ITAT Raipur deletes Related-Party Loan Addition (Genuineness Proven)

DCIT Vs Agrawal Global Infratech Pvt. Ltd. (ITAT Raipur)

ITAT Raipur held that addition under section 68 towards unsecured loan from related party cannot be sustained since identity, creditworthiness of lender and genuineness of transaction proved. Hence, appeal of revenue dismissed.

Facts- The case of assessee was selected for complete scrutiny through “CASS”. The assessment came to became completed with addition on account of unexplained cash credit u/s 68 for Rs. 9,06,15,711/- and addition u/s 40a(ia) for non-deduction of TDS for Rs. 58,000/-.

CIT(A) deleted addition u/s. 68 made by AO. Being aggrieved, revenue has preferred the present appeal.

Conclusion- Held that in support of identity, creditworthiness of the lender and genuineness of transaction, assessee submitted copy of confirmation, ITR and computation of the lender. Also, to substantiate that the actual transaction has taken place, copy of bank statement of the lender showing such entry on 15.07.2018 is placed before us, relevant page no. 29 of APB. In view of such facts, CIT(A) had rightly observed that there is no justification to treat the aforesaid transaction as unexplained cash credit, therefore, the addition u/s 68 cannot be sustained, we, therefore, approve the view taken by Ld. CIT(A).

FULL TEXT OF THE ORDER OF ITAT RAIPUR

The captioned appeal is filed by the department against the orders of Commissioner of Income Tax (Appeals), NFAC, [in short “Ld. CIT(A)”], Delhi, u/s 250 of the Income Tax Act, 1961 (in short “The Act”), for the AY 2018-19 dated 22.05.2024, which in turn arises from the order u/s 143(3) read with section 144B, passed by Income Tax Officer, NFAC, Centre, Delhi, dated 16.06.2021.

2. The grounds of appeal raised by the department are as under:

1. Whether on the facts and in the circumstances of the case, and in law, the ld. CIT(A) was justified in deleting the addition s of Rs.9,06,15,711/- u/s 68 of the Income Tax Act?”

3. The brief facts of the case are that the assessee company had filed its return of income for the AY 2018-19 on 07.08.2018, declaring total income of Rs.10,33,16,780/-. Subsequently, the case of assessee was selected for complete scrutiny through “CASS”. Accordingly, statutory notices 143(2) and 143(1) are issued. After deliberations, the assessment came to became completed with certain additions:

i. Addition on account of unexplained cash credit u/s 68 for Rs. 9,06,15,711/-

ii. Addition u/s 40a(ia) for non-deduction of TDS for Rs. 58,000/-

3.1 After the aforesaid two additions, aggregating to Rs.9,06,73,711/-, the assessed income of the assessee was determined at Rs. 19,39,90,490/-.

4. Aggrieved with aforesaid additions by the Ld. AO, assessee preferred an appeal before the Ld. CIT(A), wherein the contentions and explanation furnished by the assessee are contemplated to be convincing / satisfactory by the Ld. CIT(A), and therefore, the appeal of the assessee has been rendered as allowed.

5. Since the appeal of the assessee is allowed by the Ld. CIT(A) by deleting the aforesaid additions u/s 68 made by the Ld. AO, aggrieved thereby the revenue filed the present appeal assailing the order of Ld. CIT(A), in terms of ground of appeal extracted (supra).

6. The additions u/s 68 of the Act, are made on account of unexplained cash credit received by the assessee in the garb of unsecured loan, and increase in share capital, the details of such addition furnished by the Ld. AO in the assessment order, are culled out as under:

(i) Details of unsecured loan received from related parties:

Agrawal Global Infratech Pvt. Ltd.
Details for Unsecured Loan from Related Parties
For the Period of 01.04.2017 to 31.03.2018

ii. Details of unsecured loan received from unrelated parties:

Agrawal Global Infratech Pvt. Ltd.
Details for Unsecured Loan from Unrelated Parties
For the Period of 01.04.2017 to 31.03.2018

iii. Increase in share capital from Rs. 1,00,000/- to Rs.65,70,000/- in the FY 2017-18, for which proof of genuineness of transaction like copy of bank statement are not produced by the assessee.

7. The aforesaid issues are deliberated in detail by the Ld. CIT(A), in the backdrop of circumstances, that when such information was sought to be furnished by the Ld. AO by a show cause notice dated 23.05.2021 and the assessee was required to submit such details by 31.05.2021, the said period was suffering with the peak of the second wave of the COVID pandemic, therefore, there was sufficient and reasonable cause for not producing the evidence before the Ld. AO, accordingly, Ld. CIT(A) had accepted the documentary evidences additionally furnished before him. Such evidence was forwarded to Ld. AO on 26.02.2024 for examination and remand report, a reminder was also further issued by the Ld. CIT(A) to Ld. AO on 03.04.2024, however, no remand report was submitted by the Ld. AO till passing of the appellate order by Ld. CIT(A).

8. Ld. CIT(A) have considered the grounds of appeal, statement of facts and submissions of the assessee from time to time including the additional evidence and then have deliberated upon the issue raised by the assessee assailing the order of Ld. AO qua the additions made u/s 68.

9. Party wise and issue wise adjudication, observations and conclusion by the Ld. CIT(A) on the additions made are extracted as under:

6.3 1 have carefully considered the grounds of appeal, statement of facts, submissions made from time to time and the details mentioned in the assessment order. Ground no. 2 and its various clauses challenges the addition of Rs. 9,06,15,711/- made u/s 68 and is first taken up for adjudication. Party-wise adjudication is given below:

(a) Unsecured loan from related parties:

(i) Rakesh Agrawal HUF Rs. 9,40,833/-: During the appeal proceedings, the appellant has submitted that the total outstanding from this party is Rs.10,42,443/-, whereas the AO has mentioned an amount of Rs.9,40,833/- in the table at page 2. However, the AO has considered the total increase in unsecured loans from related parties as Rs. 5,78,42,443/-, which includes Rs. 10,42,443/- from Rakesh Agrawal HUF. This is an old unsecured loan in the books of the proprietorship concern which was taken over by the company during the present year. It is seen that the confirmation, copy of ITR and computation from this creditor was filed before the AO. The AO has doubted the genuineness of the loan amount as the relevant bank statement was not produced. The credit in the books of the company during the year is only a book entry and the loan was actually taken prior to 1.4.2017. The relevant documents in this regard have been perused. There is no justification for treating a loan taken prior to the AY under consideration as unexplained cash credit, which has appeared as ‘new’ credit in the books of the company during the year only on account of taking over the liabilities of the partnership firm during the relevant year. Reliance is also placed on the decision of the Hon’ble Calcutta High Court in the case of Jatia Investment Company [1994] 206 ITR 718 (Cal). Thus, the addition u/s 68 of Rs. 10,42,443/- is hereby directed to be deleted.

(ii) Rakesh Agrawal Rs. 25,00,000/-: Shri Rakesh Agrawal is a director of the company. It is seen that the confirmation, copy of ITR and computation of income was filed before the AO. The AO has doubted the genuineness of the loan amount as the relevant bank statement was not produced. The bank statement has now been produced, which was also remanded to the AO. The AO has not furnished any report. During the VC, the AR explained that the money actually came in FY 2018-19. The relevant ledger accounts showing reversal of entries have also been produced. No money actually came into the books in FY 2017-18 but was transferred in FY 2018-19, as seen from the relevant bank account: All details to show the genuineness of the loan taken from the director are available on record. There is no justification for treating this loan of Rs. 25,00,000/- as unexplained cash credit. Thus, the addition u/s 68 of Rs. 25,00,000/- being loan taken from the Director Shri Rakesh Agrawal is hereby directed to be deleted.

(iii) RM Developer Rs. 18,00,000/-: This is an old unsecured loan in the books of the proprietorship concern which was taken over by the company during the present year. It is seen that the confirmation, copy of ITR and computation from this creditor was filed before the AO. The AO has doubted the genuineness of the loan amount as the relevant bank statement was not produced. The credit in the books of the company during the year is only a book entry and the loan was actually taken prior to 1.4.2017. The relevant documents in this regard have been perused. There is no justification for treating a loan taken prior to the AY under consideration as unexplained cash credit, which has appeared as ‘new’ credit in the books of the company during the year only on account of taking over the liabilities of the partnership firm during the relevant year. Reliance is also placed on the decision of the Hon’ble Calcutta High Court in the case of Jatia Investment Company [1994] 206 ITR 718 (Cal). Thus, the addition UIs 68 of Rs.18,00,000/- is hereby directed to be deleted.

(iv) Smt Shalu Agrawal Rs. 25,00,000/-: Shalu Agrawal is a director of the company. It is seen that the confirmation, copy of ITR and computation of income was filed before the AO. The AO has doubted the genuineness of the loan amount as the relevant bank statement was not produced. The bank statement has now been produced, which was also remanded to the AO. During the VC, the AR explained that the money actually came in FY 2018-19. The relevant ledger accounts showing reversal of entries have also been produced. No money actually came into the books in FY 2017-18 but was transferred in FY 2018-19, as seen from the relevant bank account. All details to show the genuineness of the loan taken from the director are available on record. There is no justification for treating this loan of Rs. 25,00,000/- as unexplained cash credit. Thus, the addition u/s 68 of Rs. 25,00,000/- being loan taken from the Director Smt. Shalu Agrawal is hereby directed to be deleted.

(v) Agrawal Infra-Shree Balaj JV Rs. 5,00,00,000/- : The AO has doubted the creditworthiness of the creditor as income in ITR is Rs. 0/- During the appeal proceedings, the appellant explained that the creditor is a Joint Venture of the appellant with one M/s Shree Balaji, which was awarded a work contract by the Jharkhand government. The JV had received Rs. 5 crores as mobilization advance from the State of 4harkharWfor execution of the work contract. This amount was transferred from the account of the JV to the account of the appellant. Copy of bank statement of the JV has been furnished as additional evidence, which was duly remanded to the AO. The AO has not furnished any report. The bank statement has been perused and it is seen that Rs. 5 crore has come into the bank account of the JV from the State of Jharkhand, which has then been transferred to the appellant. All details to establish the identity, genuineness and creditworthiness of this creditor are duly furnished and there is no justification for treating this amount as unexplained cash credit u/s 68. Thus, the addition u/s 68 of 5,00,00,000/- being loan received from Agrawal Infra-Shree Balaji JV is hereby directed to be deleted.

(b) Unsecured loans from unrelated parties:

(i) Vitality Steel Pvt. Ltd. Rs 1,93,46,365/-: This is an old unsecured loan in the books of the proprietorship concern which was taken over by the company during the present year. The total amount outstanding as per details submitted during the appeal proceedings is Rs. 2,14,35,772/- However, the AO has considered the total increase in unsecured loans from related parties as Rs. 5,78,42,443/-, which includes Rs. 2,14,35,772/- from Vitality Steel Pvt. Ltd. It is seen that the confirmation, copy of ITR and computation from this creditor was filed before the AO. The AO has doubted the genuineness of the loan amount as the relevant bank statement was not produced. The credit in the books of the company during the year is only a book entry and the loan was actually taken prior to 1.4.2017. The relevant documents in this regard have been perused. There is no justification for treating a loan taken prior to the AY under consideration as unexplained cash credit, which has appeared as ‘new credit in the books of the company during the year only on account of taking over the liabilities of the partnership firm during the relevant year. Reliance is also placed on the decision of the Hon’ble Calcutta High Court in the case of Jatia Investment company [19941 206 ITR 718 (Cal). Thus, the addition u/s 68 of Rs. 2,14,35,772/- is hereby directed to be deleted.

(c) Share capital increase: The increase in share capital of Rs. was added u/s 68 as proof of genuineness of transaction was not furnished. During the appeal proceedings, the appellant explained that the company had issued 6,47,000 equity shares of Rs. 10/- each to Shri Rakesh Agrawal in lieu of part of sale consideration for taking over the running business of the proprietorship concern of Shri Rakesh Agrawal. The agreement for takeover of the business was furnished during the assessment proceedings. No money has actually been received for the allotment of these shares. Further, all details to show the genuineness of the transaction have been furnished. The facts of this transaction are directly covered by the decision of the Hon’ble Calcutta High Court in the case of Jatia Investment Company [1994] 206 ITR 718 (Cal). There is no justification for adding the increase in share capital of Rs. 64,70,000/- as Unexplained cash credit u/s 68. Thus, the addition u/s 68 of Rs.64,70,000/-hereby directed to be deleted.

6.4 In conclusion, none of the addition’s u/s 68 as per the name wise details on pages 4 and 5 of the assessment order are justified and are directed to be deleted. The total of all these additions is Rs. 8,57,48,215/- (after taking into account the actual loans outstanding from Rakesh Agrawal HUF as Rs. 10,42,443/- and from Vitality Steel Pvt Ltd. as Rs. 2,14,35,772/- instead of the figures mentioned against these two names in the tables on page 4 & 5 of the assessment order). However, the amount actually added by the AO is Rs. 9,06,15,711/- The difference is Rs. 48,67,496/-, which has been explained by the appellant as loan outstanding from M/s GK Autowheels Pvt. Ltd. Confirmation, ITR & computation, audited financial statements and bank statement had been filed during the assessment proceedings. The AO has not given any finding in the assessment order as to why the loan outstanding from this party is liable to be treated as unexplained cash credit u/s 68. In the absence of any finding in the assessment order regarding this creditor and in view of the prima facie onus having been discharged by the appellant regarding this creditor, there is no justification for adding the amount of Rs. 48,67,496/- as unexplained cash credit u/s 68. The addition of Rs. 48,67,496/-is directed to be deleted. To sum up, the entire addition u/s 68 of Rs. 9,06,15,711/- is hereby directed to be deleted and ground no. 2 and its sub-grounds are treated as allowed.

10. Before us Ld. CIT-DR representing the revenue submitted that the assessee failed to substantiate the identity and creditworthiness of the lenders / investors and genuineness of transactions with corroborative evidence before the Ld. AO, therefore, the additions u/s 68 of the Act are made. It is further submitted that additional evidence produced by the assessee are admitted by the Ld. CIT(A), whereas ample opportunity was given by the Ld. AO to assessee, therefore, the additions are rightly made by the Ld. AO, accordingly, the order of Ld. CIT(A) is not acceptable on merits, the same is liable to be set aside and the additions made u/s 68 in the order by Ld. AO deserves to be restored.

11. Contradicting the aforesaid contentions of the revenue, Ld. AR Shri Ravi Agrawal, CA submitted that, under the compelling circumstances on account of pandemic due to which the lockdown was in operation in the city of Raipur from 09.04.2021 to 16.05.2021 and even thereafter the office of the assessee company could not function properly because of shortage of staff and many other health reasons under the distress and restrictions imposed by the Government. Under such circumstances, all the necessary evidence which could not be furnished before the Ld. AO are placed before the Ld. CIT(A), who had rightly and properly appreciated the facts of the issue, which are duly corroborated with the evidence, and documentary proofs. All such additional evidence are duly forwarded to the Ld. AO also for his/ her comments, however, Ld. AO had not responded to such communications by the Ld. CIT(A), therefore, the revenue’s view that additions are rightly made by the Ld. AO should not be accepted and the order of Ld. CIT(A), offering justification for each and every transaction which are not found genuine by the Ld. AO, deserves to be uphold.

12. We have considered the rival submissions, perused the material available on record and the judicial pronouncements relied upon by the parties. On perusal of the order of Ld. CIT(A), we found that there are justifiable reasons for which the additional evidence could not be furnished before the Ld. AO, whereas the same were submitted before the First Appellate Authority. The additional evidence so furnished by the assessee are under due compliance of the prescribed procedure of the law, such submission along with evidence are duly forwarded to the Ld. AO also, but there was no response by the Ld. AO, even after a reminder issued by the Ld. CIT(A). We, therefore, are of the considered opinion that Ld. CIT(A) had rightly taken into consideration the additional evidence furnished by the assessee to adjudicate the issues. Now, we shall be adverting to the observations of Ld. CIT(A) qua each of the transactions doubted and not considered genuine by the Ld. AO.

(i) Unsecured loan received from related party, Rakesh Agrawal HUF for Rs.9,40,833/- : From the facts on record, it is evident that this was an old unsecured loan in the books of proprietorship concern which was taken over by the company during the relevant year. The relevant documents relied upon by the assessee are confirmation, ITR, Computation of the lender. As per copy of audited balance sheet of the proprietorship concern M/s Agrawal Infrastructure, Raipur, which was taken over by the assessee company, it is apparent from schedule “C-Unsecured Loan” (page no. 81 & 86 of APB), that unsecured loan from Rakesh Agrawal HUF for Rs.9,40,833/- was outstanding as on 31.03.2017. In view of such facts, we find substance in the finding of Ld. CIT(A), thus, we approve the same.

(ii) Unsecured loan received from related party, Shri Rakesh Agrawal for Rs.25,00,000/- : The assessee company had received an unsecured loan of Rs. 25,00,000/- on 31.03.2018 by way of a cheque from Shri Rakesh Agrawal, Director of the company. The cheque issued on 31.03.2018 was expired on 30.06.2018, in lieu of which a fresh cheque was issued bearing no. 086945, which were then released on 05.07.2018. In support of identity, creditworthiness of the lender and genuineness of transaction, assessee submitted copy of confirmation, ITR and computation of the lender. Also, to substantiate that the actual transaction has taken place, copy of bank statement of the lender showing such entry on 15.07.2018 is placed before us, relevant page no. 29 of APB. In view of such facts, Ld. CIT(A) had rightly observed that there is no justification to treat the aforesaid transaction as unexplained cash credit, therefore, the addition u/s 68 cannot be sustained, we, therefore, approve the view taken by Ld. CIT(A).

(iii) Unsecured loan received from related party, R M Developers for Rs.18,00,000/- : The facts of this addition are identical to the facts qua the addition on account of unsecured loan from Rakesh Agrawal HUF (Para (i) supra), therefore, our decision therein to concur with the findings of Ld. CIT(A) in deleting the addition, shall apply mutatis mutandis on this addition also, consequently, we direct to delete the same.

(iv) Unsecured loan received from related party, Smt. Shalu Agrawal for Rs. 25,00,000/- : The facts of this addition are identical to the facts qua the addition on account of unsecured loan from Shri Rakesh Agrawal (Para (ii) supra), therefore, our decision therein to concur with the findings of Ld. CIT(A) in deleting the addition, shall apply mutatis mutandis on this addition also, consequently, we direct to delete the same.

(v) Unsecured loan received from related party, Agrawal Infra- Shree Balaji JV – Rs. 5,00,00,000/- : During the year under consideration assessee has received an amount of Rs. 5,00,00,000/- from M/s Agrawal Infra- Shree Balaji JV (AISB-JV), Ld. AO made the addition u/s 68 for the said amount stating that the identity, creditworthiness and genuineness of transaction are not established by the assessee. Ld. CIT(A) after considering the additional evidence furnished by the assessee have observed that this amount was transferred from the account of the aforesaid lender as apparent from the bank statement of the AISB-JV, placed before us at page no. 57 of APB. As per the Bank statement of AISB-JV maintained with an Axis Bank and amount was transferred by Govt. of Jharkhand on 05.02.2018, which has been transferred to the assessee as mobility advance, the same is duly recorded in the books of the assessee, under the head “Secured loan” in Note No. 5- Long Term Liability (page 57 of the APB). In view of such facts, we concur with the decision of Ld. CIT(A) that the identity, creditworthiness of the lender and genuineness of the transaction is duly substantiated by the assessee on the basis of corroborative evidences, therefore, we uphold the same.

(iv) Unsecured loan received from unrelated party, Vitality Steel Pvt. Ltd. – Rs. 1,93,46,365/- : The facts of this addition are identical to the facts qua the addition on account of unsecured loan from Rakesh Agrawal HUF (Para (i) supra), as the balance of this unsecured loan is brought in the books of assessee company on account of taking over of the business of proprietary concern M/s Agrawal Infrastructures, therefore, our decision therein to concur with the findings of Ld. CIT(A) in deleting the addition, shall apply mutatis mutandis on this addition also, consequently, we direct to delete the same.

(v) Increase in share capital- Rs. 64,70,000/-: During the year under consideration 6,47,000 shares having face value of Rs. 10/- and premium at Rs. 90 per share, were issued to Shri Rakesh Agrawal in lieu of part of shell consideration for taking over the running business of the proprietary concern, M/s Agrawal Infrastructure. As per agreement for takeover of business dated 01.04.2017 (page no. 62 to 66 of APB), at para 3, it is evident that the consideration for taking over of the proprietary concern was decided at Rs.8,22,13,702/-, equivalent to the amount of Proprietor’s Capital Account as on 31.03.2017, as per audited balance sheet (page 81 of APB). The consideration was decided to be settled by way of issuance of share capital for Rs.6,47,00,000/- (647000 share @ Rs.10+ premium Rs. 90). The remaining amount of Rs. 1,75,13,702/- to be paid by cash / bank in due course. As the increase in share capital was inconsequence to the take over of the business, therefore, the genuineness of transaction cannot be doubted, much less the identity and creditworthiness of the investor i.e., Shri Rakesh Agrawal was never an issue disputed by the revenue. We, thus, found no infirmity in the decision of Ld. CIT(A), in deleting the addition made u/s 68, being bereft of substance to sustain.

(viii) Unsecured loan from M/s G. K. Autowheels Pvt. Ltd. for Rs.48,67,496/-: All the necessary documents to establish the identity, creditworthiness of the lender and genuineness of the transaction is duly substantiated by the assessee on the basis of corroborative evidence, like Confirmation, ITR, Computation, Audited Financial Statements and Bank statements of the lender are submitted by the assessee before the Ld. AO, however, there was no finding by the Ld. AO about the amount received from M/s G. K. Autowheels Pvt. Ltd. (GKAPL), this fact has been revealed by the Ld. CIT(A) in his order and after deliberating upon all these documents have decided the issue in favour of the assessee by deleting the addition made u/s 68. Herein, we note that copies of all the corroborative evidence are placed before us at page no. 109 to 142 of APB, and after perusal of the same, we are of the considered view that the Ld. CIT(A) had justifiably decided the issue, therefore, the same does not require any interference by us, consequently, we uphold the decision of Ld. CIT(A).

13. In backdrop of the aforesaid observations, after considering the totality of facts and circumstances, in view of our aforesaid observations, in absence of any further substantial contradicting evidence, material, decision or submission by the revenue, we uphold the findings of Ld. CIT(A) qua all the aforesaid additions, resultantly the appeal of department, being bereft of substance and merits, stands dismissed.

14. In result, department’s appeal in ITA No. 331/RPR/2024 for the AY 2018-19 has been rendered as dismissed, as indicated above.

Order pronounced in the open court on 09/01/2025.