Income Tax Act, 1961 – Sections 68 and 143(3) – Receipt of unsecured loan – Addition as unexplained cash credit – Deletion of addition – Respondent/assessee is a company engaged in business of trading of rough and polished diamonds, filed its return of income for AY 2016-2017 – AO completed assessment proceedings under Section 143(3) of the Act by making an addition to total income of assessee on account of unsecured loan by treating same as unexplained cash credit under Section 68 of the Act – CIT(A) allowed appeal of assessee and deleted addition made by AO – Tribunal dismissed appeal of Appellant/Revenue and upheld order passed by CIT(A) – Whether Tribunal is justified in upholding deduction of addition caused on account of unexplained cash credit under Section 68 of the Act – HELD – Assessee has discharged initial onus which lays on it in terms of Section 68 of the Act by proving identity of creditors by giving their complete addresses, GIR numbers/permanent accounts numbers and copies of assessment orders wherever readily available – Assessee has also proved capacity of creditors by showing that amounts were received by assessee by account payee cheques drawn from bank accounts of creditors – Genuineness of transaction is proved by fact that payment to assessee as well as repayment of loan by assessee to creditors is made by account payee cheques – Merely because summons issued to some of creditors could not be served or they failed to attend before AO, cannot be a ground to treat loans taken by assessee from those creditors as non-genuine – Impugned order passed by Tribunal affirmed – Appeal dismissed

 

2024-VIL-105-GUJ-DT

 

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

 

R/TAX APPEAL NO. 811 of 2023

 

Date: 11.06.2024

 

THE PRINCIPAL COMMISSIONER OF INCOME TAX 1

 

Vs

 

MERRYGOLD GEMS PVT LTD

 

For the Appellant No. 1: MRS KALPANA K RAVAL (1046)

For the Opponent No. 1: MR TEJ SHAH (5743)

 

CORAM

HONOURABLE MR. JUSTICE BHARGAV D. KARIA

HONOURABLE MR. JUSTICE NIRAL R. MEHTA

 

ORAL ORDER

 

(PER: HONOURABLE MR. JUSTICE NIRAL R. MEHTA)

 

1. By way of this Tax Appeal under section 260A of the Income Tax Act, 1961 (For short “the Act”), Revenue has approached this Court challenging the order dated 11.01.2023 passed by Income Tax Appellate Tribunal, Surat (For short “the Tribunal”) in ITA No.126/SRT/2020 for Assessment Year 2016-2017 by proposing the following questions of law:

 

“a) Whether the Tribunal was justified in upholding the deduction of addition caused on account of unexplained cash credit under section 68 of the Act amounting to Rs. 11,57,00,000/-?

 

b) Whether the Tribunal was justified in upholding the deduction of addition under section 68 of the unexplained cash credit despite detailed inquiry revealing the nonexistence of creditor?”

 

2. Brief facts giving rise to the present tax appeal can be stated as under:

 

3. The assessee is a company engaged in the business of trading of rough and polished diamonds and derived income from business during the period under consideration. The assessee company has shown GP rate of 0.82% on a turnover of Rs. 83,61,61,111/-. Accordingly, the return of income was filed for the period under consideration on 13.02.2016 declaring total income at Rs.56,54,590/-.

 

4. The assessment proceedings under section 143(3) of the Act was completed on 30.12.2018 wherein the total income of the assessee was assessed at Rs.12,13,54,590/- thereby making addition of Rs.11,57,00,000/- to the total income of the assessee on account of unsecured loan treating the same as unexplained cash credit under section 68 of the Act and tax was charged at special rates as per section 115BBE of the Act.

 

5. Being aggrieved by the aforesaid, the assessee preferred an appeal before the learned CIT(Appeals), Surat who vide its order dated 10.02.2020 allowed the appeal of the assessee observing, inter-alia, as under:

 

“7.6 Repayment of advances.

 

The AR pointed out that the impugned advances have been repaid by assessee company within the financial year(mostly within 30 days). The repayments are evident from the ledger accounts, bank a/c. statements and also from the affidavits filed by the lenders. The Ld. AO has not questioned repayments or sources of the repayments. No contrary findings or evidences are lead by Ld. AO. The repayment of loan or advances when no fault is found by Ld. AO, constitutes a good evidence regarding genuineness of the said loans or advances. This commercial logic & common knowledge is recognized by judiciary. The Hon'ble jurisdictional High Court in case of Ayachi Chandrashekhar Narsangaji TA 992 of 22013 datd. 02.12.2013 has held that "It has also come on record that the said loan amount has been repaid by the assessee to ‘IA' in the immediately next year and the Department had 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, there was no reason to interfere with the impugned order passed by the Tribunals". Further the Hon'ble ITAT Surat in case of Kalubhai A. Dhamelia ITA No. 88/SRT/2018 dtd. 18.09.2018 & in case of Damjibhai Varjibhai Gangani ITA 124/SRT/2018 dtd. 18.09.2018 have also taken a view that the repayment of loan/advances constitute evidence regarding genuineness of the impugned loan or advances. The above binding decisions squarely apply to the facts of instant appeal & hence the addition u/s. 68 liable to be deleted on this reason.”

 

6. As against that Revenue has approached the Tribunal by way of filing Appeal being ITA NO. 126/SRT/2020 for Assessment Year 2016-2017. The Tribunal by its order dated 11.01.2023 dismissed the appeal of the Revenue observing, inter-alia, as under:

 

“15. We find that the Ld. CIT(A) after considering the submission of assessee further noted that all the advances were repaid by assessee within the same financial year i.e., most of the case within 30 days. The repayment was verified from the ledger account and the bank statement. The Ld. CIT(A) on relying on the decision of Jurisdictional High Court in Ayachi Chandrasekhar Narsangji (supra), wherein it was held that when loan amount has been repaid by the assessee in the immediately next year and the Department has accepted the repayment of such loan without proving it, no addition can under section 68 can be made, deleted the entire additions. During the hearing, the Ld. AR for the assessee vehemently argued that the assessee received the said amount during the course of its business activities and the amount was return either within one or two days or in a span of very short period, for which the provisions of section 68 cannot be invoked. We find the Ld. AR for the assessee filed following summary of impugned deposits and refunds;

 

Sr. No.	Details of payers	Details of trade advance received		Details of trade advance repaid		Repayment within
	Name	Date of receipt	Amount received	Date of payment	Amount repaid
1	M/s. Anushul Gems Pvt Ltd.	20/08/2015	Rs.31.00.000/-	21/08/2015	Rs.31.00.000/-
2	M/s. Manhar Impex Pvt ltd.	07/07/2015 13/07/2015	Rs.5,00,000/- Rs.73,00,000/-	08/07/2015 14/07/2015	Rs.5,00,000/- Rs.73,00,000/-	1 day
3	M/s. Uttam Gems Pvt ltd.	07/07/2015	Rs.50,00,000/-	08/07/2015	Rs.50,00,000/-	1 day
4	M/s. Look At Me Retails Pvt. Ltd.	04/12/2015	Rs.2,10,00,000/-	07/12/2015	Rs.21,34,000/-	3-6
5	M/s. Veena Gems	18/06/2015	Rs.5,00,000/-	22/06/2015	Rs.5,00,000/-	4 day
6	M/s. Royal Refinery Pvt.	01/09/2015 03/09/2015	Rs.50,00,000/- Rs.1,40,000	07/09/2015 08/09/2015 30/09/2015	Rs.10,00,000/- Rs.50,00,000/- Rs.1,30,00,000/-	6-27 days
7	M/s. Rama Exports	07/05/2015	Rs.75,00,000/-	08/09/2015	Rs.75,00,000/-	124 days
8	M/s. Kaushal Diamonds	07/05/2015	Rs.15,00,000/-	15/09/2015	Rs.15,00,000/-	131 days
9	M/s. Kumar Exports	07/05/2015 13/05/2015 14/05/2015	Rs.63,25,000/- Rs.30,00,000/- Rs.28,00,000/-	15/09/2015 01/10/2015 01/10/2015	Rs.30,00,000/- Rs.83,25,000/- Rs.08,00,000/-	131-141 days
10	M/s. Piyush Exports	08/05/2015 15/05/2015 19/05/2015 25/05/2015	Rs.50,00,000/- Rs.28,00,000/- Rs.20,00,000/- Rs.8,00,000/-	01/10/2015	Rs.1,060,00,000/-	146 days
11	M/s. Jai Shree Exports	19/05/2015	Rs.27,00,000/-	01/10/2015	Rs.27,00,000/-	135 days
12	Rajen Vasant	29/12/2015	Rs.2,00,00,000/-	13/05/2016 16/05/2016	Rs.1,00,00,000/- Rs.1,00,00,000/-	138 days
13	M/s. Osiaji Exports	22/03/2016	Rs.49,54,500/-	22/03/2016	Rs.49,54,500/-	1 days
	Total		Rs.11,57,79,500/-		Rs.11,57,79,500/-

 

6. A bare perusal of the aforesaid details makes it clear that the assessee has refunded the entire deposits either within in a day or in a week in respect of seven transactions. It was refunded in a maximum period of five months in respect of six transactions. Thus, no amount was left at the end of financial year. It is also matter or record that the repayment is not doubted by the assessing officer. The Hon’ble Jurisdictional High Court in CIT Vs Ayachi Chandrashekhar Narsangji (2014) 42 taxmann.com 251(Gujrat) held that where Department has accepted repayment of loan in subsequent financial year, no addition was to be made in the current year on account of cash loan.”

 

7. Being aggrieved by the aforesaid, Revenue has approached this Court by way of present Tax Appeal.

 

8. Heard learned advocate Mr. Karan Sanghani for learned advocate Ms. Kalpana Raval for the appellant and learned advocate Mr. Tej Shah for the respondent.

 

9. Having considered the submissions advanced by learned advocates for the respective parties and the orders impugned in this appeal, what is evident is that the amount of loan received by the assessee was returned within the same financial year and in most of the cases within 30 days. The said repayment was also verified from the Ledger Account and the Bank Statement.

 

10. In view of aforesaid undisputed fact with regard to repayment of loan, at this juncture, it would be pertinent to take note of decision of this Court in case of Dy. CIT v. Rohini Builders reported in 256 ITR 360 (Guj), wherein it is held as under:

“We have considered the rival submissions and have also gone through the order passed by the Assessing Officer, the relevant portion of which we have also extracted in para. 2 above. The Commissioner of Income-tax (Appeals) more or less confirmed the addition on the reasoning given by the Assessing Officer in the assessment order. A perusal of the chart given by us in para. 3 above indicates that out of 21 creditors the Assessing Officer has recorded the statements of only six creditors, viz., creditors at serial Nos. 1, 2, 3, 4, 6, and 7. However, in respect of all the 21 creditors the assessee has furnished their complete addresses along with GIR numbers/permanent account numbers as well as confirmations along with the copies of assessment orders passed in the cases of creditors at serial Nos. 1, 2, 4, 5, 6, 7, 9, 10, 11, 12 and 16. In the remaining cases where the assessment orders passed were not readily available, the assessee has furnished the copies of returns filed by the creditors with the Department along with their statement of income. All the loans were received by the assessee by account payee cheques and the repayments of loans have also been made by account payee cheques along with the interest in relation to those loans. It is rather strange that although the Assessing Officer has treated the cash credits as nongenuine, he has not made any addition on account of interest claimed/paid by the assessee in relation to those cash credits, which has been claimed as business expenditure and has been allowed by the Assessing Officer. It is also pertinent to note that in respect of some of the creditors the interest was credited to their accounts/paid to them after deduction of tax at source and information to this effect was given in the loan confirmation statements by those creditors filed by the assessee before the Assessing Officer. Thus it is clear that the assessee had discharged the initial onus which lays on it in terms of section 68 by proving the identity of the creditors by giving their complete addresses, GIR numbers/permanent accounts numbers and the copies of assessment orders wherever readily available. It has also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from bank accounts of the creditors and the assessee is not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of account but not the source of the source as held by the Bombay High Court in the case of Orient Trading Co. Ltd. v. CIT [1963] 49 ITR 723. The genuineness of the transaction is proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques. Merely because summons issued to some of the creditors could not be served or they failed to attend before the Assessing Officer, cannot be a ground to treat the loans taken by the assessee -from those creditors as nongenuine in view of the principles laid down by the Supreme Court in the case of Orissa Corporation [1986] 159 ITR 78. In the said decision the Supreme Court has observed that when the assessee furnishes names and addresses of the alleged creditors and the GIR numbers, the burden shifts to the Department to establish the Revenue's case and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere noncompliance of summons issued by the Assessing Officer under section 131, by the alleged creditors will not be sufficient to draw an adverse inference against the assessee. In the case of six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the Assessing Officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would have been to make assessments in the cases of those creditors by treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69.

 

Further, we may point out that section 68 under which the addition has been made by the Assessing Officer reads as under:

 

"68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year."

 

The phraseology of section 68 is clear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In this, case the legislative mandate is not in terms of the words "shall be charged to income-tax as the income of the assessee of that previous year". The Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word "may" and not "shall". Thus the unsatisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee as held by the Supreme Court in the case of CIT v. Smt. P. K. Noorjahan [1999] 237 ITR 570.”

 

11. Keeping in mind the ratio laid down in the said judgment, in the facts of the present case, we do not see any merit in the appeal and therefore, same deserves to be dismissed and is accordingly, dismissed with no order as to costs.

 

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