2025 (7) TMI 233 - AT - Income Tax

Unexplained investment u/s 69 - Addition invoking provisions of section 115BBE - case was selected for limited scrutiny under CASS on the issue of Whether investment and income relating to properties are duly disclosed - HELD THAT - AR submitted that all details were given to the AO and CIT(A) regarding the lenders. He further submitted that loans of four parties except his brother were repaid in the subsequent year. However such explanation and details were not considered by the CIT(A). The appellant has also relied on the decisions of Ambe Tradecrop Pvt. Ltd. 2022 (7) TMI 902 - GUJARAT HIGH COURT Ayachi Chandrasekhar Narsangji 2013 (12) TMI 372 - GUJARAT HIGH COURT and Ranchod Jivabhai Nakhava 2012 (5) TMI 186 - GUJARAT HIGH COURT It was held by the Hon ble Gujarat High Court that where the Department has accepted the repayment of loan in subsequent year no addition was to be made in the current year on account of cash credit. We find that CIT(A) has also not forwarded the additional evidence filed before him to the AO for verification and remand report. Considering all these facts and the binding precedent we set aside the order of CIT(A) and restore the matter to the file of AO for fresh adjudication - Appeal of the assessee is allowed for statistical purpose.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the Assessing Officer (AO) was justified in making an addition of Rs. 21,75,000 as unexplained investment under section 69 of the Income-tax Act, 1961, on account of unsecured loans taken by the assessee from relatives, given the explanations and evidence provided by the assessee.

(b) Whether the invocation of section 115BBE of the Act by the AO, taxing the unexplained investment at 30%, was legally sustainable.

(c) Whether the subsequent repayment of loans by the assessee negates the addition made by the AO and confirmed by the Commissioner of Income-tax (Appeals) [CIT(A)].

(d) Whether the CIT(A) erred in not considering additional evidence submitted by the assessee regarding the creditworthiness of the lenders and repayment of loans.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Justification for addition under section 69 of the Act on unexplained investment

Relevant legal framework and precedents: Section 69 of the Income-tax Act deals with unexplained investments. If the assessee is unable to satisfactorily explain the source of investments, the amount is added to income as unexplained investment. The burden lies on the assessee to prove the genuineness of the loans and the creditworthiness of the lenders. Precedents relied upon include decisions in PCIT vs. Ambe Tradecrop Pvt. Ltd., Hidustan Tea Trading Co. Ltd., and PCIT (Cen) vs. Ganesh Plantation Ltd., which emphasize the need for proper verification of the genuineness of loans and the creditworthiness of lenders.

Court's interpretation and reasoning: The AO observed that the appellant had purchased agricultural land for Rs. 4,55,10,150 but paid only Rs. 24,10,758 in cash. The appellant claimed to have taken unsecured loans amounting to Rs. 21,75,000 from his brother and four relatives. The AO doubted the creditworthiness of these lenders due to their low income returns and the fact that cash deposits equivalent to the loan amounts were made by these lenders prior to advancing the loans. Consequently, the AO disbelieved the genuineness of these loans and made an addition under section 69.

Key evidence and findings: The appellant submitted bank statements, income tax returns of the lenders, and repayment evidence. However, the AO and CIT(A) found that the lenders were of small means and that cash deposits preceding the loans cast doubt on the genuineness.

Application of law to facts: The AO and CIT(A) applied section 69 strictly, holding that the unexplained nature of the loans justified the addition. However, the Tribunal noted that the appellant had provided substantial evidence including ITRs and bank statements of lenders, and proof of repayments.

Treatment of competing arguments: The revenue relied on the cash deposit pattern and low income of lenders to challenge genuineness. The appellant argued that loans were genuine, supported by documentation, and that repayments were made, which should negate additions. The Tribunal found that CIT(A) did not properly consider the additional evidence submitted by the appellant.

Conclusions: The Tribunal held that the AO and CIT(A) erred in rejecting the evidence without verification. The matter was remanded for fresh adjudication after proper verification and opportunity to the assessee.

Issue (b): Legality of invoking section 115BBE to tax unexplained investment at 30%

Relevant legal framework: Section 115BBE of the Act provides for levy of tax at a flat rate of 30% on unexplained income or investment added under sections 68, 69, 69A, 69B, 69C, or 69D. The section is applicable only when the addition is justified and unexplained income is established.

Court's interpretation and reasoning: The CIT(A) confirmed the invocation of section 115BBE after upholding the addition under section 69. Since the Tribunal set aside the addition under section 69 for fresh consideration, the application of section 115BBE also falls away at this stage.

Conclusions: The Tribunal did not specifically adjudicate on the applicability of section 115BBE independently but by remanding the matter for fresh adjudication on the addition, the question of taxing under section 115BBE also requires reconsideration.

Issue (c): Effect of subsequent repayment of loans on addition under section 69

Relevant legal framework and precedents: The Gujarat High Court in cases such as Ambe Tradecrop Pvt. Ltd., Ayachi Chandrashekhar Narsangji, and Ranchod Jivabhai Nakhava held that if the loan is repaid in the subsequent year and the department accepts such repayment, no addition under section 68 or 69 is warranted in the year of receipt.

Court's interpretation and reasoning: The appellant submitted that four of the five loans were repaid in subsequent years and furnished evidence thereof. However, the CIT(A) failed to consider this evidence or forward it for verification. The Tribunal observed that the failure to consider this crucial evidence was a significant omission.

Application of law to facts: Since the loans were repaid and evidence was available, the principle established by the High Court precedents applies, negating the addition in the year of receipt.

Conclusions: The Tribunal directed the AO to consider the repayment evidence and reassess the addition accordingly.

Issue (d): Consideration of additional evidence submitted before CIT(A)

Relevant legal framework: Principles of natural justice and fair procedure require that relevant evidence submitted by the assessee be duly considered. If new evidence is submitted before the appellate authority, it should be either considered or remanded for verification.

Court's interpretation and reasoning: The Tribunal noted that the CIT(A) did not consider the additional evidence regarding repayment and creditworthiness filed by the appellant on 24.12.2018. Furthermore, the CIT(A) did not forward the evidence to the AO for verification or seek a remand report.

Conclusions: The Tribunal found this to be a procedural lapse and remanded the matter for fresh adjudication after considering all evidence and allowing the assessee reasonable opportunity to be heard.

3. SIGNIFICANT HOLDINGS

The Tribunal made the following crucial legal determinations:

"We find that the CIT(A) has also not forwarded the additional evidence filed before him to the AO for verification and remand report. Considering all these facts and the binding precedent, we set aside the order of CIT(A) and restore the matter to the file of AO for fresh adjudication after affording adequate and reasonable opportunity of hearing to the assessee."

Core principles established include:

(i) The unexplained investment addition under section 69 must be supported by credible evidence and proper verification of creditworthiness of lenders.

(ii) Subsequent repayment of loans accepted by the department negates the addition in the year of receipt as per binding High Court precedents.

(iii) Appellate authorities must consider all relevant evidence filed by the assessee and forward it to the AO for verification before confirming additions.

(iv) Taxation under section 115BBE is contingent upon the validity of the addition under section 69 and should be reconsidered if the addition is set aside.

Final determinations on each issue are that the addition under section 69 and consequent taxation under section 115BBE cannot be sustained without proper verification and consideration of repayment evidence. The matter is remanded for fresh adjudication in accordance with law and on the basis of full evidence.