2025 (6) TMI 899 - AT - Income Tax

ITAT deletes section 68 addition on unsecured loans, finds lenders genuine based on consistency principle

Laxmi Land Developers Pvt. Ltd. Versus Income Tax Officer 1 (3), Indore

ITAT Indore allowed the appeal and set aside the addition under section 68 regarding unsecured loans from two lenders. The Tribunal applied the principle ... Addition u/s 68 - unsecured loans taken from two lenders - principle of consistency - these parties (lenders) in case cited of ITAT, Indore Benches have been found to be not paper company’s and there is no accommodation entry given by them - HELD THAT:- As following the decisions of Co-ordinate Bench where too similar question of giving accommodation entry by M/s Jayant Securities & Finance Ltd and M/s Jay-Jyoti India Pvt. Ltd arose it has been held that these entities are not paper company’s and no accommodation entry’s have been given to assessee’s mentioned therein. The findings of Co-ordinate Benches of this Tribunal in cases cited supra are on merits. Hence following the principles of consistency, continuity and credibility we set aside the “impugned order” and allow the appeal of assessee. Issues Presented and ConsideredThe core legal questions considered in this appeal are:1. Whether the addition of Rs. 1,67,26,884/- made under Section 68 of the Income Tax Act, 1961, on account of unsecured loans received from M/s Jay Jyoti India Pvt. Ltd. and M/s Jayant Securities & Finance Ltd. is justified.2. Whether the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] correctly applied the proviso to Section 68 regarding the onus on the assessee to prove the identity, creditworthiness, and genuineness of the lenders.3. Whether the AO conducted an independent and proper enquiry to establish the identity and creditworthiness of the lenders.4. Whether the CIT(A) erred in dismissing the assessee's appeal without considering the submissions and relevant judicial precedents.5. Whether the impugned order suffers from procedural irregularities, including delay in passing the order and improper service of notices.Issue-wise Detailed AnalysisIssue 1: Justification of Addition under Section 68 on Account of Unsecured LoansLegal Framework and Precedents: Section 68 of the Income Tax Act deals with unexplained cash credits. The proviso effective from 01.04.2013 places the burden on the assessee company (not being a company in which the public are substantially interested) to furnish a satisfactory explanation regarding the identity, creditworthiness, and genuineness of the lender in respect of any sum credited in its books. The explanation must satisfy the Assessing Officer.Precedents cited by the assessee include decisions from the jurisdictional ITAT Indore Bench, wherein loans from M/s Jay Jyoti India Pvt. Ltd. and M/s Jayant Securities & Finance Ltd. were held to be genuine and not accommodation entries or paper companies.Court's Interpretation and Reasoning: The AO relied on the proviso to Section 68 and found that the assessee failed to establish the identity and creditworthiness of the lenders. The AO noted that the lender Jay Jyoti India Pvt. Ltd. was not found at the registered office, and the assessee did not produce the lender or provide a satisfactory explanation. Consequently, the AO added the loan amounts to the total income.The CIT(A) upheld the AO's addition, dismissing the assessee's appeal without adequately considering the detailed submissions and judicial precedents presented.The Tribunal, however, after examining the records and hearing submissions, found that the AO did not conduct an independent enquiry but relied on reports from other IT officials. The assessee had furnished confirmations, bank statements, audited balance sheets, income tax returns, and proof of TDS on interest payments to establish the genuineness of the loans.Further, the Tribunal emphasized that coordinate benches of the ITAT Indore have consistently held that M/s Jay Jyoti India Pvt. Ltd. and M/s Jayant Securities & Finance Ltd. are genuine entities and not paper companies or accommodation entry providers. The Tribunal relied on several decisions where identical issues were adjudicated in favor of the assessee.Key Evidence and Findings: The assessee submitted extensive documentary evidence including lender confirmations, audited accounts, bank statements, and TDS certificates. The AO's reliance on the absence of the lender at the registered office was not supported by an independent enquiry.Application of Law to Facts: The Tribunal applied the proviso to Section 68 in light of the evidence furnished by the assessee and the binding precedents from coordinate benches. It held that the assessee discharged the onus to prove the identity, creditworthiness, and genuineness of the lenders.Treatment of Competing Arguments: The revenue's contention that the lenders were paper companies was rebutted by the Tribunal through reference to earlier decisions and the documentary evidence. The Tribunal also noted the absence of independent enquiry by the AO and the failure of CIT(A) to consider the submissions and precedents.Conclusion: The addition of Rs. 1,67,26,884/- under Section 68 was not sustainable in law and was set aside.Issue 2: Procedural Irregularities in Passing the Impugned OrderLegal Framework: Principles of natural justice require that an order be passed after considering all submissions and proper service of notices. Delay in passing orders and sending notices to incorrect email addresses can vitiate the order.Contentions and Findings: The assessee contended that the CIT(A) passed the order almost two years after submission of the appeal and did not consider the submissions, violating natural justice. Further, notices were allegedly sent to an incorrect email address.The Tribunal noted these contentions but primarily focused on the substantive issue. The revenue did not strongly contest these procedural points, and the Tribunal did not find these procedural irregularities sufficient to uphold the impugned order when the substantive addition itself was not sustainable.Conclusion: While procedural irregularities were raised, the Tribunal's primary basis for setting aside the impugned order was the lack of merit in the addition under Section 68.Issue 3: Reliance on Precedents and Submissions by the CIT(A)Legal Framework: Appellate authorities are bound to consider relevant judicial precedents and submissions made by the parties. Ignoring binding decisions can render an order illegal.Contentions and Findings: The assessee argued that the CIT(A) ignored direct decisions of the jurisdictional ITAT and did not consider the submissions filed. The Tribunal agreed that the CIT(A) relied on general case laws and did not apply the binding precedents from the coordinate benches.Conclusion: The failure of the CIT(A) to consider binding precedents and submissions contributed to the unsustainability of the impugned order.Significant Holdings'We basis records of the case, after hearing and upon examining the contentions are of the considered opinion that 'impugned order' is not sustainable in law wherein addition of Rs. 1,67,26,884/- i.e. addition on account of unsecured loan from two lenders M/s Jayant Securities & Finance Ltd and M/s Jay-Jyoti India Pvt. Ltd have been upheld, for the simple reason that these parties (lenders) in case cited above of ITAT, Indore Benches have been found to be not paper company's and there is no accommodation entry given by them.''Hence following the decision of Co-ordinate Bench where too similar question of giving accommodation entry by M/s Jayant Securities & Finance Ltd and M/s Jay-Jyoti India Pvt. Ltd arose it has been held that these entities are not paper company's and no accommodation entry's have been given to assessee's mentioned therein. The findings of Co-ordinate Benches of this Tribunal in cases cited supra are on merits. Hence following the principles of consistency, continuity and credibility we set aside the 'impugned order' and allow the appeal of assessee.'The Tribunal established the principle that where an assessee furnishes adequate proof of identity, creditworthiness, and genuineness of lenders, supported by binding precedents holding the lenders as genuine entities, addition under Section 68 cannot be sustained merely on the basis of non-appearance of the lender or reliance on other officials' observations without independent enquiry.Final determination on the addition under Section 68 was in favor of the assessee, and the impugned order was set aside.