Once Unsecured Loan Stands Repaid Along With Interest, Then Such Loan Transaction Can't Be Treated As Non-Genuine: Mumbai ITAT

The ITAT therefore held that there is no material with the tax authorities to substantiate their findings that the impugned transaction in question is non-genuine.

The Bench of Aby T Varkey (Judicial Member) and S. Rifaur Rahman (Accountant Member) observed that “assessee has demonstrated that assessee has taken unsecured loans and repaid the same along with interest. Normally accommodation entries are taken and the unsecured loans remain unsettled for a long period of time. However, in this case, the assessee has taken the loan and repaid the same along with interest, it clearly indicates that the loan transaction is genuine”. (Para 23)

As per the brief facts of the case, assessee is an individual earning income from salary, income from business, income from capital gain arising out of investment in securities and income from other sources. The case has been brought under scrutiny assessment based the on the information received from DDIT (Inv.) Unit Kolkata in respect of bogus LTCG claimed by the assessee on sale of penny stock script. The Assessing Officer observed that the transaction of LTCG is a manipulated transaction done by assessee in connivance with the operators to evade taxes on his unaccounted income and relying on statement made by operators treated the LTCG as non-genuine, according to him LTCG declared by the assessee of ₹.4,59,10,500/- as unexplained income u/s.68 of the Act.

The Bench accepted that the financials of the company are not commensurate with the purchase and sale price in the market, but noted that the assessee has purchased the shares directly from the company on preferential allotment, subsequently, D-mated the scrips and sold the same in the stock exchange.

The Bench clarified that such action of assessee clearly raises several doubts on the purchase and sales transactions recorded in this case, however, made it clear that there is no discrepancies in the documents filed by the assessee claiming the deductions u/s 10(38) of the Act.

At the same time, the Bench pointed that even though all the characteristics of the penny stock exists in the present case, still the Revenue has not brought on record any materials linking the assessee in any of the dubious transactions relating to entry, price rigging or exit providers.

Even in the SEBI report, there is no mention or reference to the involvement of the assessee, and it can only be presumed that the assessee is one of the beneficiaries in these transactions merely as an investor who has entered in investment fray to make quick profit, added the Bench.

The Bench also emphasized that Assessing Officer has observed from the financial statements of the lender companies and he formed opinion on the basis of earning capacity and not on the basis of funds available to make to loan to others.

Hence, clarifying that what is needed to be seen is the funds available with the lenders to make the loan to form an opinion on the capacity of the lenders not the earning capacity, the ITAT allowed the assessee's appeal.

Counsel for Appellant/ Assessee: Vimal Punmiya

Counsel for Respondent/ Revenue: Kavitha Kaushik

Case Title: Udayan Grover verses National Faceless Appeal Centre

Case Number: ITA NO.2880/MUM/2023

Click here to read/ download the Order