AI Structured Summary
Not yet generated for this judgment
Judgment
PER SANJAY AWASTHI, ACCOUNTANT MEMBER:
The present appeal arises from order dated 25.06.2025, passed u/s 250 of the Income Tax Act, 1961 (hereafter as “the Act”), by Ld. CIT(A)-NFAC, Delhi. In this case, the AO had noticed that the assessee has borrowed Rs.14,57,10,793/- during the year under consideration. Thereafter, the Ld. AO held that the assessee could not establish the creditworthiness of Shri Mohit Grover from whom unsecured loan of Rs.2,00,76,000/- is shown to have been received. This amount was added u/s 68 of the Act.
Aggrieved with this the assessee approached the Ld. CIT(A) where he could succeed, leading to the present appeal by the Revenue.
The following grounds have been raised by the Revenue: -
“1.On the facts and in the circumstances of the case, the Learned Commissioner of Income Tax (Appeals) erred in deleting the addition made under section 68 of the Income-tax Act, 1961, without properly appreciating that the assessee-company failed to establish the creditworthiness of the lender, particularly when the lender had disclosed only nominal income in his return of income as against the substantial amount advanced, and hence lack the creditworthiness to extend such a loan.
2 The Learned CIT(A) failed to appreciate that the Director of the assessee-company advanced the funds after borrowing from a third party without any interest, which not only lacks commercial prudence but is also contrary to the provisions of the Companies Act, 2013 and rules made there under, rendering the genuineness of the transaction not proved.
3.The Learned CIT(A) erred in law and on facts by granting relief without applying the principle of "substance over form" as laid down by the Hon'ble Supreme Court in the case of CIT v. Sumati Dayal [(1995) 214 ITR 801 (SC)), wherein it was held that the apparent must be evaluated in the light of surrounding circumstances and the test of human probabilities. In the present case the lender's low declared income and the routing of borrowed funds through a third party by the director clearly indicate that the transaction lacked genuine commercial substance as well as lack of creditworthiness of lender.
4.The Learned CIT(A) erred in law and on facts by granting relief despite the assessee's failure to satisfy the threefold test under section 68 of the Act-identity of the creditor creditworthiness, and genuineness of the transaction in the light of ratio of the Hon'ble Supreme Court in the case of PCIT v. NRA Iron & Steel Pvt. Ltd. [(2019) 412 ITR 161 (SC)]
5.The appellant craves leave to add, amend and alter the grounds of appeal during appellate proceedings.”
Before us the Ld. DR read out from various portions of the Ld. AO’s order especially pages 2, 3 & 4 thereon. The Ld. DR argued that while the identity was proved, the genuineness and creditworthiness aspect of the impugned transactions could not be proved. The main contention of the Ld. AO, as pointed out by the Ld. DR was that Mr. Mohit Grover was showing relatively small quantum of income between AYs 2016-17 to 2018-19, being in the range of Rs.2.3 lakhs to Rs.3.55 lakhs. The Ld. DR also filed written submissions and read out various portions from the same. For the sake of capturing the Ld. DR’s arguments, the relevant portions from the submissions are extracted as under: -
“3.The aforesaid order passed by the Id. CIT(A) has been examined and not found acceptable for the following reasons:
•The assessee has taken loan of Rs.2,00,76,000/- from Sh. Mohit Grover, Managing Director of the company who can give loan to the Pvt. Ltd. Company, but he must provide a written declaration to the company at the time of giving money that the money is not collected by borrowing or in as much as that he himself confirmed in his submission dated 09.02.2021 at Para 4.3 that he has given loan to the assessee company on 27.11.2017 after taking a loan from a family friend Shri Ajay Yadav of Rs.2 Crores on 23.11.2017 by RTGS.
•Further, the AO has established in its assessment order dated 22.04.2021 u/s 143(3) r.w.s. 144B of the Act that the assessee could substantiate only identity of the person i.e. Shri Mohit Grover, but could not prove other two limbs of section 68 of the Act i.e. Creditworthiness and Genuineness as (i) he has declared meagre income during the AY 2018-19 & two preceding assessment years; and (ii) he has borrowed loans from others which is illegitimate act of the director as per Companies Law, 2013.
•Also, the ratio of the decision of the Hon'ble Supreme Court in Pr. CIT Vs. NRA Iron & Steel Pvt. Ltd. (2019)/103 taxmann.com 48/262 Taxman 74/412 ITR 161 (SC) is squarely applicable in this case where the Hon’ble Supreme Court has reiterated the cardinal principles underlying Section 68 which require an assessee to prove identity, genuineness of credit entry and creditworthiness of giver and out of three limbs, the assessee has failed in two limbs, mentioned supra.”
Per contra, the Ld. AR relied on the findings given in the impugned order and read out paras 9, 10 & 11 at page 14 of the impugned order. Here also to understand the findings in the impugned order the relevant portions are extracted as under: -
“9.I have considered the assessment order, submission of the appellant and facts available on record. During the year consideration the appellant has received Rs.2,00,76,000/- from Shri Mohit Grover who is also the director of the appellant company. From the statement of bank account of Shri Mohit Grover, it is seen that he has received Rs.2 crores from Shri Ajay Yadav on 24.11.2017. Thereafter, an amount of Rs. 1 crore has been repaid on 21.3.2018 and subsequently the remaining amount of Rs. 1 crore has been repaid on 04.04.2018 which is before the selection of assessment under scrutiny. On perusal of the return of income of Shri Ajay Yadav for A.Y 2018-19, it is seen that he has, shown gross total income of Rs.22,35,433/-. On perusal of bank statement of Shri Ajay Yadav with Allahabad bank, it is observed that the source of loan given of Rs.2 crores to Shri Mohit Grover is from the proceeds received on account of encashment of fixed deposits. Shri Ajay Yadav and Shri Mohit Grover both of them have furnished the confirmation of accepting and giving loan. All these transactions are routed through the banking channel.
10.Regarding the observation of the AO that the unsecured loan is not reflected in the balance sheet of Shri Mohit Grover, the appellant has submitted that Shri Mohit Grover was not required to prepare balance sheet. However, in the financial affairs submitted before the AO," these transactions are*«recorded. Regarding the non-payment of interest, it is submitted that as Shri Ajay Yadav was family friend and has helped Shri Mohit Grover by advancing loan for short term, no interest has been paid.
11.From the above, it is evident that Shri Mohit Grover has given loan of Rs.2,00,76,000/- from the loan received from Shri Ajay Yadav. Shri Ajay Yadav has also furnished documentary evidence to prove his credit worthiness and genuineness of transactions. Further, the entire loan of Rs.2 corer has been repaid by Shri Mohit Grover to Shri Ajay Yadav. Therefore, in the facts of the case in my considered view, the appellant has furnished enough documentary evidence to prove the identity and credit worthiness of the lender and to prove the genuineness of the transactions. Therefore, merely due to fact that Shri Mohit Grover has no independent source of income and no interest has been paid on loan taken from Ajay Yadav, the unsecured loan cannot be held as unexplained cash credit under section 68 of the I.T ACT.”
The Ld. AR also pointed out that there was an inherent contradiction in the Ld. AO’s approach since in para 5 at page 5 of his order hehas clearly written that Shri Mohit Grover has enough funds to give a loan to the assessee company but the creditworthiness of Shri Mohit Grover is being allegedly used to justify the loan taken from Shri Ajay Yadav. The Ld. AR stated that the Ld. AO has given a virtual certificate of creditworthiness to Shri Mohit Grover but at the same time has doubtedhis net worth.
We have carefully considered the rival submissions and have gone through the records before us. It is clear from a reading of the impugned order, especially from the extracts (supra), that the finding given by the Ld. CIT(A) does not deserve to be disturbed. It is also seen that on facts alone the loan transaction has been proved satisfactorily and hence, no addition was possible to be sustained u/s 68 of the Act.
In the result, appeal of the Revenue is dismissed.