TaxTMI 
TaxTMI 
2026 (8) TMI 1573
X X X X Extracts X X X X
X X X X Extracts X X X X
....urn was selected for scrutiny and assessment under section 143(3) of the Income-tax Act, 1961 was completed on 14.12.2018 accepting the returned income. Thereafter, the assessment came to be reopened and the first reassessment was completed under section 143(3) read with section 147 on 23.03.2022 determining the total income at Rs.14,56,02,870, principally on account of an addition of Rs.14,38,00,000 under section 68 in respect of unsecured loans received by the assessee from thirteen parties. It is this addition which constitutes the principal subject matter of ITA No.2235/Mum/2026. The subsequent reassessment, which has given rise to ITA No.2236/Mum/2026, involves, inter alia, disallowance of interest relatable to two of the very same loans, an ad hoc disallowance of business expenditure and certain issues arising from sale of an immovable property. We shall first take up ITA No.2235/Mum/2026 because the finding therein has a direct bearing upon one of the substantive issues arising in the second appeal. 2. In the first reassessment proceedings, the Assessing Officer examined unsecured loans aggregating to Rs.14,38,00,000 received by the assessee during the relevant previous y....
X X X X Extracts X X X X
X X X X Extracts X X X X
....38,00,000 3.1. Thus, the addition is not founded upon one composite credit but comprises thirteen identified loan transactions of varying amounts. The largest loan is Rs.4.75 crore from Bahubali Properties Ltd., followed by Rs.1.95 crore from Gulzar Hire Purchase Private Limited; the remaining loans range between Rs.13 lakh and Rs.1.05 crore. This distinction assumes relevance because an addition under section 68 necessarily has to be examined with reference to the evidence concerning the particular credit appearing in the books and the explanation tendered in respect thereof. 4. The assessee's explanation before the Assessing Officer, as emerging from the material placed before us, was not confined to a bare assertion regarding the genuineness of these loans. Its case was that the relevant documentary trail had been placed on record. The documents stated to have been furnished included party-wise details, ledger accounts of the lenders in the assessee's books, loan confirmations duly signed by the parties, bank statements highlighting the amounts received from the respective lenders, audited financial statements and, wherever available, acknowledgements of returns of income.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Revenue, such evidence was sufficient to discharge the initial burden resting upon the assessee; and, if so, whether there existed cogent material or enquiry on the part of the Assessing Officer capable of displacing that evidentiary foundation. It is in this backdrop that we shall now advert to the rival submissions and thereafter examine, in a consolidated evidentiary matrix, the material relating to identity, creditworthiness and genuineness of the impugned loan transactions. 6. Before us, the learned counsel for the assessee submitted that the addition of Rs.14,38,00,000 has been sustained without examining the documentary evidence in its correct perspective. He submitted that the assessee had furnished, in respect of the loan creditors, their confirmations, PAN and income-tax particulars, ledger accounts, audited financial statements and relevant bank statements showing movement of funds through banking channels. The loans were duly reflected in the regular books of account and, according to him, the transactions did not terminate with the receipt of money, inasmuch as the loans were subsequently repaid through banking channels and interest was also paid thereon. His pri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t considerations and that the Assessing Officer was justified in examining the transactions beyond their ostensible documentation. His contention, in substance, was that the assessee had failed to satisfactorily discharge the burden resting upon it under section 68 and, therefore, the addition sustained by the learned CIT(A) did not call for interference. 8. We have heard the rival submissions and have carefully considered the material placed on record. Section 68, insofar as relevant, provides that where any sum is found credited in the books of an assessee maintained for any previous year and the assessee either offers no explanation about the nature and source thereof or the explanation offered is not found satisfactory by the Assessing Officer, the sum so credited may be charged to income-tax as the income of that previous year. Thus, the statutory enquiry is directed to the nature and source of the particular credit appearing in the books. In the case of a loan, the assessee has to place credible material establishing the identity of the creditor, his capacity to advance the amount and the genuineness of the transaction. Equally, however, the opinion of the Assessing Office....
X X X X Extracts X X X X
X X X X Extracts X X X X
....upports continuity of loan transactions Investigation Wing information No transaction-specific material shown connecting assessee's funds with impugned credits 9.1. The above table is not intended to treat any document as conclusive by itself. Its significance lies in the fact that the assessee's explanation was capable of objective verification. The record specifically states that party-wise summaries, ledger accounts, confirmations, bank statements, audited reports and income-tax particulars were furnished. Therefore, the enquiry could not stop merely at stating that the assessee had failed to prove creditworthiness and genuineness; the material furnished had to be tested and the deficiencies, if any, brought out with reference to the particular creditors and transactions. 10. Viewed from this perspective, the first noticeable feature is that the identity of the thirteen lenders was not a matter resting upon oral assertion alone. They were identified entities for whom PAN/income-tax particulars, confirmations and corporate/financial records were stated to have been furnished. The second and more important aspect concerns creditworthiness. Creditworthiness cannot be es....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it appearing in the assessee's books. If a statement of a third person constituted the foundation of such connection, and the statement was proposed to be used as substantive material against the assessee, elementary fairness required that the relevant material be confronted so that the assessee could meet it. The assessee has specifically asserted that it sought cross-examination and that the request was not acceded to. Nothing in the material placed before us shows that any lender denied having advanced the loan or that any lender's books or bank records contradicted the documents furnished by the assessee. 12. The legal position also has to be applied with a degree of balance. In Principal CIT v. NRA Iron & Steel (P.) Ltd. (2019) 412 ITR 161 (SC), the Hon'ble Supreme Court reiterated that the initial legal obligation rests upon the assessee to establish, by cogent evidence, the identity of the creditor, his creditworthiness and the genuineness of the transaction. The decision cannot be read as laying down that PAN, banking channels or corporate existence by themselves invariably discharge that obligation. At the same time, it recognises that once material concerning identity,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the absence of such material, the documentary evidence furnished by the assessee remains unrebutted on the essential factual aspects. 12.3. Accordingly, on the material presently forming part of the record before us, we are unable to sustain the addition of Rs.14,38,00,000 under section 68 merely on the basis adopted by the Assessing Officer and affirmed by the learned CIT(A). The impugned addition is, therefore, directed to be deleted. Grounds relating to the addition under section 68 in ITA No.2235/Mum/2026 are accordingly allowed. 12.4. We shall now proceed to ITA No.2236/Mum/2026, where the subsequent reassessment raises a distinct set of issues; importantly, the disallowance of interest of Rs.9,39,288 is founded upon the treatment of two of the aforesaid loans as non-genuine and would, therefore, have to be examined in the light of our finding recorded hereinabove. 13. We now take up ITA No.2236/Mum/2026. The genesis of this appeal lies in yet another reassessment for the same Assessment Year 2016-17. After completion of the original assessment under section 143(3) dated 14.12.2018 and the earlier reassessment dated 23.03.2022, information was received under the Risk....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e ground that nothing contrary to the Assessing Officer's findings had been brought before him, whereas the interest disallowance was sustained principally because the addition relating to the underlying unsecured loans had already been confirmed in the appeal arising from the earlier reassessment. As regards the alleged duplication of Rs.14,38,00,000, the learned CIT(A) held that the amount represented the addition already forming part of the assessed income pursuant to the earlier reassessment and had merely been carried into the subsequent computation; hence, according to him, there was no double addition. 15. We first deal with the disallowance of Rs.32,06,980, representing 30% of the business expenditure of Rs.1,06,89,936 debited by the assessee. The Assessing Officer noticed that Shop No.8 was reflected under the head "investment" in the balance sheet and constituted a capital asset and that, apart from its sale for Rs.1.25 crore, the assessee had not shown any business or professional income during the year. On this premise, he proceeded to disallow 30% of the expenditure under section 37(1). It is, however, pertinent that during the assessment proceedings the assessee ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s have been furnished, the allowability has to be tested with reference to the nature of the expenditure. If any particular expenditure is found unrelated to the business or otherwise inadmissible, the same can certainly be disallowed; but an arbitrary fraction of the aggregate expenditure cannot be rejected without identifying any factual defect corresponding to that fraction. 16.2. The learned CIT(A) confirmed the disallowance principally by observing that no submission had been furnished before him in respect of this ground and nothing contrary to the findings of the Assessing Officer had been brought on record. However, the assessment record itself contains the assessee's explanation concerning the expenditure and refers to the supporting details and ledger accounts furnished during the assessment proceedings. The evidentiary basis of the disallowance therefore had to be tested from the material already forming part of the assessment record. In these circumstances, an estimated disallowance cannot be sustained merely for want of further submissions before the first appellate authority when the assessment order itself does not identify any particular expenditure as inadmissib....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of Shop No.8. During the reassessment proceedings, the assessee furnished the relevant property documents and explained that Shop No.8 had been sold for a consideration of Rs.1,25,00,000 under the sale document dated 19.05.2015. It also furnished the earlier agreement relating to acquisition of rights in the property and explained the apportionment of cost attributable to Shop No.8, which according to the assessee worked out to Rs.68,79,640. A statement computing the long-term capital gain was also furnished. Significantly, before us the assessee has not persisted with the contention that the gain of Rs.37,62,857 should be assessed as business income. In its written submissions, the assessee has specifically accepted that the gain arising from sale of the property may be assessed under the head "Capital Gains", while maintaining its claim that the current-year business loss should be allowed to be set off against such capital gain. There is, therefore, no subsisting dispute before us regarding the head under which the gain from sale of Shop No.8 is assessable. The treatment of such gain under the head "Capital Gains" is accordingly upheld, subject to its correct computation in ac....