No addition of receipt of unsecured loans if identity, creditworthiness & genuineness of same proved

ACIT Vs M/s. H.K. Pujara Builders (ITAT Mumbai)

Conclusion: Since the receipt of loans, repayment and payment of interest thereon had been made through regular banking channels from account payee cheques  and no deficiencies whatsoever were found in the documentary evidences submitted by assessee, therefore, no addition of loan amount could be made under section 68 merely relying on the statement of an alleged entry operator where identity, creditworthiness of the lender and genuineness of transaction was proved.

Held: During the course of serach, Ao relied on the statement recorded from Shri J Purohit by Investigation Wing in connection with search and seizure operations of Pride Group at Pune wherein he admitted that he was involved in giving accommodation entries in the form of loans and advances and various companies were incorporated by his employees at different places and M/s. G Pvt. Ltd., was one of the companies controlled and managed by Shri J Purohit from which assessee had availed loan of Rs. 3 crores during the year. Shri J Puohit had also filed an affidavit retracting the original statement recorded on oath from him u/s.131 by Investigation Wing. Since, this retraction statement was filed after a gap of 29 months from the date of original statement, AO in the course of proceedings of the assessee decided to ignore the same and proceeded to make the addition as unexplained credit under section 68 in assessee’s hands. It was held though the statement from Shri J Purohit was recorded by Pune Investigation Wing , AO in order to place reliance on the said statement, for the purpose of framing assessments in the case of certain assessees at Mumbai, should have recorded yet another statement from Shri J Purohit to establish the nexus / link, if any, with assessee. Merely placing reliance on a statement recorded from a third party in connection with a search conducted in third party premises and implicating the assessee thereon by looking at all the transactions with jaundiced eyes did not gel well in the eyes of law. Assessee had borrowed loans from M/s. G Pvt. Ltd., in the earlier years also and the said loans were accepted as genuine. The interest paid on such loans were also allowed as deduction in the earlier years. The entire transactions i.e., the receipt of loans, repayment of loans and payment of interest thereon had been made through regular banking channels from account payee cheques. Thus, the entire addition of principal amount of loans and disallowance of interest on loans had been made by AO with surmise and conjecture and without any basis. No deficiencies whatsoever were found in the documentary evidences submitted by assessee before AO which admittedly included copy of PAN, ITR acknowledgement, audited financial statements, computation of income, confirmation from lender, bank statements evidencing the immediate source of credit of the lender etc. All these documents clearly proved the identity, creditworthiness of the lender and genuineness of the transaction in the peculiar facts of the instant case. Hence, it could be safely concluded that assessee had indeed complied with all the three necessary ingredients of Section 68.

FULL TEXT OF THE ITAT JUDGEMENT

This is an appeal filed by the revenue directed against the order of Commissioner of Income Tax (Appeals)-37, [hereinafter referred to as the ld CIT(A), Mumbai dated 16/02/2017 for A.Y. 2013-14 in the matter of order passed u/s.143(3) r.w.s. 147 of the Income Tax Act, 1961.

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