RAMBHAI BHARWAD,AHMEDABAD V. THE ACIT, CENTRAL CIRCLE-2(3), AHMEDABAD

ITSSA 15/AHD/2024

AI Insights

The case revolves around an appeal by Rambhai Bharwad against the order of the Commissioner of Income-Tax (Appeals)-12, Ahmedabad, which confirmed the addition of Rs.11.25 lakhs to the assessee's income for the Assessment Year 2018-19. This addition was made under section 69C of the Income Tax Act, 1961, alleging unexplained expenditure. The dispute arose from a promissory note found during a search operation, which recorded an interest rate of 1.5% per month (18% per annum) for a loan of Rs.5 crores from Gallops Infrastructure Ltd. The assessee contended that he only paid 0.75% per month (9% per annum) and provided affidavits and confirmations from the lender to substantiate his claim. The Tribunal, after considering the evidence and the nature of the transaction, sided with the assessee, leading to the deletion of the addition made by the lower authorities.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 298715 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 month(s) 29 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 27-11-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 14-11-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 29-02-2024
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A. P. SINGH
• Assessee Lawyers: JIMIT R. SHAH
• Keywords: Unexplained expenditure
• Section: 132; 153A; 69C

Judgement Text

"आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ ‘C’ अहमदाबाद। अहमदाबाद। अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD ] ] BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER IT(SS)A No.15/Ahd/2024 Assessment Year : 2018-19 Rambhai Bharwad Prishram Bharwad Vas Village Makarba Ahmedabad. PAN : ADTPB 9186 C Vs ACIT, Cent.Cir.2(3) Ahmedabad. (Applicant) (Responent) Assessee by : Shri Jimit R. Shah, AR Revenue by : Shri A.P. Singh, CIT-DR सुनवाई क\t तारीख/Date of Hearing : 14/11/2024 घोषणा क\t तारीख /Date of Pronouncement: 27/11/2024 आदेश आदेश आदेश आदेश/O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER The above appeal has been filed by the assessee against order passed by the Ld.Commissioner of Income-Tax(Appeals)-12, Ahmedabad [hereinafter referred to as “ld.CIT(A)] dated 4.2.2024 under section 250(6) of the Income Tax Act, 1961 (\"the Act\" for short) pertaining to Assessment Year 2018-19. 2. The solitary issue in the present appeal relates to the addition made to the income of the assessee of Rs.11.25 lakhs under section 69C of the Act. 3. The facts of the case being that during search action undertaken on the assessee under section 132 of the Act, a document, identified IT(SS)A No.15/Ahd/2024 2 as page no.362 of Annexure BS-8 ,was found, which was noted to be a promissory note dated 2.11.2017 made and duly signed by the assessee on account of receipt of amount of Rs.5.00 crores from Gallops Infrastructure Ltd. (“GIL” for short), 10th Floor, Astron Tech Park, Satellite, Ahmedabad. As per the said promissory note, the amount was taken for three months at the rate of 1.50% per month, and was to be returned to one Shri Narshibhai G. Patel of “GIL”. During the course of post-search proceedings, it was noted that the assessee had paid interest on the same only at the rate of 0.75%. The orders of the Assessing Officer (AO) notes that though the agreed rate of interest was 18% per annum (1.5% x 12), the assessee had paid interest only at the rate of 9% thereon (0.75% x 12). Noting the said fact, the AO alleged that the assessee had actually paid interest at the agreed rate of 18% and since payment at the rate of 9% was only accounted for through banking channels, the balance, it was alleged, was paid in cash. The balance amount of interest was to the tune of Rs.11.25 lakhs, and accordingly, it was this amount, which was added to the income of the assessee under section 69C of the Act as unexplained expenditure. 4. The contention of the ld.counsel for the assessee before us was that this addition was grossly unjustified in the light of the fact that the assessee had discharged its onus of proving that it had actually paid interest only at the rate of 9% by furnishing an affidavit of the recipient i.e. the Director of “GIL”, who had stated on oath to have received interest only at the rate of 9% on the impugned Rs.5.00 crores amount loaned/advanced to the assessee, as also confirmation from GIL also to this effect. He pointed out that both had categorically reiteration the explanation of the assessee that considering the close relationship between the assessee and the Director of “GIL”, “GIL” was not inclined to take any interest from the assessee, but since the IT(SS)A No.15/Ahd/2024 3 assessee insisted on paying interest, it had accepted interest at the rate of 9% from the assessee. The ld.counsel for the assessee pointed out that this affidavit was placed before both the AO and the ld.CIT(A). He further pointed out that the assessee had also pointed out that the promissory note was only signed by the assessee, and not by any representative of “GIL”, that therefore it was a dumb document not enforceable in law nor in any way binding on the assessee , and even otherwise, the affidavit of the lender evidenced the fact of the assesse having paid interest at the rate of 9%; that these two facts demonstrated by the assessee sufficiently discharged its onus of proving that it had paid interest only at the rate of 9% and no cash was paid to the lender of money. Our attention was drawn to the detailed explanation of the transaction by the assessee to the AO reproduced at page 10-13 of the order as under: IT(SS)A No.15/Ahd/2024 4 IT(SS)A No.15/Ahd/2024 5 IT(SS)A No.15/Ahd/2024 6 5. The Department, on the other hand, supported the order of the ld.CIT(A) contending that the affidavit was of no relevance and could be given no credence, since it was an after-thought, and was signed by the brother of the person to whom the money was agreed to be IT(SS)A No.15/Ahd/2024 7 returned. Our attention was drawn to the finding of the ld.CIT(A) in this regard at para 7.3 of his order as under: “7.3 I have considered the issue at hand and the submission made and material on record. The contents of the promissory note regarding taking of loan of Rs 5,00,00,000/- from Gallops Infrastructure is undisputed. It is verifiable from the Bank account entry and hence undeniable. The note was prepared on non-judicial Rs 100 stamp paper purchased on 02/11/2017. Loan was received on 07/11/2017 as can be verified from the bank statement as well. So, the promissory note was prepared a few days before the actual transaction and the deal for the loan would have been decided. If the quantum of loan was correct then the other part of entry of interest to be charged should also be correct. It clearly mentions monthly interest rate of 1.5% to be payable every month. The cheque no and date on cheque is missing. But this may be due to the fact that when the cheque was handed over the promissory note was already typed. Otherwise also, the money trail proving the transaction was already available through bank entries. Such a promissory note is a very strong evidence and can be denied only if the basic loan transaction did not take place. The provision of sec 292C is squarely applicable here. Loan was taken but interest was not paid at rate mentioned is not believable. Especially so as interest rates on such transactions of 18% as mentioned in the promissory note is as per the market rate. The argument placed by the appellant is nothing but an afterthought and story weaved to justify the inexplicable. The confirmation by M/s Gallop is nothing but a self-serving argument to not only save the appellant but itself, as there existed a consequential action in its case. The affidavit adduced has no credence as it is given by the brother of the person Shri Ganpatbhai Patel and not the actual person with whom the talks for loan were conducted Shri Narshibhai Patel. AO cannot be expected to find trail of cash movement. Income tax law defends on the principle of preponderance of probability. If one part of the seized document is correct then how the other part is not correct. The arguments placed by the appellant are liable to be rejected. The circumstances of the case as shown by the incriminating promissory found from the appellant clearly shows that interest was paid @ 1.5% pm out of which 0.75% pm was paid in cheque and balance 0.75% pm was paid in cash. Hence, the action of the AO to add back Rs.11,25,000/- as unexplained cash expense by the appellant as envisaged u/s 69C and consequential taxation at special rate of 115BBE is upheld. Grounds of appeal 2 & 3 are dismissed.” 6. Having considered the contentions of both the parties, we hold that the order of the ld.CIT(A) confirming addition of Rs.11.25 lakhs is not sustainable. The explanation of the assessee for making short payment of interest as compared to that recorded in the document impounded, when considered with the documents on record relied upon by the assessee, does not support the finding of the Ld.CIT(A) that the preponderance of probability was against the assessee. On the contrary, we hold that the preponderance of probability is in favour of the assessee. IT(SS)A No.15/Ahd/2024 8 7. It is not disputed that the document found during search on the assessee, i.e a promissory note, was signed only by the assessee. It is also not disputed that the consistent stand of the assessee was that he had approached his close acquaintance, Narsinh G Patel, to bail him out of a situation of financial crunch, who in turn readily agreed and advanced him loan of Rs.5crs from a company in which he was director, i.e GIL. That the assessee wanted to pay interest thereon and therefore mentioned interest to be paid on the loan @ 1.5% per month, but his friend refused to take any interest and therefore did not sign the promissory note also. That despite so the assessee still paid him interest, in advance @9%. This explanation was confirmed by the company, GIL, and also another director of the company who happened to be the brother of Narsinh Patel, on oath. 8. Considering the confirmations of the other parties to the transaction as noted above, coupled with the fact that the promissory note was signed only by one party to the transaction, all of the same lends substantial credence to the explanation of the assessee that the loan transaction was a friendly transaction and not a commercial one in true sense. That the assessee therefore paid lesser interest as opposed to that noted in the promissory note found is an acceptable explanation and highly probable. We therefore agree with the Ld.Counsel for the assessee that the assessee had duly discharged his onus of proving that interest had been paid by him @ 9% per annum only and not 18% per annum as finds mention in the alleged promissory note found. 9. The entire thrust and emphasis of the Revenue is on the alleged promissory note found. Their case rests on the fact that the IT(SS)A No.15/Ahd/2024 9 promissory note mentioned higher rate of interest and the said evidence being found during search on the assessee it cannot be discarded/ignored and has to be read in entirety. But the fact that it is signed only by the assessee and not the other party seriously effects its evidentiary value. In fact it lends credence to the assessee explanation that though the assessee wished to borrow money from his friend on interest, but his friend insisted on giving it on friendly terms without charging any interest and therefore also did not sign the said document. That the assessee on his own volition paid interest to the other party albeit half of that agreed to in the promissory note. The contention of the Revenue that the affidavit is an after-though is highly obnoxious. Affidavit is a statement on oath and cannot be brushed aside lightly for no reason, even if it has been furnished after long period of time. The contention of the Department also that the affidavit cannot be given any credence for the reason that it was signed by one Shri_ Ganpath bhai Patel and not the actual person with whom the talks of loan were conducted also merits no consideration, for the reason that the person who had given the affidavit has given it in his capacity as a Director of “GIL” and the fact on record is that the assessee had taken a loan of Rs.5.00 crores from “GIL”. So the fact that the affidavit is signed by one of the Directors of the “GIL” is sufficient to lend credence to the said documents. 10. In the light of the same, we see no merit in the order of the ld.CIT(A) confirming the addition of Rs.11,25,000/- to the income of the assessee under section 69C of the Act. The addition so made is directed to be deleted. 11. The merits of the above addition was challenged in ground no.2 & 3 raised by the assessee as under: IT(SS)A No.15/Ahd/2024 10 “2. The learned CIT (A) has erred in confirming the total income assessed by learned Assessing Officer at Rs.11,25,000/-. 3. The learned CIT (A) has erred in confirming' the addition for alleged unexplained expenditure viz. interest expenses paid in cash made by assessing officer u/s. 69C of the Act of amounting to Rs.11,25,000/-. The said grounds No.2 & 3 are accordingly allowed. 12. Ground No.1 challenging the validity of the assessment framed u/s 153A of the Act was stated to be not pressed before us. The said Ground No.1 reads as under: 1. The learned CIT(A) has erred in confirming the order passed by the learned Assessing Officer u/s 153A of the Income Tax Act, 1961 (\"the Act\") dated 12-07-2021 which is bad in law, illegal and void. Ground No.1 is accordingly dismissed as not pressed. 13. Ground No.4 & 5 read as under: “4. The learned CIT(A) has failed to appreciate that the assessment order u/s 153A of the Act is illegal/bad in law inter-alia for the reason that the approval granted/issued by the Additional CIT u/s 153D of the Act dated 08- 07-2021 has been issued/passed without DIN number. 5. The Learned CIT(A) has failed to appreciate that the assessing officer has erred in passing assessment order under section 153A of the Act dated 12-07-2021 as the approval granted/issued under section 153D of the Act is invalid and bad in law. Since the assessee appeal has been allowed on merits the above grounds are not being dealt with us. 9. In the result, the appeal of the assessee is partly allowed in the above terms. Order pronounced in the Court on 27th November, 2024 at Ahmedabad. Sd/- Sd/- (PAWAN SINGH) JUDICIAL MEMBER (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad,dated 27/11/2024 vk* "