TaxTMI 
TaxTMI 
2026 (1) TMI 1338
X X X X Extracts X X X X
X X X X Extracts X X X X
....the business of construction and during the year under consideration has procured unsecured loan to the tune of Rs. 1,00,00,000/- and also paid interest on the old as well as new loans, detailed below: - Name of the Party Opening Balance. Received during the year Paid during the year Interest paid TDS Closing balance ABHINAV EXPORTS 25980410 0 0 2338237 233824 28064823 ANGEL GEMS 38914137 3900000 0 3426041 342604 45897574 ATIN EXPORTS LLP 41566961 6100000 0 3817268 381727 51102502 S.BHAVYA GEMS PVT.LTD. 7787706 0 0 700894 70089 8418511 11,42,49,214 1,00,00,000 0 10282440 1028244 153503410 3. The Assessing Officer therefore, in order to verify the transactions of loans and interest paid, vide notice dated 25.12.2019 show-caused the assessee to produce the above referred parties along with proof of identity, books of account and bank statement. The Assessing Officer also issued notice under section 133(6) of the Act to the aforesaid parties, however of no avail. Thus, the Assessing Officer vide show-cause notice dated 27.12.2019 again show-caused the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... section 68 read with section 115BBE of the Act and added the same to the total income of the assessee. 7. The Assessing Officer further by holding that it has been proved that the loan creditors as discussed above are non-genuine and creditworthiness and payment of interest expenses amounting to Rs. 1,02,82,440/- is also non-genuine and wants disallowance, as per the provisions of section 37(1) of the Act and therefore he accordingly disallowed the said amount and added back to the said income of the assessee, vide original assessment order dated 28.12.2019 under section 143(3) of the Act. 8. Subsequently the said original order came into scrutiny before Ld. Principal Commissioner of Income Tax (in short 'PCIT'), who vide order dated 23.3.2022 under section 263 of the Act, exercised its jurisdiction for the limited purpose of rectifying provisions of section 43(1) of the Act qua making the addition of Rs. 1,02,82,440/- on account of interest paid to the creditors, as applied by the Assessing Officer in the original assessment proceedings/assessment order and ultimately set aside the said original assessment order dated 28.12.2019 for passing an order afresh with the directio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nterest received from the assessee itself. This pattern suggests a circular flow of funds, where the assessee's unaccounted money may have been routed through these creditors to create a facade of legitimate transactions. Further, the loan amounts provided by the creditors are significantly disproportionate to their declared incomes, raising serious doubts about their creditworthiness. Ld. DR further relied on the judgments passed in the case of NRA Iron & Steel Pvt. Ltd. Vs. PCIT (Central) and J.K. Global Vs. ITO (ITAT Mumbai order dated 5.9.2024). The Ld. DR at last has submitted that the judgements relied on by the Ld. Commissioner are distinguishable on facts. 12. On the contrary, Ld. Counsel for the assessee has claimed that before the Assessing Officer it has duly filed relevant documents, such as ledger confirmations, copy of ITRs and computation of income, tax audit report, profit and loss account, balance sheet etc. of the creditors/loan parties as it clearly appears from the acknowledgement/response to the notice dated 2.12.2019 issued by Ld. Assessing Officer (page 1 & 2 of the paper book). The assessee further demonstrated from the paper book pages 147 to 152, which ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ss of the parties from whom unsecured loans have been taken and interest paid. The Ld. Commissioner by taking cognizance of such facts, specifically observed that it is surprise that on one hand the Assessing Officer has asserted that he has not received any submissions from the parties or assessee regarding unsecured loans or interest paid, while on the other hand while making disallowance he has discussed ITRs, TDS etc. for one of the parties, in paragraph 7 of the assessment order. The Ld. Commissioner further observed that the Assessee before the Assessing Officer filed the documentary evidence and made the submissions, in support of its claim qua unsecured loans taken and interest paid and has also provided such details and documents during appellate stage, which for the sake of brevity and ready reference read as under: - a) Income Tax Returns b) Statement of income c) Bank statement d) Loan confirmation amount e) Balance sheet, profit and loss account f) Tax audit report 16. The Ld. Commissioner on perusing the aforesaid documents ultimately found that the assessee has discharged its onus of proving unsecured loan as g....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r under section 263 of the Act. It is not in controversy that the assessee with regard to the remaining two parties i.e. Shri D.P. Jain {Prop. of Abhinav Exports} and M/s. S. Bhavya Gems Pvt. Ltd. has also provided relevant documents such as (i) ITRs (ii) Tax Audit report (iii) Bank statement (iv) Interest paid statement (v) Confirmation from the parties and therefore Ld. Commissioner by considering peculiar facts and circumstances specifically to the effect that the Assessing Officer except mentioning that the loan creditors as discussed above are not genuine and having no creditworthiness and payment of interest expenditure amounting to Rs. 1,02,82,440/- is also not genuine and therefore warrants disallowance, as per section 37(1) of the Act, has not mentioned anything, as to why interest paid on unsecured loan is ingenuine, but mere made a disallowance, whereas the assessee has produced proof of documents to support its claim. The Ld. Commissioner therefore perusing and considering the documents produced by the assessee, accepted the claim of interest paid on unsecured loan as detailed below. Rs. 34,26,041/- Being interest pa....