TaxTMI 
TaxTMI 
2026 (7) TMI 1302
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.... filed its return of income for the impugned assessment year on 29.09.2012 declaring total income of Rs. 98,75,506/ -. The return was processed u/s. 143(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') on 06.03.2014 which resulted into demand of Rs. 32,23,730/ -. Subsequently, the case of the assessee was selected for scrutiny under CASS and accordingly statutory notice u/s. 143(2) of the Act was issued and served on the assessee. Thereafter the Assessing Officer issued notice u/s. 142(1) of the Act along with a questionnaire to the assessee. The assessee in response to the same filed the requisite details. 3. During the course of assessment proceedings the Assessing Officer noticed that the assessee has taken unsecured loans from 50 parties totaling to Rs. 5,24,75,479/- and has paid interest of Rs. 33,90,833/- to them. He asked the assessee to furnish copies of confirmation from these parties. Since the assessee failed to furnish the confirmations from the above mentioned parties, the Assessing Officer, relying on various decisions, made addition of Rs. 5,24,75,479/- by treating the same as unexplained cash credit within the meaning of section 68 of....
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....ell settled through judicial interpretation that the explanation under section 68 must be credible, verifiable, and supported by cogent evidence. The provision does not permit acceptance of explanations which are superficial, self-serving, or unsupported by independent material. 8.2.3 Section 68 has crystallised three essential requirement which the assessee must satisfy (i) Identity of the creditor, (ii) Creditworthiness (financial capacity) of the creditor, and (iii) Genuineness of the transaction. Further, where the amount involved is substantial, the number of creditors is large, or the surrounding circumstances indicate abnormal or suspicious patterns, the burden on the assessee accordingly increases. 8.2.4 During the relevant previous year, the appellant has recorded unsecured loan credits aggregating to Rs. 5,24,75,479/- from multiple parties. These credits are reflected in the books of account of the appellant and constitute a substantial portion of the liabilities side of the balance sheet. The assessment records reveal that the Assessing Officer issued notices under sections 142(1) and 133(6) calling upon the appellant to furnish confirmations, PAN detai....
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....ome to justify advancement of substantial loans. Further, bank statements of several creditors reveal deposits immediately preceding the issuance of cheques to the appellant. Such fund patterns clearly indicate that the money did not originate from the creditors' own resources but was routed through them, pointing towards accommodation entries. 8.2.9 In cases involving such fund layering, the assessee is required to explain the source of source particularly when the immediate source itself lacks demonstrated financial capacity. The appellant has failed to discharge this burden. The explanation that the funds were routed through banking channels does not establish creditworthiness. Banking channels only establish movement of funds, not their origin or legitimacy. 8.2.10 In the present case, several factors cast serious doubt on the genuineness of the loan transactions such as absence of loan agreements or commercial terms, lack of evidence of interest payments in several cases, failure of creditors to respond to statutory notices, and circular movement of funds. 8.2.11 The appellant has relied upon several judicial decisions to contend that section 68 ....
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.... explanation has been furnished regarding the source of such credits. Notices issued under section 133(6) were either not complied with or complied with in a partial manner, without furnishing independent evidence of financial capacity. Mere filing of confirmation through the appellant cannot override statutory non-compliance. In view of the above, the creditworthiness and genuineness of the loan from M/s. Kesha Appliances Pvt. Ltd. remain unestablished. The credit is therefore rightly treated as unexplained under section 68. 8.2.16 The appellant has received unsecured loans from M/s. Vidya Education Investments Pvt. Ltd., a closely held company. The appellant has relied upon confirmation letters and bank statements. On scrutiny, it is noted that the company's financial statements show insignificant income and weak capital base. The loan advanced to the appellant constitutes a substantial portion of the total funds of the company. No loan agreement, security arrangement, or commercial rationale has been furnished. Accordingly, the unsecured loan from this creditor fails to satisfy the requirements of section 68 and is confirmed as unexplained. 8.2.17 Loans hav....
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....st expenditure was incurred wholly and exclusively for the purposes of business and that deduction cannot be denied merely because the principal amount of the loan has been added under section 68. 8.3.2 Section 36(1)(iii) allows deduction of interest paid in respect of capital borrowed for the purposes of business or profession. For allowability of interest under section 36(1)(iii), the following conditions must be satisfied: • there must be capital borrowed, • the borrowing must be genuine and real, • the borrowing must be for the purposes of business, and • interest must have been actually paid or accrued. Where the very existence or genuineness of the borrowing is questioned, the consequential interest thereon cannot survive independently. 8.3.3 The unsecured loans and interest paid are interlinked when interest is claimed on loans found to be unexplained. Once a credit is held to be unexplained under section 68 and deemed to be income of the assessee, thereafter, any interest claimed on such amount cannot be treated as interest on borrowed capital. 8.3.4 The appellant has argued that interes....
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....-free advances were made out of own funds. This contention cannot be accepted mechanically. In the present case, the balance sheet analysis does not conclusively establish that interest-free funds were sufficient to cover the advances at the relevant points of time. 8.4.4 The appellant has failed to demonstrate any commercial expediency for advancing interest-free funds to the concerned parties. No agreements, business compulsions, strategic considerations, or reciprocal benefits have been brought on record. Mere existence of business relationship is insufficient. 8.4.5 The Assessing Officer has carried out a fund flow analysis and has recorded a finding that borrowed funds were utilised for making interest-free advances. The appellant has not rebutted this finding with cogent evidence. In absence of rebuttal, the Assessing Officer's conclusion that borrowed funds were diverted for non- business purposes remains unquestioned. 8.4.6 Judicial authorities have consistently held that interest on borrowed funds is not allowable where such funds are diverted for non-business purposes. The decisions relied upon by the appellant apply only where commercial ex....
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....editworthiness and the genuineness of the lenders and hence, there was no reason to confirm the addition made of Rs. 5,24,75,479/ -. 3] The learned CIT(A) failed to appreciate that the assessee had submitted the confirmation of the lenders along with other documentary evidences to prove the identity, creditworthiness and the genuineness of the lenders and hence, there was no reason to confirm the addition made of Rs. 5,24,75,479/- and accordingly, the same may kindly be deleted. 4] The learned CIT(A) erred in confirming the addition by relying upon certain irrelevant facts which were not applicable to the case of the assessee and accordingly, the addition made u/s. 68 of Rs. 5,24,75,479/- may kindly be deleted. 5] The learned CIT(A) erred in holding that the assessee ought to have explained the source of source without appreciating that the said obligation was introduced subsequently and not applicable to the year under consideration and hence, the addition confirmed u/s. 68 of Rs. 5,24,75,479/- may kindly be deleted. 6] The learned CIT(A) further erred in confirming the disallowance of interest expenditure of Rs. 33,90,833/- in respect of the ab....
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....39 of the paper book, he submitted that the assessee during the remand proceedings has filed confirmations from all the 50 parties. Further, the Assessing Officer has also stated in the remand report that the assessee has repaid loans of the above 50 parties. However, the Ld. CIT(A) / NFAC has not considered the second remand report. 14. Referring to the order of the Ld. CIT(A) / NFAC, he submitted that the Ld. CIT(A) / NFAC has sustained the addition made by the Assessing Officer by mentioning that the assessee has shown unsecured loans from M/s. Kesha Appliances Pvt Ltd, M/s. Vidya Education Investments Pvt Ltd and M/s. Tarika Property Investments Pvt Ltd. However, the assessee has not taken any such loans from the above parties. 15. Referring to the submissions made before the Ld. CIT(A) / NFAC which has been reproduced by the Ld. CIT(A) / NFAC from page 7 to 31 of his order, the Ld. Counsel for the assessee drew the attention of the Bench to page 17 where the decision of the Delhi Tribunal in the case of M/s. Kesha Appliances Pvt Ltd vs. ITO vide ITA No. 2715/Del/2016 order dated 09.03.2018 for assessment year 2012-13, the decision of the Delhi Tribunal in the case of Vid....
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....from all the 50 creditors and has also repaid the loans to them subsequently and is not required to prove the source of source, therefore, the Ld. CIT(A) / NFAC is not justified in sustaining the addition made by the Assessing Officer. 18. So far as the disallowance of interest paid to the above loan creditors as per grounds of appeal No. 6 and 7 are concerned, he submitted that the same is consequential. Once the loans are held to be genuine, then the interest has to be allowed. He submitted that the assessee has made payments through banking channel after deducting due TDS. Therefore, the disallowance of such interest is un-called for. 19. Referring to the grounds of appeal No. 8 to 10 he submitted that the same relate to the disallowance of interest u/s. 36(1)(iii) of the Act amounting to Rs. 90,89,322/ -. 20. The Ld. Counsel for the assessee referring to page 9 of the paper book drew the attention of the Bench to the partner's capital at Rs. 5,65,52,796/ -. Referring to page 14 of the paper book, he drew the attention of the Bench to the amount of Rs. 14,28,19,059/- shown as due from the group companies. Referring to page 15 of the paper book he drew the attention ....
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....: Sr. No. Name of the party Loan taken the during year Interest payment 1 Ajitkumar & Bros. 1000000 - 2 Amit S. Jain- HUF 1400000 - 3 Bhavesh R Shah 200000 - 4 Geriben B. Sanghvi 2000000 - 5 Jagdishprasad Karwa - HUF 700000 - 6 Kamala R Shah 500000 - 7 Payal Jhaveri 2300000 - 8 Pinky B Shah 500000 - 9 Purecot Fabrics 1500000 - 10 Rakesh Kumar Mithalal Shah 2000000 - 11 Ramesh C Shah 500000 - 12 Ramesh Kumar Varun Kumar Shah 2000000 - 13 Ramesh Kumar C Shah (HUF) 300000 - 14 Shakuntala P. Jain 1500000 - 15 Uma Mundhra 300000 - 16 Uma Mundhra (Int) 2000000 - 17 J. Gobindram Pvt. Ltd 1000000 18000 18 Ankush D Shishodia (HUF) 500000 15000 19 Swati D Shishodia 500000 15000 20 Bindiya S Jeswani 1000000 90000 21 B. R. Nagpal 500000 37500 22 Misha Kanjani 500000 - 23 Shweta V Agarwal 1000000 180000 24 Vishal G Sapru 1000000 75000 25 Sharmila M Jaishingani 500000 37500 26 Esha J....
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....e at Rs. 98,75,506/ -. The same was processed u/s. 143(1) of the I.T. Act, 1961 on 06/03/2014 wherein demand of Rs. 32,23,730/- was raised. Further, the case of the assessee was selected for scrutiny under CASS. Consequently, assessment proceeding u/s. 143(3) was completed on 30/03/2015 resulting in addition of Rs. 5,58,66,312/- on account of unexplained cash credit u/s. 68 of the Act and addition of Rs. 90,89,322 on account of unexplained expenditure. 02. During the course of assessment proceedings under section 143(3) of the Income-tax Act, 1961, for A.Y. 2012-13, the AO had called for confirmation letters in respect of unsecured loans taken by the assessee. However, the assessee has failed to submit the same. Therefore the AO had made addition of Rs. 5,24,75,479/- u/s. 68 of the I.T. Act, 1961. Further interest payment to that parties of Rs. 33,90,833/- was also disallowed. Thus the total disallowance under this head was 5,58,66,312/- . 03. Reference by CIT(A) & Assessee's Application under Rule 46A During the appellate proceedings before the Hon'ble CIT(A)-11, Pune, the appellant, filed a formal application dated 10.10.2016 for admission of ad....
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....ng documents are enclosed herewith for ready reference and further necessary action. 05. Conclusion: In view of the above discussion, it is respectfully submitted that while additional evidence filed by the assessee may be admitted for limited purposes under Rule 46A, the assessee This report is respectfully submitted for your kind consideration. Encl: 1. Annexure-A 2. The confirmations from the 50 parties that are tabulated for US loans in Assessment order dated 30.3.2015 Yours faithfully, Assessing Officer 26. A perusal of the order of the Ld. CIT(A) / NFAC shows that while deciding the appeal he has not considered the second remand report where the Assessing Officer has specifically mentioned that the assessee has filed the confirmations from all the 50 parties and has also repaid the loans to the above parties. 27. A perusal of the order of the Ld. CIT(A) / NFAC also shows some glaring mistakes where he has mentioned that the assessee has taken loans from the following three parties: i) M/s. Kesha Appliances Pvt Ltd ii) M/s. Vidya Education Investments Pvt Ltd iii) M/s. Tarika Property Invest....
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.... ultimate beneficiary was the assessee and his brother by accommodating entries of loan. We find the Ld. CIT(A) / NFAC while sustaining the addition has relied on the decision of the Hon'ble Supreme Court in the case of PCIT vs. M/s. NRA Iron and Steel Pvt. Ltd. (supra). It is the submission of the Ld. Counsel for the assessee that the decision of Hon'ble Supreme Court in the case of PCIT vs. M/s. NRA Iron and Steel Pvt. Ltd. (supra) is not applicable to the facts of the present case. Further the assessee in the instant case has explained the source of source. It is his submission that in view of the decision of Hon'ble Delhi High Court in the case of Sheela Overseas Pvt. Ltd vs. PCIT (supra) where it has been held that amendment to section 68 of the Act introduced by virtue of the Finance Act, 2022 makes it abundantly clear that section 68 of the Act, as was in force prior to 01.04.2023, did not require the assessee to explain the source of the source of funds other than share capital money, share capital, share premium or any amount of such nature, therefore, no addition u/s. 68 can be made. 12. We find some force in the above arguments of the Ld. Counsel for....
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.... mere submission of documents such as PAN, copies of ITRs, account confirmations, repayment with interest and TDS thereon cannot by itself discharge the burden cast upon the assessee u/s. 68 of the Act. According to him, in terms of section 68 of the Act, the assessee has to prove the identity and creditworthiness of loan creditors and the genuineness of the transaction. According to him, in the instant case the true identity of the loan creditor Risa International Ltd is not proved and its creditworthiness was also is doubtful since Risa International is just a paper company used by the beneficiaries of Risa International Ltd to provide accommodation entries. We find the Ld. CIT(A) sustained the addition made by the Assessing Officer. It is the submission of the Ld. Counsel for the assessee that the assessee has filed all the relevant details such as PAN, copies of ITRs, account confirmations, repayment with interest and TDS thereon, bank statement etc to prove the identity and creditworthiness of the loan creditor and genuineness of the transaction. The director of Risa International Ltd, lender company has appeared before the Assessing Officer in response to the summons u/s. 131....
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....firmed to have given the loan of Rs. 1,15,00,000/- out of the amount received from sundry debtors which in turn has already been repaid by 08.06.2017, therefore, in our opinion, the assessee has fully discharged its onus cast upon it by proving the three ingredients of section 68 i.e. identity, creditworthiness of lenders and genuineness of the transaction. We, therefore, set aside the order of the Ld. CIT(A) and direct the Assessing Officer to delete the addition. Grounds raised by the assessee are accordingly allowed." 15. Since in the instant case the assessee has filed the requisite details explaining the source of Rs. 1.62 crores being the loan obtained from Shri Manilal M. Gada and Shri Manilal M. Gada in response to notice u/s. 133(6) of the Act has also confirmed to have given the said loan and has filed his bank statement explaining the source, therefore, in our opinion, the assessee has fully discharged the onus cast upon him in terms of section 68 by proving the three ingredients i.e. identity and creditworthiness of Shri Manilal M. Gada and the genuineness of the transaction. We, therefore, set aside the order of the Ld. CIT(A) / NFAC and allow the grounds rais....
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....ee advances were given to group companies / sister concerns without charging any interest where such interest free funds are less than own capital, free reserves and interest free advances. 35. We find an identical issue had come up before the Co-ordinate Bench of the Tribunal in the case of DCIT vs. Sharada Erectors Private Limited (supra). We find the Tribunal, following the decision of the Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities & Power Ltd (supra) held that since the own capital and non-interest bearing funds available with the assessee are more than the interest free loans and advances given to the group companies, therefore, no disallowance u/s. 36(1)(iii) of the Act is called for. Various other decisions relied on by the Ld. Counsel for the assessee also supports his case to the proposition that when own capital and interest free funds available with the assessee are more than the interest free loans and advances given to other parties, no disallowance is called for. Since in the instant case also, as mentioned earlier, the partners' capital and non-interest bearing funds available with the assessee are far more than the interest free l....
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....Officer accordingly determined the whole income of the assessee at Rs. 6,71,49,739/ -. 40. Before the Ld. CIT(A) / NFAC the assessee filed certain evidences with a request to admit the same as additional evidence based on which the Ld. CIT(A) / NFAC called for a remand report from the Assessing Officer. After considering the contents of the remand report of the Assessing Officer and rejoinder of the assessee to such remand report, the Ld. CIT(A) / NFAC upheld the addition made by the Assessing Officer u/s. 68 of the Act as well as disallowance of interest u/s. 36(1)(iii) of the Act. 41. So far as the addition of Rs. 3,85,000/- u/s. 68 and interest paid thereon amounting to Rs. 37,55,932/- is concerned, the Ld. CIT(A) / NFAC sustained the addition by observing as under: 8.2 Addition under section 68 of the income-tax act, 1961 - unsecured loans 8.2.1 Section 68 of the Income-tax Act, 1961 empowers the Assessing Officer to bring to tax any sum found credited in the books of account of an assessee where the assessee fails to offer a satisfactory explanation regarding the nature and source of such credit. The section 68 places an initial and primary burden upon ....
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....sible. 8.2.7 In the remand report dated 26.12.2024, the Assessing Officer has acknowledged that the appellant has furnished PAN details, confirmations, bank statements evidencing receipt and repayment of loans, and has further recorded that the appellant has discharged the onus in respect of identity, creditworthiness and genuineness of the lenders. This factual position is duly taken note of. However, the satisfaction of the initial onus under section 68 does not ipso facto mandate acceptance of the credits as genuine for the purposes of assessment. The appellate authority is duty-bound to examine the surrounding circumstances, the human probabilities, and the commercial rationale underlying the transactions. When examined from this prism, it is observed that despite formal compliance, the pattern of multiple high-value unsecured loans, absence of contemporaneous loan agreements, lack of demonstrated commercial compulsion, and uniformity in transaction structuring raise serious doubts about the real nature of the credits. 8.2.8 The appellant has furnished PAN details and confirmation letters in respect of several creditors. This may prima facie establish....
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....ore applying any ratio. 8.2.13 The appellant has relied upon repayment of loans and deduction of TDS on interest to support genuineness. Repayment and TDS compliance are post-credit events and do not establish creditworthiness or genuineness at inception. Compliance with one provision of the Act cannot override failure to satisfy the substantive requirements of section 68. 8.2.14 The appellant has received unsecured loans from as many as twenty parties during the year under consideration. Since section 68 requires that each individual credit entry must be independently explained, it is neither legally permissible nor factually appropriate to examine the credits in a consolidated or abstract manner. The Hon'ble Courts have consistently held that the onus under section 68 is credit- specific and transaction-specific, and therefore each lender must satisfy the tests of identity, creditworthiness, and genuineness on its own merits. Accordingly, the unsecured loans are examined party-wise, with reference to the documents filed, the findings recorded in the remand report dated 26.12.2024, and the surrounding circumstances. 8.2.15 The appellant has shown rec....
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....ced to the appellant, without any demonstrated business rationale or financial capacity. Such transactions bear the classic characteristics of accommodation entries, wherein entities with little or no real financial strength are used to provide the loans in legal way. 8.2.18 On a creditor-wise, evidence-wise, and law-wise examination, it is held that the appellant has failed to establish creditworthiness and genuineness of the unsecured loans. The addition of Rs. 3,85,00,000/- under section 68 is accordingly confirmed. Since the unsecured loans are held to be unexplained and deemed as income of the appellant, the interest claimed thereon cannot be allowed as a deduction. Accordingly, the disallowance of interest of Rs. 37,55,932/- is confirmed. 42. So far as the addition of Rs. 1,56,31,290/- u/s. 36(1)(iii) of the Act on account of diversion of interest bearing funds is concerned, he also sustained the addition made by the Assessing Officer by observing as under: 8.3 Disallowance of interest of Rs. 1,56,31,290/- under section 36(1)(iii) on account of diversion of interest-bearing funds 8.3.1 During the previous year relevant to Assessment Year 2013-14,....
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....furnish any cash-flow statement or contemporaneous fund-flow evidence to establish a direct nexus between interest-free funds and interest-free advances. In cases of mixed funds, the presumption in favour of the assessee arises only when availability and deployment of interest-free funds at the relevant point of time is conclusively demonstrated. In the present case, such demonstration is absent. Mere availability of capital or partners' funds in the balance sheet does not discharge the onus under section 36(1)(iii), particularly when each assessment year is a separate unit. Accordingly, the disallowance is sustained not on the ground of absence of own funds, but on failure to establish nexus and commercial expediency. 8.3.7 The appellant has relied upon various judicial precedents to contend that interest disallowance is not warranted where mixed funds exist or where advances are made for business purposes. However, these decisions are clearly distinguishable on facts, as in those cases either sufficiency of own funds or commercial expediency was established. In the present case, neither condition is satisfied. Further, the Judicial authorities have consistently held ....
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...., the addition confirmed u/s. 68 Rs. 3,85,00,000/- may kindly be deleted. 6] The learned CIT(A) further erred in confirming the disallowance of interest expenditure of Rs. 37,55,932/- in respect of the above unsecured loans on the ground that since the said loans were treated as unexplained cash credit, question of allowing the interest paid on the said loans simply did not arise. 7] The learned CIT(A) failed to appreciate that the above referred unsecured loans taken by the assessee were genuine and there was no reason to disallow the interest thereon of Rs. 37,55,932/- and hence, the said interest expenditure may kindly be allowed. 8] The learned CIT(A) erred in confirming the disallowance of interest expenditure of Rs. 1,56,31,290/- made u/s. 36(1)(iii) on the ground that the assessee firm had advanced interest-bearing funds for non-business purposes. 9] The learned CIT(A) erred in holding that the assessee had failed to substantiate that it had sufficient interest free funds available for advancing loans for non-business purposes and hence, the disallowance made by the learned A.O. was justified. 10] The learned CIT(A) failed to appr....
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....l. Accordingly the order of the Ld. CIT(A) / NFAC was upheld and the grounds raised by the Revenue were dismissed. He submitted that since in the instant case also the Assessing Officer has given a favourable remand report after considering the various details filed by the assessee during the remand proceedings, therefore, the Ld. CIT(A) / NFAC is not justified in sustaining the same by ignoring the remand report. He accordingly submitted that the addition made by the Assessing Officer u/s. 68 of the Act and sustained by the Ld. CIT(A) / NFAC should be deleted. 48. So far as grounds of appeal No. 6 and 7 are concerned, the same relate to the disallowance of interest on loan creditors. He submitted that in case the loan is accepted as genuine, interest on such loan is consequential in nature. 49. So far as grounds of appeal No. 8 to 10 are concerned, he submitted that the same relate to the disallowance of interest by invoking the provisions of section 36(1)(iii) of the Act on account of diversion of interest bearing funds. 50. The Ld. Counsel for the assessee referring to page 11 of the paper book drew the attention of the Bench to the partners' capital which shows an ....
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.... आयकर विभाग / INCOME TAX DEPARTMENT To, The Appeal Unit Dated: 26/12/2024 DIN & Letter No.: ITBA/NFAC/F/24/2024-25/1071594867(1) Sub:- Remand Report in the case of KUMAR BUILDERS (AACFK1478L) for AY 2013-14 with reference to Appeal Number NFAC/2012-13/10136786-reg. Sir/Madam, Sub: Remand Report in the case of Kumar Builders (AACFK1478L) for A.Y. 2013-14 - reg ************ Please refer to the above. 02. In this case, the assessee had filed its return of income on 30.09.2013 declaring total income of Rs. 29,77,157/ -. Subsequently, the case was selected for scrutiny under CASS and assessment completed u/s. 143(3) of the IT Act on 30.03.2016 assessing the total income at Rs. 6,71,49,739/- after making additions on account of unexplained unsecured loans along with interest to the tune of Rs. 4,22,55,932/-, disallowance u/s. 36(1)(iii) amounting to Rs. 1,56,31,290/-, disallowance of commission payment of Rs. 57,30,908/-, interest income of Rs. 2,07,892/- and Rs. 11,55,200 under the head business income. Aggrieved with the order of the AO, the assessee has f....
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....ount statement showing entries of the receipt and repayment thereof. It has further been submitted that the loans so taken have already been repaid in the subsequent years. The details as produced by the assessee are reproduced hereunder. Moreover, the assessee submitted the confirmation letters from these lenders. The details submitted by the assessee are tabularised as: Sr. No. Name PAN Address Confirmation ITR 1 Anaheeta K. Lakdawalla AFFPL4718Q 7/1ST FLOOR, DULWICH MANSION, Mumbai, Maharashtra, 400007. Yes Yes 2 Anil Harsh AAAPH8876M D. M. HARISH & CO., NEELKANTH, 98, Marine Drive, Mumbai, Maharashtra, 400002. Yes Yes 3 Daksha Vijay Parikh AGLPP5789N 16, MORAR BAUG, 1st Khattar Gali, Mumbai, Maharashtra, 400004. Yes Yes 4 Gulab K. Jeswani AACPJ3053A 71, SILVER ARCH, 66 Neapeansea Road, MUMBAI, Maharashtra, 400026. Yes Yes 5 Jagdish K. Satwani AAIPS6079F 205, Sai Prasad Complex, 1ST ROAD, OPP. KHAR RAILWAY, MUMBAI, Maharashtra, 400052. Yes Yes 6 Jhamandas M. Nagpal (HUP) AACHJ1450K 102 - 103, Anand Dham, PLOT NO. 197, 10TH ROAD, MUMBAI, Maharashtra, 40....
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.... noted by the AO that similar addition had also been made in the case of the assessee for A.Y. 2012-13. Accordingly, interest expenditure to the tune of Rs. 1,56,31,290/- was disallowed and added back to the total income of the assessee for the relevant previous year. The additional evidences submitted by the assessee have been carefully perused. It has been contended by the assessee that since it was unable to collate any details against the notices issued by the AO during the course of assessment proceedings, no submission could be made by it during that stage as a result of which addition was made. Now the assessee has submitted party wise details of advances let to various parties including opening and closing balances as on 01.04.2012 & 31.03.2013 and nature of loan so advanced. It is perceptible that the interest free advances made by the assessee during the relevant previous year under the below listed sub-heads have mainly been claimed to be made out of interest free funds available with it. 1. Advances for regular business purpose 1. Security Deposits 1. Advances for properties/ development rights 1. Advances for expenses ....
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.... to substantiate during the course of scrutiny proceedings by the way of furnishing name, address, PAN of the beneficiaries and nature of services rendered by them. In this regard, AR of the assessee during the course of assessment proceedings submitted that the said commission agents had helped the assessee to procure unsecured loan by the way of 3% commission on the amount borrowed. However, the AR could not submit any proof whatsoever in support of his claim. As such, the commission payment of Rs. 57,30,908/- was disallowed and added back to the total income of the assessee. In order to verify the facts, the office of undersigned have issued a letter dated 29-01- 2024 through system requesting to submit details i.e. Name, Address, PAN No of the person to whom the commission was given. Moreover, the assessee was asked submit the details like TDS deducted on the commission, the bank account details in which the payment of the commission made along with supporting documents and purpose of the commission. In this regard, additional evidences have been produced by the assessee including the details of 52 parties to whom commission payments have been made during the ....
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....l No. 8 to 10 in ITA No. 742/PUN/2026 for assessment year 2012-13. Since the own capital is more than the interest free advances given to the group companies, therefore, following similar reasonings, the disallowance of interest by the Assessing Officer and upheld by the Ld. CIT(A) / NFAC is set aside and the grounds raised by the assessee are allowed. The appeal filed by the assessee is accordingly allowed. ITA No. 744/PUN/2026 (A.Y. 2014-15) 56. After hearing both the sides, we find the Assessing Officer invoking the provisions of section 68 of the Act made addition of Rs. 5,72,51,000/- being the loan taken by the assessee from the 10 parties, the details of which are at page 2 of the assessment order on the ground that the assessee failed to furnish the confirmations from the lenders for which the genuineness of the transactions and creditworthiness and existence of lenders is highly doubtful. Since he disallowed the loan of Rs. 5,72,51,000/-, he disallowed the interest paid to the above parties amounting to Rs. 69,99,319/ -. Similarly, the Assessing Officer invoking the provisions of section 36(1)(iii) of the Act made addition of Rs. 5,40,70,616/- to the total income of t....
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...., therefore, treated the unsecured loans as unexplained cash credits under section 68 and also disallowed the interest paid thereon. 7.2.5 The appellant failed to furnish satisfactory primary evidence during assessment. The Assessing Officer, after examining the material available and the conduct of the appellant, recorded a finding that the appellant had failed to discharge the statutory burden under section 68 and accordingly treated the unsecured loans as unexplained cash credits. 7.2.6 During appellate proceedings, the appellant has filed various documents such as PAN details of creditors, bank statements reflecting receipt of funds, ledger accounts, and certain financial statements. These documents have been examined carefully. While these documents may establish the existence of transactions in the books, they do not, by themselves, establish the real nature of the credits. The appellate authority is required to evaluate not only the documents filed, but also the substance, surrounding circumstances, and commercial rationale of the transactions. 7.2.7 The appellant has furnished PAN details and confirmation letters in respect of several creditors. T....
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....credit events and do not establish creditworthiness or genuineness at inception. Compliance with one provision of the Act cannot override failure to satisfy the substantive requirements of section 68. 7.2.13 The appellant has received unsecured loans from certain parties during the year under consideration. Since section 68 requires that each individual credit entry must be independently explained, it is neither legally permissible nor factually appropriate to examine the credits in a consolidated or abstract manner. The Hon'ble Courts have consistently held that the onus under section 68 is credit-specific and transaction-specific, and therefore each lender must satisfy the tests of identity, creditworthiness, and genuineness on its own merits. Accordingly, the unsecured loans are examined party-wise, with reference to the documents filed and the surrounding circumstances. 7.2.14 The appellant has recorded receipt of unsecured loan from M/s. T.S. Kishan & Co. Ltd. during the year under consideration. In support of the said credit, the appellant has furnished PAN details, ledger account and bank statement reflecting receipt of funds. On examination of the mate....
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....nancial statements or source details of the creditor have been placed on record. The transaction is unsupported by loan agreements or commercial terms ordinarily expected in arm's length transactions. When examined in totality, the transaction lacks commercial substance and independent verification. Accordingly, the unsecured loan from M/s. Blowell Auto Pvt. Ltd. is held to be unexplained under section 68. 7.2.18 The appellant has also received unsecured loans from several individual creditors. The confirmations and bank statements furnished indicate that these individuals have limited income profiles, as reflected from available records. The appellant has not furnished any evidence such as capital accumulation, sale of assets, inheritance, or business income to justify advancement of large unsecured loans by such individuals. On examination of the bank statements and material available on record, it is observed that in several cases, cash or third-party deposits are found immediately before issuance of cheques, and the appellant has failed to explain the origin of such funds. 7.2.19 From the creditor-wise examination discussed above, it is evident that while ....
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.... 5,40,70,616/ -. 7.3.2 Deduction of interest under section 36(1)(iii) is permissible only when borrowed funds are used for the purposes of business. Where borrowed funds are diverted for non-business purposes or interest-free advances without commercial justification, the corresponding interest expenditure is not allowable. 7.3.3 The appellant has contended that it possessed sufficient own funds and, therefore, it should be presumed that interest-free advances were made out of such funds. While the balance sheet may reflect availability of capital and reserves, such availability in abstract is not determinative. The critical requirement is to establish that such own funds were actually available and deployed at the point of time when the interest-free advances were made. In the present case, the appellant has not furnished any contemporaneous fund-flow statement, cash-flow analysis, or day-to- day fund movement to substantiate this claim. The appellant has also sought to rely upon the concept of mixed funds to argue that interest-free advances should be presumed to have been made out of own funds. This presumption is not automatic. Courts have consistently held th....
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....tion made of Rs. 5,72,51,000/ -. 3] The learned CIT(A) failed to appreciate that the assessee had submitted the confirmation of the lenders along with other documentary evidences to prove the identity, creditworthiness and the genuineness of the lenders and hence, there was no reason to confirm the addition made of Rs. 5,72,51,000/- and accordingly, the same may kindly be deleted. 4] The learned CIT(A) erred in confirming the addition by relying upon certain irrelevant facts which were not applicable to the case of the assessee and accordingly, the addition made u/s. 68 of Rs. 5,72,51,000/- may kindly be deleted. 5] The learned CIT(A) erred in holding that the assessee ought to have explained the source of source without appreciating that the said obligation was introduced subsequently and not applicable to the year under consideration and hence, the addition confirmed u/s. 68 of Rs. 5,72,51,000/- may kindly be deleted. 6] The learned CIT(A) further erred in confirming the disallowance of interest expenditure of Rs. 69,99,319/- in respect of the above unsecured loans on the ground that since the said loans were treated as unexplained cash credit,....
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.... group companies / firms. He submitted that since the partners' capital of Rs. 89,29,58,011/- is much more than the amount of interest free advances of Rs. 30,31,98,618/- given to the group companies / firms, therefore, in view of the decision of the Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities & Power Ltd (supra), no disallowance is called for. 62. The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A) / NFAC. 63. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. Grounds of appeal No. 1 to 5 by the assessee relate to the addition of Rs. 5,72,51,000/- made by the Assessing Officer being the unsecured loans obtained from the 10 parties, the details of which are as under: Sr. No. Particulars New loan taken during the year Interest 1 Sangeeta J Sancheti 2,00,000 34,100 2 Dipesh J Sancheti 5,00,000 81,550 3 Shefali Jayant Sancheti 16,00,000 1,55,550 4 Sanam Jain ....
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.... the head business income and Rs. 2,81,851/- on account of incorrect claim of TDS credit. Aggrieved with the order of the AO, the assessee had filed appeal before CIT(A) which got dismissed on account of non-appearance; then the issue moved before Hon'ble ITAT Pune who remanded the matter back to the file of CIT(A). During the course of ongoing proceedings before your honour at this stage, additional evidences have been submitted with regard to the grounds viz. addition on account of unsecured loans, disallowance of interest expenditure, disallowance of commission payments and disallowance on treating income from house property as business income. The same had been forwarded to this office for comments. 03. The issue wise comments on the additional evidences adduced by the assessee at this stage are being made hereunder. Addition of unsecured loans and interest thereupon 3.1 During the course of assessment proceedings, it was observed by the AO on analysis of the financials submitted by the assessee that during the relevant previous year, unsecured loans had been obtained from 10 parties totalling to an amount of Rs. 5,72,51,000/- upon which interest ....
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....i, Mumbai, 400018. Yes Yes 5 Jayankumar M Sancheti (HUF) AACHJ0459E B 508, Poonam Apartment, Shivsagar Estate, Shivsagar Estate, Worli, Mumbai, 400018. Yes Yes 6 N. Vensimal Securities Ltd AAACN3305Q 37 41, Shahviri Building, Picket Road, 400002. Yes Yes 7 A.G. Enterprises AKFPA8594J Yes Yes 8 Star Right Homes (India) Pvt Ltd AAPCS5533G SHOP NO. 45, Building No. 3, Shraddha Chs Ltd, Mumbai, 400033. Yes Yes 9 Amrit Rajkumar Gaba AABPG8120C Plot No. 234, 11th Road, Khar West, Mumbai, 400052. Yes Yes 10 Cello Industries AABCC1808J D-16, O.I.D.C, Ringanwada, Daman, 396210 Yes Yes Thus, the assessee has recharged its onus on credit worthiness and genuineness of the lenders. As such, the issue may be decided on merits considering the above-mentioned factual position. Disallowance of commission payments 3.3 During the year under consideration, the assessee had claimed commission expenses to the tune of Rs. 37,03,826/- which it was required to substantiate during the course of scrutiny proceedings by the way of furnishing name, address, PAN ....
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....he decisions relied on by the assessee before him and no such loan has been taken by the assessee from the above parties, the details of which are already given in the preceding paragraphs. In view of the above discussion, the order of the Ld. CIT(A) / NFAC sustaining the addition made by the Assessing Officer u/s. 68 of the Act is not justified. 66. Since the loan amount of Rs. 5,72,51,000/- from the 10 parties is held to be genuine, the interest paid to them also is liable to be allowed. Accordingly, the grounds of appeal No. 1 to 5 challenging the addition u/s. 68 of the Act and grounds of appeal No. 6 and 7 challenging the disallowance of interest are allowed. 67. So far as grounds of appeal No. 8 to 10 relating to the disallowance of interest u/s. 36(1)(iii) of the Act is concerned, we find the amount of interest free advances given to the group companies at Rs. 24,01,87,930/- is much less than the own capital of Rs. 89,29,58,011/ -. We have already decided an identical issue in assessment year 2012-13 while deciding grounds of appeal No. 8 to 10. Following similar reasonings, we allow the grounds of appeal No. 8 to 10 raised by the assessee. The appeal filed by the asse....
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....odia (HUF) --- OFFICE OF THE ASSISSTANT COMMISSIONER OF INCOME TAX CIRCLE-7, PUNE 548/2B, Aaykar Sadan, Bodhi tower, 3rd floor Room no 316, Salisbury Park, Gultekdi, Pune 411037 Phone No: 020-24267316, Email: pune.deit7 @ income tax.gov.in 5. Swati Dinesh Shishodia 6. Ashwin Ambalal Patel (HUF) 4. Further, with regard to the person Ramesh.C.Shah (HUF), in response to the notice under section 133(6) of the Act, the bank statement has not been provided. Therefore, the genuineness of the transaction of the assessee with the said party has not been established. Yours Faithfully, Arecimo (Sreevisakh R.K) Asstt. Commissioner of Income Tax Circle-7, Pune. Document 2 1. Please identify yourself. ¢ Ans- Myself is Abhinandan Suresh Jain , Age-40 years. I am wholetime director of Risa International Ltd., Mumbai. I am CA. My mobile no. is 9820548835. 2. Please state about the activities of Company. Ans- M/s. Rasa International Ltd., is engaged in steel, textiles and real estate. 3. As per ledger of loan account extract, Risa International Ltd., has given loan to Prem Grain Pvt. Ltd. It is seen that loan of Rs.1,15,00,000/- was given. You do not have any ....
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....nd state of mind and no pressure upon me while recording the statement. Viem Grain Industries P. Jalgaon A ASLA- 17/12/18. (Abhimonday Jan) Before me doporu 18-03-18. Document 4 lunar Bulões AY 2013-14 Decals of loone llecivet 1.Mc Particulas Pul Am Nun bảo drtog i MM Host noget bra M MARC knoutl PYcsPot 3e Tal KUN AUR ve € 1 Ewa I Ladoda AFP,47780 DULINICH GANSICHL 214 J DADAJ 0 :30 300 75000 74 1-2011 25404 KIO1.300 502 M ROND TARDED W.ADA -40009 Wenn 9232 154% 06-11 2012 y 2 And Harsh MAPHONYSN 157 FLOOR, 1! CO CHAMBERS DINSISE 1 01 001 4,21.305 MS-200 5330 3530 11 WHOHA POACI MUMBAI - 400000 Whansen 1 Jakosa Via Parikh AGELAPS TON ROOM NO 18 JHO FLOCIE, MOHAR SAUG LEXLIGO LO00 35-08 2018 AT2547 58-713 9 'ST KHIATTERGAU DPIANI,MLINSAL, MỤNGHI - QUá»CA MIParaENT 4 Gule K Jm AADRUNMESA, DA, SUN INDUSTRIAL ESTATE LOVIER Q. DOLDOC KLOU 3-10-312 TES 1.30.000 3FICA H PAPEL MUMBAI - 40001 Mulareshe 1 ogfish &Suivant VIPS839; 402 VAL MAHAL OR, ALSBEDMAR ACAS 10C/O00 11.500 8-40-2001 MHI OC KOU ICH 1. MEXT, TO IMPRIHOUSE BANDRAJUNGAL SAADAN VEST -42020 kthx:sita B WCHECK CHA HIM SADAN, 10 TH FOAD, 10 100 1....
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