pri Addition U/s. 69A can only be made when assessee found to be in possession of money bullion jewellery, etc., not recorded in his books of account Addition U/s. 69A can only be made when assessee found to be in possession of money bullion jewellery, etc., not recorded in his books of account

Case Law Details

Case Name : Dy. Commissioner of Income Tax Vs M/s. Karthik Construction Co. (ITAT Mumbai)
Appeal Number : ITA no.2292/Mum./2016
Date of Judgement/Order : 23/02/2018
Related Assessment Year : 2011–12

DCIT Vs M/s. Karthik Construction Co. (ITAT Mumbai)

As could be seen, the Assessing Officer raised suspicion on the loan repayment by doubting the genuineness of the unsecured loan availed by the assessee against which such loan repayment was made.

However, as per the facts on record, unsecured loans which were repaid by the assessee during the year were availed in financial years 2000–01, 2001–02 and 2002-03.

In fact, the Assessing Officer himself has accepted that the unsecured loans which were repaid during the year were availed before 1st April 2005.

It is also admitted factual position that in the earlier years wherein such unsecured loans were availed by the assessee no doubts were raised by the Assessing Officer and the unsecured loans have been accepted.

Further, to verify the genuineness of the unsecured loans taken from a large number of persons the Assessing Officer issued notices under section 133(6) on random basis to 15 creditors and summons under section 131 of the Act to five creditors.

The Assessing Officer has himself observed in the assessment order that in response to the notices issued under section 133(6) the concerned parties submitted their replies before the Department.

Out of five persons to whom summons were issued two persons actually appeared before the Assessing Officer and were examined.

The Assessing Officer accepted the unsecured loan taken from one such person to be genuine while holding the loans taken from other persons to be non– genuine doubting the creditworthiness of the concerned parties on the basis of income declared by them in the impugned assessment year.

Thus, as could be seen from the facts on record, the existence of the creditors have been established. Moreover, when the unsecured loans were not taken in the impugned assessment year but were taken in earlier assessment years wherein the genuineness of such loans were never questioned, it cannot be questioned in the impugned assessment year.

Therefore, the only thing which requires to be examined in the present appeal is whether the addition made under section 69A of the Act can be sustained.

A reading of section 69A of the Act makes it clear, addition can only be made when the assessee is found to be in possession of money bullion jewellery, etc., not recorded in his books of account.

It is not the case of the Department that the loan repayment made during the year was either not recorded in the books of account or the source of fund utilised in repaying the loan is doubtful.

That being the case, the addition under section 69A of the Act cannot be made. Therefore, the decision of the learned Commissioner (Appeals) has to be sustained.

So far as the decision cited before us by the learned Departmental Representative, on careful reading of the same, it is found to be factually distinguishable as in the facts of that case, a large amount of money were found deposited in various bank accounts held by the assessee and the assessee was unable to explain the source of such deposits.

Whereas, in the facts of the present case, there is no doubt with regard to recording of repayment of loan in the books of account and the source of such  fund.

What the Assessing Officer has doubted to disallow the repayment is the genuineness of unsecured loans received by the assessee in the earlier assessment years. In the aforesaid view of the matter, the decision cited by the learned Departmental Representative will be of no help to the Revenue. Accordingly, we uphold the order of the learned Commissioner (Appeals) by dismissing the ground raised.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

Captioned appeal at the instance of the Revenue is directed against order dated 25th February 2016, passed by the learned Commissioner (Appeals)44, Mumbai, for the assessment year 2011-12. The only effective ground raised by the Revenue reads as under:

“On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred in deleting the addition made under section 69A of the I.T. Act, 1961 of ` 80,71,317 without appreciating the fact that the assessee got its money routed in the form of unsecured loans and after repayment to parties, the money was transferred / withdrawn to the assessee.”

2. Brief facts are, the assessee a partnership firm is engaged in the business of builders and developers. For the assessment year under dispute, the assessee filed its return of income on 29thSeptember 2011, declaring total income of ` 39,84,250. During the assessment proceeding, the Assessing Officer noticing that in the relevant previous year the assessee has made substantial payments towards repayment of old unsecured loans called upon the assessee to furnish the details of the squared up loans along with the duration of such loans. After verifying the details submitted by the assessee, the Assessing Officer found that unsecured loans were taken prior to the year 2005 and were repaid during the year. To verify the genuineness of loan repayment, the Assessing Officer issued notice under section 133(6) and summons under section 131 of the Act to some of the parties. As observed by the Assessing Officer, in response to notice issued under section 133(6), the concerned persons filed their replies in Department. Out of the persons to whom summons were issued two persons appeared and statements were recorded from them. After examining the witnesses the Assessing Officer accepted the loan taken from Kiran A. Shah to be genuine. However, as far as unsecured loans advanced by other creditors, the Assessing Officer upon verifying the return of income filed by them for assessment year 201112, doubted their creditworthiness. Accordingly, he held that the unsecured loans claimed to have been received by the assessee from the concerned persons are not genuine. He observed that the assessee was introducing his unexplained money to the business through the creditors and after completion of business, he is again siphoning off the money through the same people by transferring to their account and subsequently withdrawing it. Therefore, he held that the repayment of loan to parties whose creditworthiness is doubtful cannot be held to be genuine. Accordingly, he added back the amount of ` 80,71,317 under section 69A of the Act. Being aggrieved, assessee challenged the addition before the first appellate authority.

3. The learned Commissioner (Appeals) after considering the submissions of the assessee found that the unsecured loans were received by the assessee in financial years 2000-01, 200102 and 2002-03. However, in the assessment years relevant to these financial years, the Assessing Officer had not raised any doubt with regard to genuineness of the loan transactions which is evident from the fact that no additions were made under section 68 of the Act in the relevant assessment years. Further, learned Commissioner (Appeals) observed that the addition under section 69A of the Act can only be made if the assessee is found to be in possession of money, bullion, jewellery, etc. which are not recorded in his books. He observed, in assessee’s case that is not the fact as the Assessing Officer has started his enquiry after examining the receipt and payment of loan recorded in the books of the assessee. He, therefore, held that deeming provisions of section under section 69A of the Act will not apply to the facts of the assessee’s case. The learned Commissioner (Appeals) observed, when the identity of the creditors have been established and the entire loan transaction was done through regular banking channel, addition under section 69A of the Act in the impugned assessment year cannot be made. Accordingly, he deleted the addition.

4. Learned Departmental Representative submitted, when the source of loan is not proved and repayment of loan is doubtful, the Assessing Officer can invoke the provisions of section 69A of the Act. In support of her contention, the learned Departmental Representative relied upon the decision of the Hon’ble Supreme Court in CIT v/s K. Chinnathamban, [2007] 162 taxman 459 (SC).

5. Learned Authorised Representative strongly relied upon the observations of the learned Commissioner (Appeals).

6. We have heard rival submissions and perused material on record. We have also applied our mind to the decision relied upon by the learned Departmental Representative. As could be seen, the Assessing Officer raised suspicion on the loan repayment by doubting the genuineness of the unsecured loan availed by the assessee against which such loan repayment was made. However, as per the facts on record, unsecured loans which were repaid by the assessee during the year were availed in financial years 2000–01, 2001–02 and 2002-03. In fact, the Assessing Officer himself has accepted that the unsecured loans which were repaid during the year were availed before 1st April 2005. It is also admitted factual position that in the earlier years wherein such unsecured loans were availed by the assessee no doubts were raised by the Assessing Officer and the unsecured loans have been accepted. Further, to verify the genuineness of the unsecured loans taken from a large number of persons the Assessing Officer issued notices under section 133(6) on random basis to 15 creditors and summons under section 131 of the Act to five creditors. The Assessing Officer has himself observed in the assessment order that in response to the notices issued under section 133(6) the concerned parties submitted their replies before the Department. Out of five persons to whom summons were issued two persons actually appeared before the Assessing Officer and were examined. The Assessing Officer accepted the unsecured loan taken from one such person to be genuine while holding the loans taken from other persons to be non genuine doubting the creditworthiness of the concerned parties on the basis of income declared by them in the impugned assessment year. Thus, as could be seen from the facts on record, the existence of the creditors have been established. Moreover, when the unsecured loans were not taken in the impugned assessment year but were taken in earlier assessment years wherein the genuineness of such loans were never questioned, it cannot be questioned in the impugned assessment year. Therefore, the only thing which requires to be examined in the present appeal is whether the addition made under section 69A of the Act can be sustained. A reading of section 69A of the Act makes it clear, addition can only be made when the assessee is found to be in possession of money bullion jewellery, etc., not recorded in his books of account. It is not the case of the Department that the loan repayment made during the year was either not recorded in the books of account or the source of fund utilised in repaying the loan is doubtful. That being the case, the addition under section 69A of the Act cannot be made. Therefore, the decision of the learned Commissioner (Appeals) has to be sustained. So far as the decision cited before us by the learned Departmental Representative, on careful reading of the same, it is found to be factually distinguishable as in the facts of that case, a large amount of money were found deposited in various bank accounts held by the assessee and the assessee was unable to explain the source of such deposits. Whereas, in the facts of the present case, there is no doubt with regard to recording of repayment of loan in the books of account and the source of such  fund. What the Assessing Officer has doubted to disallow the repayment is the genuineness of unsecured loans received by the assessee in the earlier assessment years. In the aforesaid view of the matter, the decision cited by the learned Departmental Representative will be of no help to the Revenue. Accordingly, we uphold the order of the learned Commissioner (Appeals) by dismissing the ground raised.

7. In the result, Revenue’s appeal is dismissed.

Order pronounced in the open Court on 23.02.20 18

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