Case Analysis

Did ITAT Mumbai allow the addition of INR 35 lakh despite sufficient evidence provided by the taxpayer?

Case Name: M/s Arvind Champaklal Shah v. Income Tax Officer, Ward 17(1)(1), Mumbai (ITA No. 4385/Mum/2023)

Facts of the Case:

The case involves the reassessment of a registered partnership firm, M/s Arvind Champaklal Shah, for the assessment year 2010-11. The reassessment was conducted under Section 147 of the Income Tax Act, 1961, where the Assessing Officer (AO) added INR 35,00,000 as unexplained cash credit under Section 68, claiming it to be an accommodation entry in the form of a loan from M/s Atharv Business Pvt. Ltd. An additional INR 35,000 was added as commission for obtaining this entry. The total addition amounted to INR 35,35,000.

The firm contested the reassessment and approached the Commissioner of Income Tax (Appeals) [CIT(A)], who upheld the reassessment but provided partial relief by deleting the INR 35,000 commission addition while maintaining the INR 35,00,000 unexplained cash credit.

The firm then appealed to the ITAT, contesting the confirmation of the INR 35,00,000 addition, arguing that it had provided adequate evidence to establish the genuineness of the loan transaction.

Judgement:

The ITAT, after reviewing the case, ruled in favor of the appellant, partially allowing the appeal. The tribunal's primary findings were as follows:

1. Sufficiency of Evidence: The appellant had presented substantial evidence to substantiate the genuineness of the loan transaction, including loan confirmations, bank statements, tax returns of the lender, and Form 16A showing TDS on interest payments. These documents satisfied the primary onus placed on the appellant under Section 68 of the Income Tax Act.
2. Assessing Officer’s Rejection: Despite the evidence, the AO rejected the transaction based on three factors:
3. Failure to Investigate by AO: The tribunal noted that the AO failed to conduct a proper investigation into the lender’s funds, despite having received bank statements and other documents. The lender had also responded to notices under Section 133(6), providing documentation that supported the appellant's claim.
4. Repayment of Loan: The fact that the loan was repaid within seven months, with interest and proper deduction of tax at source, further supported the genuineness of the transaction.

Final Decision:

The ITAT concluded that the appellant had discharged its burden of proof under Section 68, while the AO failed to substantiate the rejection of the evidence provided. As a result, the tribunal deleted the addition of INR 35,00,000 and allowed the appeal on this ground. However, the tribunal upheld the validity of the reassessment proceedings initiated by the AO.

Thus, the appeal was partly allowed, with the addition of INR 35,00,000 being deleted and the challenge to the reassessment dismissed.

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