NEHAL BROTHERS,MUMBAI V. INCOME TAX OFFICER 23(2)(1), MUMBAI

ITA 2541/MUM/2023

AI Insights

Nehal Brothers appealed against the order of the Commissioner of Income Tax (Appeals) - National Faceless Appeal Centre, which confirmed the addition of unexplained cash credits under section 68 of the Income Tax Act, 1961, for five creditors. The Tribunal recalled its earlier order to specifically address the issue of these five creditors after the assessee pointed out an oversight. The Tribunal examined the evidence provided, including PAN details, income tax returns, financial statements, and bank statements of the creditors, and found that the assessee had sufficiently proved the three main ingredients required under section 68: the identity of the creditors, their creditworthiness, and the genuineness of the transactions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 31979 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2016-2017
• Other Referred Cases: DCIT vs. Rohini Builders (2002) 256 ITR 360 (Guj)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONICA PANDE
• Assessee Lawyers: R.S. KHANDELWAL
• Keywords: Set aside; Additional evidence; Onus to prove; TDS

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “B”, MUMBAI BEFORE JUSTICE (RETD.) SHRI C.V. BHADANG, PRESIDENT AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA No. 2541/Mum/2023 Assessment Year : 2016-17 Nehal Brothers, EW 4030, Bharat Diamond Bourse, Bandra Kurla Complex, Bandra (East), Mumbai PAN : AAJFM6428R vs. Income Tax Officer-23(2)(1), Piramal Chambers, Dr. SS Rao Marg, Lalbaugh, Lower Parel, Mumbai. (Appellant) (Respondent) For Assessee : Shri R.S. Khandelwal For Revenue : Ms. Monica Pande, Sr.DR Date of Hearing : 20-01-2025 Date of Pronouncement : 22-01-2025 O R D E R PER B.R. BASKARAN, A.M : The assessee has filed this appeal challenging the order dt.13-06-2023 passed by the Ld. Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi [‘Ld.CIT(A)’] and it relates to AY.2016-17. The issue contested in this appeal is related to the addition of un-explained cash credit made by the AO u/s. 68 of the Income Tax Act, 1961 (‘the Act’). 2. This appeal was earlier disposed by the Co-ordinate Bench of the Tribunal on 25-01-2024. Subsequently, the assessee filed an M.A. pointing out certain mistakes apparent from record in the order passed by the Co-ordinate Bench of the Tribunal. It was submitted that the 2 ITA No. 2541/Mum/2023 addition made by the AOu/s. 68 of the Act was related to 16 creditors and Tribunal did not adjudicate grounds relating to five creditors and the same has resulted in a mistake apparent from record. Accordingly, the Tribunal, vide its order dt.25-11-2024 passed in M.A. No. 106/Mum/2024,recalled the order dated 25-01-2024 passed in this appeal earlier, for the limited purpose of deciding the issue relating to the addition made in respect of five creditors. Accordingly, this appeal is placed before us for adjudication. 3. We notice that the issue contested before us is related to the addition made u/s. 68 of the Actin respect of the following five creditors:- Name of the Creditor Amount Rs. ABC Corporation 40,00,000 Mita Hitendra Shah 17,00,000 Ravin M. Kothari 22,00,000 Sajil Rajesh Mehta 8,00,000 Swati Gems 20,00,000 4. We heard the parties and perused the record. We notice that the AO has made the addition u/s. 68 of the Act for the reason that the assessee did not discharge the onus placed upon its shoulders u/s. 68 of the Act, i.e., the assessee did not furnish the documents to prove the three main ingredients viz., the identity of the creditors, the creditworthiness of the creditors and the genuineness of the transaction. 5. In the appellate proceedings before the Ld.CIT(A), the assessee furnished all the documents relating to all creditors to prove the three main ingredients. The Ld.CIT(A) admitted the additional evidences and accordingly called for the remand report from the AO. After considering the remand report, the Ld.CIT(A) partly allowed the appeal of the 3 ITA No. 2541/Mum/2023 assessee, wherein the addition of loans received from the above said five creditors was confirmed. 6. The Ld.AR submitted that the Ld.CIT(A) has followed only one criterion for granting relief, namely, whether the capital of the lenders is more than the loan amount or not? He has deleted the additions where ever the capital of the lender was more than the loan amount and confirmed the remaining additions. The Ld.AR also submitted that all the lenders are assessed to income tax and further, the assessee has furnished PANs of all the above said creditors, copies of their income tax returns, financial statements and bank account. These lenders were having sufficient bank balances before lending money to the assessee. In some of the cases, it was so happened that the lenders have received money by way of cheques from some other parties and there after given loans to the assessee thereafter. These transactions have been viewed adversely by the AO. The Ld.AR submitted that the suspicion should arise only if there were cash deposits before issuing the cheque to the assessee, since it may be possible to presume that the assessee might have given cash to the lenders, which may be deposited in their bank account and thereafter cheques were issued to the assessee. However, this is not the case here, i.e., in the instant case, the lenders have received cheques from some other parties. Accordingly, the Ld.AR submitted that the assessee has proved all the three main ingredients in terms of sec.68 of the Act. 7. The Ld.AR further submitted that the sources of source need not to be proved u/s. 68 of the Act for the year under consideration. The Ld.AR submitted that the assessee has also furnished confirmation letters obtained from these creditors. It was further submitted that the loan taken from M/s. ABC Corporation and M/s. Swati Gems have been repaid during the year under consideration. The Ld.AR further 4 ITA No. 2541/Mum/2023 submitted that the assessee has paid interest to these creditors and has deducted TDS also there from. He submitted that the AOdid not disallow the claim of interest expenditure. In that case, there is no reason to suspect the amount borrowed by the assessee from the above said creditors. In support ofthe legal proposition, the Ld.AR placed reliance on the decision rendered by the Hon’ble Gujarat High Court in the case of DCIT vs. Rohini Builders (2002) 256 ITR 360 (Guj). Accordingly, the Ld.AR submitted that the assessee has discharged its onus placed upon it u/s. 68 of the Act and hence, the AO could not have made addition u/s. 68 of the Act, without disproving the claim of the assessee. 8. The Ld.DR, on the contrary, submitted that it is not proved by the assessee that all the lenders were having money lending licenses. Further, the assessee has not stated the purpose for which the assessee has taken these loans. The Ld.DR further submitted that all the lenders were declaring low income, which would not justify the quantum of loan given by them. 9. In the rejoinder, the Ld.AR submitted that the quantum of income declared by the lenders is not relevant for determining the creditworthiness of the lenders. He submitted that what is required to be seen is whether the lender was having sufficient funds for advancing loan to the assessee. In the instant case, the assessee has furnished the bank statements of the lenders in order to show that they were having sufficient funds with them for giving loans to the assessee. 10. We heard the parties and perused the record. Under the provisions of section 68 of the Act, the primary onus to prove the cash credits lies upon the assessee, i.e., the assessee is required to prove three main ingredients, viz., the identity of the creditors, creditworthiness of the 5 ITA No. 2541/Mum/2023 creditors and genuineness of the transaction. In the instant case,we notice that the assessee has furnished the details of PAN and copies of their income tax returns. These documents would prove the identity of the creditors. The assessee has also furnished the copies of the financial statements of the creditors and also copies of the bank statements. A perusal of the same would show that the creditors were having sufficient balances in their bank accounts before giving loans to the assessee. The case of the AO is that the income declared by the creditors was not commensurate with the amount of loan advanced by them. In our view, it is not necessary that the loan should be advanced by the creditor out of its income or from their own funds only. There is no bar under the law that a creditor should not give loan to others out of its borrowed funds. Hence, in order to prove the creditworthiness, what is required to be seen is whether the creditor was having sufficient funds before giving loan to the assessee. In the above said cases of the five creditors, it is shown that the creditors were having sufficient funds before lending money to the assessee. Further, it is not the case that these creditors had deposited cash into the bank accounts before giving loan to the assessee, which might have warranted further probe. Hence, we are of the view that the creditworthiness of the creditors would also stand proved. Since the loan transaction has taken place through banking channels, in our view, the genuineness of the transaction also stood proved. Thus, we notice that the assessee has discharged its primary onus placed upon it u/s. 68 of the Act. However, the documents furnished by the assessee have not been disproved by the tax authorities. In that case, the explanations given by the assessee and the documents furnished by the assessee need to be accepted. Under these set of facts, we are of the view that the addition made by the AO u/s. 68 of the Act in respect of the above said five creditors is not justified. Accordingly, we set aside the order of the 6 ITA No. 2541/Mum/2023 Ld.CIT(A) and direct the AO to delete the addition made u/s.68 of the Act in respect of the above said five creditors. 11. In the result, the appeal in respect of the five creditors stand allowed. Order pronounced in the open court on 22-01-2025 Sd/- Sd/- (JUSTICE (RETD.) C.V. BHADANG) PRESIDENT (B.R. BASKARAN) ACCOUNTANT MEMBER Mumbai, Date: 22-01-2025 TNMM Copy to : 1) The Appellant 2) The Respondent 3) The CIT concerned 4) The D.R, ITAT, Mumbai 5) Guard file By Order Dy./Asst. Registrar I.T.A.T, Mumbai "