PCIT Vs Bairagra Builders Private Limited. (Bombay High Court)
The Bombay High Court dismissed the Revenue’s appeal in PCIT Vs Bairagra Builders Private Limited, holding that no substantial question of law arose from concurrent factual findings of the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal regarding the genuineness of unsecured loans aggregating Rs.40 lakh. The Court found no reason to interfere with the findings that the assessee had discharged its burden of establishing the identity of the lenders, their creditworthiness and the genuineness of the transactions under Section 68 of the Income Tax Act, 1961.
The dispute concerned Assessment Years 2007-08 and 2012-13. The Revenue challenged the ITAT Mumbai order dated 14 September 2017, which had disposed of two appeals arising from orders of CIT(A)-20 dated 4 June 2015. The principal issue was whether unsecured loans carrying interest at 9% per annum should be treated as unexplained cash credits and whether the corresponding interest expenditure could be disallowed.
The Assessing Officer had treated unsecured loans of Rs.40 lakh obtained from Javda India Impex Ltd. and Lexus Infotech Ltd. as unexplained. The additions were primarily based on information gathered during a search and seizure operation involving Mr. Praveen Kumar Jain, who allegedly admitted to providing accommodation entries to several beneficiaries, including the assessee. The statement was subsequently retracted. Nevertheless, the Assessing Officer relied upon the original statement to characterize the loan transactions as fictitious, adding Rs.40 lakh as unexplained cash credit and disallowing the corresponding interest.
Before the CIT(A), the assessee produced documentary evidence supporting the transactions, including confirmations from the creditors, banking records, particulars of the directors of the lending companies and their income-tax returns. The loans had been received and repaid through banking channels. The available bank statements also demonstrated that the lender had not deposited cash into the relevant accounts. After examining these materials, the CIT(A) concluded that the loans could not be regarded as fictitious merely on the basis of the search statement and directed reversal of the disallowance.
The ITAT upheld the CIT(A)’s decision. It considered the documentary evidence and distinguished the judicial authorities relied upon by the Revenue. The Tribunal also referred to another ITAT decision involving a different assessee who had obtained a genuine loan from Javda India Impex Ltd. The Tribunal concluded that the addition had been founded on conjecture and surmise rather than a sustainable evaluation of the evidence.
Before the High Court, the Revenue sought to challenge these findings. The Court observed that both appellate authorities had concurrently found the loan transactions genuine on the basis of documentary material. The assessee had established the necessary ingredients of Section 68, and the case did not involve accounting entries disguised as purchases of goods or services. The Court considered that the dispute had already been resolved on questions of fact through two appellate stages.
The High Court consequently held that the Revenue’s challenge did not raise any substantial question of law, which was a prerequisite for entertaining the appeal. The Revenue’s appeal was therefore dismissed, leaving undisturbed the appellate findings in favour of the assessee concerning the Rs.40 lakh unsecured loans and related interest disallowance.
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FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
This Appeal is directed against an order dated 14th September, 2017 passed by the Income Tax Appellate Tribunal, Mumbai (“ITAT”) which disposed of two separate appeals challenging orders of the Commissioner of Income Tax (Appeals)-20 (“CIT-Appeals”), both dated 4th June, 2015. The relevant assessment years are 2007-08 and 2012-13.
2. The core issue relevant for these proceedings is whether unsecured loans taken at the rate 9% p.a. should be treated as being unexplained and disallowed in the tax assessment.
3. It is apparent from a review of the record that at both stages of appeals preceding this Appeal, there were concurrent findings of fact in favour of the assessee, namely, that the genuineness of the unsecured loan transactions cannot be questioned. In a nutshell, the Impugned Order notes that the assessee has submitted all the evidence to substantiate the loans in question, including confirmation from the creditors. That apart, the loans were taken and repaid through banking channels. The ITAT has also ruled that bank statements too substantiate the same. So also, the lender has not deposited any cash into his bank accounts. Both the rounds of appeals prior to this Appeal have held that the assessee has duly discharged the onus of proving the identity of the lenders, credit-worthiness and all supporting evidence as required under Section 68 of the Income Tax Act, 1961 (“the Act”).
4. The record shows that the disallowance of the unsecured loans of Rs.40 Lakhs was based on search and seizure action conducted on one Mr. Praveen Kumar Jain during which he is said to have recorded a statement that he had provided accommodation entries to a few beneficiaries, one of which is the Respondent. The said statement was retracted after the search and seizure was completed. The statement recorded during the search and seizure, ignoring the retraction and other documentary evidence brought to bear in the assessment, is the basis of the assessing officer treating the unsecured loans as fake.
5. The two companies that lent the unsecured loans namely, Javda India Impex Ltd. and Lexus Infotech Ltd. were said to be companies controlled by the said Mr. Jain. The assessing officer added the sum of Rs.40 Lakhs as unproven cash credit and correspondingly disallowed the interest amount on the said loan.
6. The CIT-Appeals, upon a review of the documentary evidence on the record, which included supporting bank statements, the identities of the directors of the two companies, the tax returns filed by those companies and the confirmation of loans given by the Respondent concluded that the disallowance of the loan as being fake ought to be reversed.
7. The ITAT too agreed with the CIT-Appeals. Distinguishing the case law cited by the Department, the ITAT agreed with the CIT-Appeals and held that the Respondent has discharged the onus of explaining the transactions. The ITAT has also examined another decision of the ITAT in respect of another assessee, which also had a valid loan from Javda India Impex Ltd. The ITAT agreed with the findings in that case to hold that the addition to the income had been raised merely on conjecture and surmise.
8. Having heard the Learned Counsels for the parties and having reviewed the record, we do not find this to be a fit case for an appeal, that raises any substantial question of law– a prerequisite for this Appeal to be entertained. This is not a case of accounting entries masquerading as purchase of goods or services. The evidence on record, has led to the questions of fact being answered concurrently in two rounds of review, in favour of the Respondent. Therefore, no substantial question of law arises in the matter, and therefore, the Appeal is dismissed.
