Repayment of unsecured loans prior to assessment completion proves genuineness, rendering Section 68 addition and interest disallowance unsustainable.

“3. On appeal before the CIT(A) the assessee reproduced the letter dt.22-12-08 written by the assessee to the AO along with the confirmation letter of Shri Ishwar Adwani submitting that he had given loan of Rs.145 lakhs to the assessee by cheques and considering the same and considering the fact that the aforesaid loan amount of Rs.145 lakhs came to be repaid to said Shri Ishwar Adwani in the next AY and considering the identity of the donors, creditworthiness and the genuineness of the loan transactions, CIT(A) deleted the additions made by the AO.

4. …………the Tribunal dismissed the appeal preferred by the revenue confirming the order passed by the CIT(A) deleting the aforesaid addition. the revenue has preferred the present TA with the aforesaid substantial que of law.

5. The only contention on behalf of the revenue is that on the last day of passing the order, communication dt.22-12-08 of the assessee along with the confirmation letter of Shri Ishwar Adwani confirming the loan/ advance of Rs.145 lakhs given to the assessee, was produced before the AO i.e., on the day, the AO passed the order and thereafter, the same was reproduced before the CIT(A) and the CIT(A) considered the same, the CIT(A) ought to have remanded the matter to enable the AO to hold further inquiry and, therefore, it is requested to admit/ allow the present TA.

6. Having heard Shri Pranav Desai, ld counsel appearing on behalf of the revenue and on perusal of the order passed by the CIT(A) confirmed by the Tribunal, it appears that CIT(A) was satisfied with respect to the genuineness of the transaction and creditworthiness of Shri Ishwar Adwani and, therefore, deleted the addition of Rs.145 lakhs made by the AO. It is required to be noted that as such an amount of Rs.100 lakhs vide Che.No.102110 and an amount of Rs.60 lakh vide Che.No.102111 was given to the assessee and out of the total loan of Rs.160 lakhs, Rs.15 lakh vide Che.No.196107 was repaid and, therefore, an amount of Rs.145 lakhs remained outstanding to be paid to Shri Ishwar Adwani. It has also come on record that the said loan amount has been repaid by the assessee to Shri Ishwar Adwani in the immediate next FY and the Deptt has accepted the repayment of loan without probing into it. In the aforesaid facts and circumstances of the case, when the Tribunal has held that the matter is not required to be remanded as no other view would be possible, we see no reason to interfere with the impugned order passed by the Tribunal. No que of law, much less substantial que of law arises in the present TA. Hence, the present TA deserves to be dismissed and is accordingly dismissed.”

“8.3. …………………It is observed that the copy of relevant bank statement was filed by the assessee before the ld CIT(A) as an “additional evidence” pointing out that both the creditors were paid the amount in que through banking channel during the subsequent year.

It was also submitted by the assessee before the ld CIT(A) that the confirmation of both the creditors along with PAN were placed before the AO, but no inquiry whatsoever was made by him to verify the relevant credits before treating the same as unexplained.

This submission made by the assessee along with the “additional evidence” was forwarded by the ld CIT(A) to the AO for verification, but besides objecting to the admission of the additional evidence, nothing was pointed out by the AO in his remand report submitted to the ld CIT(A) challenging the stand of the assessee on merit of the issue.

On verification of the additional evidence filed by the assessee, the ld CIT(A) found that both the credits in que were duly cleared by the assessee by making payments through banking channel in the subsequent year.

He also found that the issue was squarely covered by Ayachi Chandrasekhar Narsangji (2014) (Guj HC) cited on behalf of the assessee wherein it was held that where the repayment of loan was accepted by the Deptt in the subsequent year, no addition on account of the same could be made in the preceding year on account of unexplained cash credit.

Respectfully following the said decision of the Hon’ble jurisdictional HC, the ld CIT(A) deleted the addition made by the AO u/s 68; and, keeping in view all the facts of the case, we find no infirmity in the impugned order of the ld CIT(A) on this issue warranting any interference. The same is accordingly upheld and the Gr.No.6 of the Revenue” appeal is dismissed. ”

“3. Briefly stated, the facts of the case are that the AO received information from the Inv. Wing of the IT Deptt, that a search and seizure operation was carried out in Shri Bhanwarlal Jain Group on 3-10-13, wherein it was found that Shri Jain along with his associates had provided accommodation entries in the form of ULs/ deposits/ purchase entries to a large number of parties through various benami concerns controlled by them, by taking equivalent amount of cash. The assessee, proprietor of Pooja Construction, was one of the beneficiaries of accommodation entries from M/s.Daksh Diamonds operated by Shri Jain and Group. Based on the said information, the AO reopened the assessment by issuing notice u/s148 on 28-3-14. On the basis of the statement recorded u/s132(4)/131 during the course of search, the AO made an addition of Rs.50 lakhs of ULs shown by the assessee during the impugned AY and an amount of Rs.4,50,000 towards intt payment.

4. Aggrieved by the order of the AO, the assessee filed an appeal before the ld CIT(A). The ld CIT(A) held that (i) the AO has solely relied upon the statement of Shri Bhawarlal Jain and did not carry out any worthwhile independent inquiry in the matter, (ii) the AO has totally ignored the documentary evidence submitted by the assessee, (iii) even if some of the transactions entered into by the above parties are found to be not genuine, it does not lead to the conclusion that all the transactions entered into by these parties were bogus or non-genuine including the transactions related to the assessee. With the above reasons, the ld CIT(A) held that merely based on the statement of a third person without any corroborative evidence will not make the transactions, in que, non-genuine or bogus transaction. As such, in the absence of any contrary evidence placed on record, the transaction cannot be treated as bogus or paper transaction. Thus, the ld CIT(A) deleted the addition of Rs.50 lakhs and Rs. 4,50,000 made by the AO.

6. On the other hand, the ld counsel of the assessee submits that the assessee had received an amount of Rs.50 lakhs from M/s.Daksh Diamonds during the AY07-08. Also the assessee had paid interest @ 9% on such borrowed money and TDS has been deducted on the same. It is stated that the assessee is into the business of movie making and construction which requires re-financing. The above party had financed the assessee for which it had paid interest to them after deducting applicable TDS. Further it is stated that the assessee’s own capital is of Rs.15.93 crores and has a bank loan of Rs.4.19 crores. Hence, the assessee will not enter into such accommodation transaction of Rs.50 lakhs. The assessee has paid tax of Rs.45.80 lacs in AY07-08. It is stated that the assessee had submitted the copies of ITR and loan confirmation of the above party. Also the bank statements were provided to the AO which were reflecting the receipt of funds from the parties and payment of interest by the assessee. It is finally stated that the AO has made the addition based on the ground that the lender belonged to so-called Shri Bhanwarlal Jain and Group and the transaction was a bogus one, without giving any opportunity to the assessee to cross-examine the party in spite of repeated requests made. Also the assessee provided to the AO all the documents which can prove that the transaction was genuine which was ignored. The ld counsel of the assessee files a PB containing (i) Ledger Confirmation, (ii) Bank Statement of Daksh Diamonds, (iii) IT return copy of Mr.Ritesh Siraya (Prop. Daksh Diamonds) for AY07-08, (iv) Financial of M/s Daksh Diamonds for AY07-08 (v) Ledger account of M/s Daksh Diamonds for the period 3-7-06 to 6-9-10 and (vi) P&L account, balance sheet and IT return of the appellant for AY07-08. It is clarified by him that the above documents were filed before the AO and CIT(A).

7. Here is a case, clearly defined by the accounts. The ledger account of Daksh Diamonds appearing in the books of accounts of the assessee shows that on 3-7-06, the assessee received Rs.30 lakhs vide che.No.812561 and Rs.20 lakhs vide che.No.812562- being amounts received towards loan from Daksh Diamonds (Indusland Bank Ltd, Opera House Branch, Indusland House, 425 Mumbai-04).

On 6-5-10 the assessee issued che.No.265949 amounting to Rs.20 lakhs being cheque to Daksh Diamonds towards refund of loans. Further, on 22-6- 10 the assessee issued che.No.263943 amounting to Rs.30 lakhs being cheque to Daksh Diamonds towards refund of loans. The transactions were routed through Vijay Bank. The ledger confirmation by Daksh Diamonds tell the same facts. The search and seizure action conducted by the Deptt in Bhanwarlal Jain Group took place on 3-10-13. The loans taken by the assessee from Daksh Diamonds in the year 2006 was refunded in the year 2010. One has to respect the transactions which occurred more than 3 years before the search and seizure action by the Deptt. Thus, the addition made by the AO without any documents is devoid of merit. Accordingly, we uphold the order of the ld CIT(A).”

“2. Brief facts of the case are that the assessee filed ROI for the AY99-00 on 27-12-99. The assessment order was passed on 22-3-02 u/s143(3)/147 and it was noticed by the AO that the assessee had shown an advance of Rs.15 lacs from one Bhai Manjeet Singh.

The assessee was asked to furnish the details of this advance. It was explained by the assessee that this was received towards advance breeding charges. Thereafter, the assessee was asked to file confirmation from Bhai Manjeet Singh, which he failed to do so and accordingly, the AO made this addition of Rs.15 lacs u/s 68.

3. Aggrieved against the order passed by the AO, the assessee filed an appeal before the CIT(A) and the appeal of the assessee was allowed. Against the order of CIT(A), the Revenue filed an appeal before the Trib, that is, ITA No.1527/Del/2003 for the AY99-00 and the same was dismissed by the Del – Trib, vide the impugned order.

4. It has been contended by ld counsel for the Revenue that despite several opportunities, the assessee had failed to file confirmation from Bhai Manjeet Singh and, therefore, the AO was justified in making addition u/s 68.

6. Here, the CIT(A) has deleted the addition of Rs.15 lacs mainly on the ground that this credit balance of Rs.15 lacs is being reflected in the accounts of the assessee over the past 4 to 5 years or so and hence, this was not a fresh credit entry of the PY u/c and these credit entries were already made and accounted for in the AY95-96 and 97-98 which were introduced in the form of advance against breeding stallions owned by the assessee and thus, these credit entries did not relate to the year u/c for being considered u/s 68.

Since it is a finding of fact recorded by the CIT(A) that this credit balance appearing in the accounts of the assessee, does not pertain to the year u/c, under these circumstances, the AO was not justified in making the impugned addition u/s68 and as such no fault can be found with the order of the Trib which has endorsed the decision of the CIT(A). The above being the position, no fault can be found with the view taken by the Trib.”

“9. Coming to invocation of sec68, the AO has simultaneously invoked sec68 in addition to sec41(1), to bring into tax, said credit for the impugned AYs, but fact remains is that all these credits were brought forward from earlier FYs for which necessary evidences has been placed on record. On perusal of evidences filed by the assessee, we find that the credits in the name of S/Shri ARKA. Karutha Pandian, KA Sekar and K. Sivasundarapappa and Late ARK Arunachala Nadar, was received in FY07-08. Similarly, credit in the name of Smt. Swarnalatha was received in the FY06-07, likewise credit on account of land advance from Shri Kumar was received in the FY05-06. From the above, it is very clear that none of the credits were received during the current FY. Therefore, in our considered view these credits cannot be brought to tax as unexplained cash credits u/s68, because in order to bring any credits within the ambit of sec68, said credits should be found in the books of accounts of the assessee maintained for any PY and the assessee offers no explanation about the nature and source thereof or the explanation offered by the assessee in the hands of the AO is not satisfactory. In this case, none of the credits were received during the current FY and further, the assessee has offered explanation about source and nature of credits and further proved the identity/ creditworthiness and genuineness of transactions. Therefore, these credits cannot be brought to tax even u/s68. This view is fortified by Usha Stud Agricultural Farms Ltd (2008) (Del HC), where it was held as under:-

“When the credit balance in the accounts of the assessee did not pertain to the year u/c, the AO was not justified in making the addition u/s68 and no fault could be found with the order of the Trib endorsing the decision of the CIT(A).”

Sooraj Leathers (Chen – Trib) ITA No. 305/Mds/2016 had considered an identical issue and after considering relevant facts held as under:-

“If the liabilities are old, no credit has been made in so far those credits in the books of accounts in the AY u/c, sec68 cannot be applied. This view of ours is supported by Usha Stud Agricultural Farms Ltd (2008) (Del HC), cited supra wherein held that credit balance in the account of the assessee did not pertain to the year u/c, the AO was not justified in making the addition u/s68. Hence, in our opinion, the liabilities which were not credited in the PY relevant to the AY u/c, the sec68 cannot be applied and the AO is directed to exclude the same from the addition u/s68 after duly verifying the same.”

10. In this view of the matter and considering facts and circumstances of this case, we are of the considered view that the ld AO was erred in making additions towards credits shown in the books of accounts u/s41(1)/68. The ld CIT(A) without appreciating facts, has simply confirmed additions made by the AO. Hence, we reverse the findings of the CIT(A) and direct the AO to delete additions made towards sundry creditors u/s 41(1) & 68.”