TaxTMI 
TaxTMI 
2024 (12) TMI 1806
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....oper relief in this respect. 2. On facts and circumstances prevailing in the case and as per provisions and scheme of the Act it be held that, the Honourable NeAC erred in disallowing the interest payment made by the Appellant and making addition of Rs. 70,48,370/- to the total income of the Appellant. The addition so made is unwarranted, unjustified, and contrary to the provisions and scheme of the Act. The addition so made be deleted. The Appellant be granted just and proper relief in this respect. 3. The Appellant prays to be allowed to add, amend, modify, Nil rectify, delete, raise any grounds of appeal at the time of hearing." 3. The brief facts anent to this appeal are that the assessee is a firm engaged in the business of Construction. It filed the return of income for the A.Y.2018-19 on 28.09.2018 disclosing total income of Rs. 58,46,500/-. Subsequently, the case was selected for complete scrutiny for verification of (a) Expenditure of Personal Nature; (b) Income from Real Estate Business; and (b) Unsecured loans. Statutory notices u/s. 143(2)/142(1) were issued to the assessee calling for certain details. The assessee made partial compliance. 4(a). ....
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....the core family members of the partners and thus the amount of Rs. 14,76,91,876/- introduced during the year as per table Para-5.4 is liable to be added to the income of the assessee u/s. 68 of the Act. Further, the interest paid on these loans is 18% which is way higher than what assessee has been paying to other unsecured loans. Thus, the assessee has not only introduced money in the business by using sham transaction but also used it to inflate its expenses by paying high interest on it. Therefore, interest of Rs. 70,48,370/- paid on these loans is to be disallowed and added back to the income of the assessee. 5.9 From the above discussion, it is clear that assessee has introduced funds in the form of unsecured loans whose genuineness could not be established by assessee, and thus Rs. 14,76,91,876/- is added to the income of of the Act. assessee u/s 68 r.w.s 115BBE (Addition of Rs. 14,76,91,876/-) Also being satisfied that the assessee has under reported its income by an amount of Rs. 14,76,91,876/- penalty proceedings u/s 271AAC of the Income Tax Act, 1961 are being initiated separately. 5.10 Further, as per discussion above, as the unsecured loans....
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....strength of the bank statement or identity of the creditor. It is seen from the assessment order that the AO during the course of assessment proceedings called for complete details with regard to so called gifts given by the Donor for which there was no compliance reported by the appellant. Thus the three limbs viz., the identity, credit worthiness and the genuineness of the transaction cannot be said to have been proved. The stand of the Appellant that since the alleged transactions are made through normal banking channels, it is sufficient to prove the genuineness of the transaction and the credit worthiness of the creditor cannot be accepted. 6.2.1 On the issue of circumstantial evidence and in the matters related to the discharge of 'onus of proof and the relevance of the surrounding circumstances of the case, the Hon'ble Supreme Court in the case of CIT v. Durga Prasad More [1972] 82 ITR 540, has observed as under: "...that though an appellant's statement must be considered real until it was shown that there were reasons to believe that the appellant was not the real, in a case where the party relied on self-sewing recitals in the documents, it wa....
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..... It may be noted that the said papers have been produced before the AO and the First Appellate Authority. b) The details of the entire transaction are summarized in the table below: Date Particulars Amount Source Source of source 11/10/2017 Loan by Raghav Rathi to Tara Constructions 2,00,00,000/- Gift by Ratan Rathi (father) to Raghav Rathi (son) of Rs. 1,95,00,000/- Withdrawal by Ratan Rathi (partner) from Tara Constructions of Rs. 1,95,00,000/-) 08/01/2018 Loan by Raghav Rathi to Tara Constructions 1,50,00,000/- Loan by Ratan Rathi (father) to Raghav Rathi (son) of Rs. 1,50,00,000/- Withdrawal by Ratan Rathi (partner) from Tara Constructions of Rs. 6,00,00,000/-. 08/01/2018 Loan by Jaya Rathi to Tara Constructions 1,50,00,000/- Gift by Ratan Rathi (father) to Jaya Rathi (daughter) of Rs. 1,50,00,000/- 08/01/2018 Loan by Ruchita Deole to Tara Constructions 1,50,00,000/- Gift by Ratan Rathi (father) to Ruchita Deole (daughter) of Rs. 1,50,00,000/- 08/01/2018 Loan by Rekha Devi Rathi to Tara Constructions 1,50,00,000/- Gift by Ratan Rathi (husband) to Rekha Devi Rathi (Wife) (of Rs. 1,50,00,00....
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....tly submitted all the requisite documentary evidence to substantiate the genuineness of the gift transaction. Therefore, the findings of the Ld. CIT(A) in this regard should be set aside, as they are not supported by the facts and documents on record. f) The Appellant respectfully submits that, in accordance with the provisions of Section 68 of the Income Tax Act, the source of the unsecured loans received by the Appellant from the concerned parties has been duly established and proven. The Appellant has submitted all requisite documentary evidence to substantiate the bona fide nature of the loans, including the identity of the lenders and the genuineness of the transactions. g) Further, Section 68 of the Act is amended to provide that the nature and source of any sum, whether in form of loan or borrowing, or any other (lability credited in the books of an assessee shall be treated as explained only if the source of funds is also explained in the hands of the creditor or entry provider. It is important to note that this additional onus of proof of satisfactorily explaining the source in the hands of the creditor is effective from AY 2023-24 and onwards. However, t....
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....g the course of hearing the Ld. DR submitted that the bank statement of Mr. Ratan Rathi have not been provided before any of the authorities. It was submitted by the DR that the claim of the appellant that funds were transferred by Ratan Rathi to his relatives remains not proved. In response to this reference was drawn to page no. 55 of the PB. The heading of the bank statement mentions the name of Ratan Shrikant Rathi (HUF) bearing account no. 086613023820. It was submitted that this is a joint account of all the family members including that of Mr. Ratan Rathi individual. The bank generally puts a single name in the statement in case of a joint account for their convenience. To substantiate the fact that this account is indeed a joint account for all the family members, a bank letter dated 03/03/2015 has been produced. This letter serves as a sanction letter issued in favour of all the members of Mr. Ratan Rathi's family. Another letter of the bank dated 25/08/2022 was also submitted which clearly mentions the bank account number 086613023820 in which one of the joint holders is Mr. Ratan Rathi. It was pointed out that all the transactions of withdrawal towards capital accoun....
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....be granted just and proper relief in this respect" 2.2.1. Contention of the Ld.CIT(A): a. The ground no.2 deals with interest portion said to have been made by the appellant on the unsecured loans. As the addition on unsecured loans has already been upheld as discussed in the preceding paragraphs, the interest disallowance also is accordingly upheld. The ground no.2 is thus dismissed. (Refer Page no. 18 Para 6.3 of the CIT(A) order) 2.2.2. Contention of the Appellant: a. The Ld. AO has disallowed the interest on the unsecured loans claimed as expense due to the mere reason that the interest paid on these loans is 18% which is way higher than what Appellant has been paying to other unsecured loans. b. The interest claimed as expense by the Appellant has been duly offered as income by the respective parties in their Return of Income. The aforesaid fact is evident from the Computation of income of the parties. (Please refer Page no. 117 to 164 where the Appellant has provided the computation of income for all the party). c. We would like to draw your attention to the Circular No.6-P, dated 06/07/1968 of Finance Act, 1968, the relev....
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....disallowing the interest on the unsecured loan on the ground that the interest @18% is higher as compared to other unsecured loan has stepped into the shoes of the Appellant borrower in deciding what the interest should be paid by Appellant. As mentioned above, availability of funds and charging of interest by lender is purely a commercial understanding between the borrower and lender and that Ld. AO cannot decide as to what the Appellant should do to fund his project and run his business. h. Various courts have held that the Ld. AO cannot dictate to the Appellant as to how the business should be done. Further, the Ld. AO shall have to evaluate the legitimate needs of the business at a point of time when the services were rendered and this would involve in inquiry as a businessman. i. It is important to note that the interest expense claimed by the Appellant is duly offered for taxation as interest income by the parties to whom interest is paid. Further, majority of the parties are in the highest tax bracket which is also evident from the computation of income of the parties. (Please refer Page no.117 to 164 of the factual PB). Hence, there is no loss to the reven....
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....rn of income for the assessment year under consideration. We hope Your Honour will find above information/clarification in order. We shall submit further information on intimation to us." 8. The ld. Departmental Representative on the other hand while supporting the orders of the lower authorities prayed for confirming the same as the assessee is unable to prove the genuineness of the transactions and creditworthiness of the loan creditors. 9. We have heard the rival submissions made by both the parties and perused the record placed before us. Assessee's grievance is against the addition made u/s. 68 of the Act for the alleged unexplained credits, disallowance of interest paid on such loans and invoking of section 115BBE of the Act on the addition made u/s. 68 of the Act. We observe that during the year the assessee firm received various unsecured loans. On examining the identity, creditworthiness and genuineness of the transactions, ld. AO observed that the same are rotation of fund which has moved from the assessee through its partners then to their relatives and then back to the assessee firm. Since the AO was not satisfied with the explanation given by the assesse....