its own and the ITR could have been verified from the data base of the Department. However, not doing so, the AO has only alleged appellant for not furnishing evidences. Further, the AO should have considered that full/partial repayment has already been made to lenders by the appellant after paying interest and deducting applicable TDS. The AO cannot discredit evidences on record and before him during assessment proceedings/ remand proceedings. Hon'ble Gujarat High Court in the case of Ayachi Chandrashekhar Narsangji (2014) 42 taxmann.com 251 (Guj HC) has held that” “It has also come on record that the said loan amount has been repaid by the assessee to Shri Ishwar Adwani in the immediate next financial year and the Department has accepted the repayment of loan without probing into it. In the aforesaid facts and circumstances of the case, when the Tribunal has held that the matter is not required to be remanded as no other view would be possible we see no reason to interfere with the impugned order passed by ITAT. Similar view was taken by Hon'ble ITAT Mumbai in the case of H.K. Pujara Builders, (2019) 33 NYP TTJ 186 (Mum Trib). 4.1.3 The lenders have furnished the loan confirmation, copy of bank account and proof of filing of the return. By filing the above documents, the appellant is able to establish the – i) identity of the creditors – the creditors are income tax payer and filed the loan confirmations. ii) Genuineness of the transaction – the appellant has taken the loan through banking channel. The appellant is in the receipt of loan by cheque. Appellant has made repayments of the loan taken per his convenience of fund availability as is evident from loan confirmation letters. M/s Man Developments, Indore ITA No.171/Ind/2021 Assessment year 2018-19 Page 5 of 12 iii) Creditworthiness of the creditors – the creditors are income tax payer and filing the income tax return. The persons have not only given the loan to the appellant but to other parties also. 4.1.4 From the above it is clear that the appellant has satisfied all the three conditions required for genuineness of the transaction. The same view has been upheld by Hon'ble ITAT in the following cases :- i. Umesh Electricals vs. ACIT, (2011) 18 ITJ 635 (Trib.-Agra): (2011) 131 ITD 127 : (2011) 141 TTJ Establishment of identity and creditworthiness proved – Assessee produced the bank account of creditor in his bank account on the same day on which loan was given – Assessee furnished the cash flow statement of creditor – Based on inquiry, AO noted that creditor was engaged in providing accommodation entries – HELD. In group cases, it has been held – that there was no evidence against the creditor to prove that he was providing accommodation entries – Further, mere deposit of money by the creditor on the same day, does not establish that the loan is not genuine – Assessee has proved the source of credit and also the source of source – Addition cannot be made. ii. Aseem Singh vs. ACIT, (2012) 19 ITJ 52 (Trib. – Indore). Identity and creditworthiness proved – Assessee took loan of Rs. 1,00,000/- confirmation of creditor was filed – Lower authorities made addition u/s 68 holding that amount was deposited in cash in the bank account of lender immediately prior to date of loan – HELD – Assessee has established the identity – The party has confirmed the transaction – If AO doubted the transaction. AO should have called creditor u/s 131 – Addition cannot be made. Thus, appellant has furnished all the required details in order to prove identity of lenders, genuineness of the transaction and creditworthiness of the lenders.” 7. Before us, Ld. DR representing the revenue supported the order of AO. He also opposed the order of CIT(A) in stronger terms on several counts. The contentions raised by Ld. DR are summed up as under: (i) Firstly, he submitted that the AO has given analysis of each lender in the Table in Para No. 3.5 of assessment-order and made addition on the basis of adverse features noted in “Remark” column. Therefore, the conclusion made by AO is well-founded. M/s Man Developments, Indore ITA No.171/Ind/2021 Assessment year 2018-19 Page 6 of 12 (ii) Secondly, he submitted that in Para No. 4.1.2 of appeal-order, the CIT(A) has wrongly blamed the AO by mentioning “..... the appellant has furnished all details such as documents relating to identity, creditworthiness of the lender and genuineness of the transactions and if few of the details were not filed, the AO could have called information internally or from bank whose details were given by the lenders while filing their ITRs”. He submitted that the CIT(A) has made a very heighted observation by saying that the AO could have taken details of the banks of lenders from the ITRs of lenders and called information directly from banks! He submitted that the CIT(A) has grossly erred in putting the burden on shoulders of AO and exonerating the assessee from entire onus. Then, Ld. DR went to the very next Para No. 4.1.3 of the appeal-order where the CIT(A) has mentioned “The lenders have furnished ..... copy of bank account and proof of filing of the return”. Ld. DR strongly contended that the findings given by CIT(A) in two succeeding paragraphs, namely Para No. 4.1.2 and 4.1.3, are themselves contradictory. While in the preceding Para No. 4.1.2 of appeal-order, the CIT(A) has himself accepted that the bank statements and proof of filing returns of lenders were not filed (and he has also blamed AO for not calling the details internally or from the bank details filed in ITR of lenders!), in the immediate next Para No. 4.1.3, the CIT(A) has given a finding that the lenders have furnished bank-statements and proof of filing returns. Besides this apparent contradiction, the finding made in Para No. 4.1.3 is absolutely wrong also for the reason that the Table compiled by AO in Para No. 3.5 of assessment-order clearly reveals that out of total 32 cases of lenders, the assessee has filed proof of filing income-tax returns in just 7 cases and bank-statements in only 1 case. (iii) Lastly, he submitted that in Para No. 4.1.2, the CIT(A) has made a crucial finding “... the AO should have considered that full/partial M/s Man Developments, Indore ITA No.171/Ind/2021 Assessment year 2018-19 Page 7 of 12 repayment has already been made to lenders by the appellant...” and based on such finding, he has given benefit of the decision of Hon’ble Gujrat High Court in Ayachi Chandrashekhar Narsangji (2014) 42 Taxmann.com 251 where it was held that if loans have been re-paid in same year or shortly in next financial year, the department cannot make addition u/s 68. Ld. DR submitted that the CIT(A) has not only made a vague finding of “full/partial repayment” but also it is an un- verified finding made by him. Ld. DR submitted that the order of CIT(A) does not contain any detail of repayment made by assessee in the same year or very shortly in next year; the CIT(A) has merely noted the stand taken by assessee before him and given the benefit of decision of Hon’ble Gujrat High Court. 8. Per contra, Ld. AR for assessee relied upon the documents field by him in a Paper-Book and vehemently supported the order of first-appeal. Ld. AR raised following contentions: (i) Firstly, he submitted that the assessee has supplied PAN data in all 32 cases which is clearly mentioned by AO himself in the Table in Para No. 3.5 of assessment-order; therefore, the AO could very well verify the lenders by taking help of PAN data. But the AO has not done. This is a serious lapse on the part of AO. (ii) Secondly, he insisted that from the Table in Para No. 3.5 of assessment-order, it is clear that the assessee has filed A/c M/s Man Developments, Indore ITA No.171/Ind/2021 Assessment year 2018-19 Page 8 of 12 Confirmations of lenders in all cases. Regarding non-filing of proof of ITR or Bank-Statements, it is discernible from the said Table that the assessee has filed one of the documents in many cases i.e. either the proof of income-tax return or the bank-statement. Even if the assessee has not filed both of those documents, at least one document is filed. (iii) Thirdly, in majority of cases, the assessee has repaid loans to lenders. Hence there cannot be any justification in making addition. (iv) Lastly, he relied upon the decision of ITAT, Indore Bench in ACIT Vs. Sarthak Innovation (P) Ltd., ITA No. 228 to 230/Ind/2021 order dated 30.03.2023. 9. We have considered rival submissions of both sides and perused the material held on record including the orders of lower-authorities and the Paper-Book filed by assessee. After a mindful consideration, we find that both sides agree on one factual aspect i.e. the assessee has filed A/c Confirmations of all lenders. But, however, there are rival contentions with respect to certain facts, namely (i) the filing or non-filing of proof of ITRs of lenders, (ii) the filing or non-filing of bank statements of lenders, and (iii) the repayment made or not made to lenders in the same year or shortly in next financial year. We find that the assessee has filed a chart at Page No. 1 of the Paper-Book under certificate in terms of Tribunal Rules; the chart is scanned and re-produced below: M/s Man Developments, Indore ITA No.171/Ind/2021 Assessment year 2018-19 Page 9 of 12 M/s Man Developments, Indore ITA No.171/Ind/2021 Assessment year 2018-19 Page 10 of 12 10. On perusal, we find that in the columns titled “ITR” and “Bank statement”, the assessee has mentioned “yes” against all 32 cases of lenders which does not seem true or does not find support from discussion made in earlier paragraphs of this order. Further, in the chart, the assessee has mentioned “fully repaid” or “unpaid” in last column titled “Payment status as on 24.02.2021”. Firstly, this is mentioned as on 24.02.2021 whereas the case relates to AY 2017-18 and there was substantial time-gap between financial year 2016-17 relevant to AY 2017-18 and 24.02.2021. It appears that there were not much repayments in the same year or shortly in immediate next financial year. Secondly, the “unpaid” status admitted by assessee himself in several cases shows that the finding of repayment made by CIT(A) is perverse. Therefore, in such circumstances, when the facts are not very clear, rather perverse findings by CIT(A) to some extent, we are left with no option except to remand this case back to the AO for a complete verification. The AO shall aptly adjudicate the case of assessee including the claim of repayment in the light of judicial rulings. The assessee is also directed to make a clear and unambiguous submission to AO failing which the AO shall be at liberty to take an appropriate decision. This ground is allowed accordingly for statistical purpose. Ground No. 2: 11. This ground relates to the disallowance of Rs. 16,01,853/- on account of interest-deduction related to the bogus unsecured loans of Rs. 1,95,00,000/-, made by AO but deleted by CIT(A). M/s Man Developments, Indore ITA No.171/Ind/2021 Assessment year 2018-19 Page 11 of 12 12. Since we have remanded the principal issue of unsecured loans of Rs. 1,95,00,000/- to the AO while adjudicating Ground No.1, this Ground No. 2 which is related to Ground No. 1, is also remanded back to AO for a fresh adjudication. This ground is allowed accordingly for statistical purpose. Ground No. 3: 13. This ground relates to the disallowance of Rs. 1,06,78,995/- deleted by CIT(A) out of total disallowance of Rs. 1,07,28,203/- made by AO on account of interest-deduction related to the unsecured loans treated as bogus in immediately preceding AY 2017-18 14. The factual matrix of this issue is such that while completing scrutiny-assessment of immediately preceding AY 2017-18, the AO treated certain loans taken by assessee as bogus and thereby made addition u/s 68. But, however, in first-appeal of preceding year, the CIT(A) accepted all loans as genuine except the loan taken by assessee from one Shri Prakash Jain HUF. Accordingly, the CIT(A) deleted the additions of all loans but confirmed the addition made in respect of Shri Prakash Jain HUF. Now, in current AY 2018-19 involved in this appeal, the assessee claimed a deduction of Rs. 1,07,28,203/- on account of interest expenditure on those loans but the AO disallowed assessee’s claim following the suit of earlier year. In first appeal, the CIT(A) confirmed the disallowance of Rs. 49,208/- relatable to Shri Prakash Jain HUF but deleted the remaining disallowance of Rs. 1,06,78,995/-. 15. Before us, Ld. Representatives of both sides agree that the assessee’s case of preceding AY 2017-18 went travelled upto this very Bench of ITAT in ITA No. 97/Ind/2021 order dated 26.05.2023 wherein the ITAT has remanded the issue of unsecured loans to the file of AO for adjudication M/s Man Developments, Indore ITA No.171/Ind/2021 Assessment year 2018-19 Page 12 of 12 afresh. In that view of matter, the present ground also needs to be remanded back to AO. We agree to these submissions and accordingly remand this ground back to AO. The AO shall take a fresh call on the issue involved in this ground on the basis of outcome in preceding AY 2017-18. This ground No. 3 is allowed accordingly for statistical purpose. 16. Resultantly, all grounds of this appeal are allowed for statistical purpose. Order pronounced in the open court on 13.09.2023. Sd/- sd/- (VIJAY PAL RAO) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore Ǒदनांक /Dated : 13.09.2023. CPU/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Assistant Registrar Income Tax Appellate Tribunal Indore Bench, Indore