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TMI Blog2025 (1) TMI 904X X X X Extracts X X X X X X X X Extracts X X X X ..... erve that the appeal is time barred by 02 days. The delay of 02 days is condoned on due consideration of facts and owing to smallness of delay causing no perceptible prejudice to other side. Ground Number 1: disallowance of non-business expenditure of Rs. 38,00,000/- 4. The brief facts of the case relating to this ground of appeal are that assessee claimed an expense of Rs. 76,00,000/- for a payment made to the retiring partner, Shri Paras C Pandit, and recorded a sum of Rs. 38,00,000/- as an expense for the current financial year i.e. Assessment Year 2017-18 and also a sum of Rs. 38,00,000/- as expense for Assessment Year 2018- 19 as well, under the category "Release of Right" expenses in its profit & loss account. However, during the course of assessment proceedings for A.Y. 2017-18, it was observed by the Assessing Officer that this expense lacked any supporting documentation, such as a valuation report that would justify the market value of the vested right of the retiring partner or any detailed computation explaining how the amount was arrived at. The assessee submitted before the Assessing Officer that the payment was made under a non-compete agreement, according to which, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed unreasonable for the assessee firm to pay such a substantial sum to a retiring partner without any prior business dealings between them that could justify the expense. After considering all the arguments and facts, the Assessing Officer held that the Rs. 38,00,000/- claimed in AY 2017-18 was non-business expenditure and should not have been allowed as a deduction. Therefore, the amount was disallowed and added back to the total income of the assessee firm. 5. In appeal, Ld. CIT(Appeals) confirmed the order passed by the Assessing Officer. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(Appeals) dismissing the appeal of the assessee on this ground. 6. The counsel for the assessee submitted that the issue under consideration has now been decided in favour of the assessee, in the assessee's own case for assessment year 2018-19, on this same issue by ITAT Ahmedabad in ITA Number 249/Ahd/2024 vide order dated 16-07- 2024. Accordingly, in view of the above, the issue may be decided in favour of the assessee. In response, DR reiterated the observations made by the assessing officer and Ld. CIT(Appeals) in their respective orders. 7. We have heard th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual compared to the firm and thus there was no revenue loss to the Department on account of this transaction. Non-complete consideration under Section 28(VA) of the Act is considered as income and, therefore, the assessee has rightly claimed the same as expenditure as the source of the profit or income of profit-making apparatus remains untouched and unaltered. The decision of Hon'ble Gujarat High Court in the case of Smartchem Technologies Limited (supra) categorically mentions that the expenditure incurred for the purpose which is set out primarily and essentially related to the operation or work of the firm (LLP partnership firm) constituted the profit earning apparatus of the assessee is in the nature of revenue expenditure. Thus, in the present case, the assessee paid the non-compete fees to Shri Paras C. Pandit and, therefore, it is in nature of revenue expenditure. Hence, the disallowance of non-compete fees expenditure by the Assessing Officer and the CIT(A) is not justified. Thus, appeal of the assessee is allowed." 8. We observe that since the issue has been decided in favour of the assessee by Ahmedabad Tribunal in assessee's own case for the succeeding assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er average balance ranged from Rs. 1,400/- to Rs. 12,000/-, and no significant transactions were found apart from the loan to the assessee. Moreover, she did not show any repayment on an unsecured loan she had allegedly received, casting serious doubt on her financial capacity. Given these facts, the creditworthiness of Bhartiben Patel could not be proved, and thus the interest paid to her was disallowed. The Assessing Officer further observed that Pravinbhai M. Makwana (HUF) gave a loan of Rs. 27,00,000/- to the assessee firm, however, the reported income was only Rs. 3,58,930/- in AY 2017-18. On reviewing his income computation, it was evident that most of the income consisted of interest credited by the assessee firm, amounting to Rs. 2,75,441/-. As a result, the creditworthiness of the HUF was not established, and the interest paid to them was disallowed. Further, the Assessing Officer observed that Ms. Preeti Nilam Doshi provided a loan of Rs. 6,80,000/- to the assessee firm, despite reporting only Rs. 62,920/- in income for AY 2017-18. Her bank statement indicated a minimal opening balance of Rs. 655/- and no significant transactions until she received Rs. 6,70,144/- on 04.05 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n from the above persons and the interest paid/credited thereon to them by the assessee, amounting to Rs. 1.77 crores were added as unexplained income of the assessee under section 68 of the Act. 10. In appeal, Ld. CIT(Appeals) dismissed the appeal of the assessee with the following observations: "6.4 Grounds no. 2 and 3 are against the addition of Rs. 1,77,24,909/- u/s 68, comprising of unsecured loans received from (and interest paid disallowance) 7 parties. The details of these parties and the reasons for holding that loans shown from these parties are not genuine are reproduced at Para 4.4 to 4.6 above. The appellant has stated that it has discharged the primary onus cast upon it u/s 68 as it has furnished the confirmations from these parties, filed their PAN and ITR details and shown transfer of loan amount from their bank accounts. Section 68 requires three limbs to be proved for any credit entry appearing the books of an assessee: (i) identity of the creditor (ii) creditworthiness and (iii) genuineness of the transaction. It is true that the prima facie onus has been sought to be discharged by furnishing confirmations, PANs, ITRs and bank statements of the creditors. Howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case. The absence of evidence linking the loan to the assessee's unreported income renders an addition under Section 68 unwarranted. It was submitted that the assessee has complied by providing statements of income and bank details showing sufficient funds available with the lenders at the time of the loan. The average bank balance of the lenders is not determinative of the creditworthiness of the lenders, as the lenders may have had access to other sources of funds. Further, the Counsel for the assessee submitted that the assessee's LLP, which was formed in FY 2014- 15, had not engaged in business activities prior to the relevant real estate project starting in 2016. Therefore, the question of unreported income prior to FY 2016-17 does not arise, as no customer funds were received before that period. The AO accepted the assessee's details regarding the project and revenue during the assessment stage without raising any doubts about the sales values or collections from members. Thus, the assumption that the loan amounts represent undisclosed income is unsupported by any evidence. 12. In response, DR placed reliance on the observations made by the assessing officer and Ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following observations: "This Court in the land mark case of Kale Khan Mohammad Hanif v. CIT [1963] 50 ITR 1 (SC) and, Roshan Di Hatti v. CIT [1977] 107 ITR 938 (SC) laid down that the onus of proving the source of a sum of money found to have been received by an assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction, and creditworthiness, then the Assessing Officer must conduct an inquiry, and call for more details before invoking section 68. If the assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular source.[Para 8.2] With respect to the issue of genuineness of transaction, it is for the assessee to prove by cogent and credible evidence, that the investments made in share capital are genuine borrowings, since the facts are exclusively within the assessee's knowledge. Merely, proving the identity of the investors does not discharge the onus of the assessee, if the capacity ..... X X X X Extracts X X X X X X X X Extracts X X X X
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