ITAT Deletes Rs.50 Lakh Addition Based on Verified Bank Transactions

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has deleted an addition of Rs 50 lakh made under Section 69A of the Income Tax Act, 1961, against Bansi Fashion Private Limited, holding that the department failed to disprove documentary evidence establishing that the loan transaction was routed entirely through banking channels.

A Bench comprising Vice President Saktijit Dey and Accountant Member Prabhash Shankar held that the Assessing Officer (AO) arbitrarily rejected the evidence furnished by the assessee without conducting a proper enquiry from the concerned bank.

“Without conducting any enquiry with the bank, the AO has arbitrarily rejected the evidence furnished by the assessee.”

During scrutiny proceedings for AY 2023-24, the AO relied on information received from a search conducted in the Surana Group case, wherein materials allegedly indicated that Shri Narendra G. Somani, proprietor of Bhagwati Marketing Co., had received cash loans from various persons, including the assessee.

Based on the search material, the department alleged that the assessee had advanced a cash loan of Rs 50 lakh to Bhagwati Marketing Co. and called upon the assessee to explain the source of such a loan.

In response, the assessee submitted that it had advanced a total loan of Rs.1 crore to Shri Narendra G. Somani entirely through cheque and RTGS transactions. It was further explained that out of the total loan amount, Rs.50 lakh had been repaid during the same year, while the balance amount remained outstanding and interest income thereon was regularly subject to tax.

The assessee furnished ledger extracts, bank statements and other documentary evidence in support of the claim. However, the AO rejected the explanation on the ground that the bank statements did not clearly indicate the recipient of the transactions and consequently treated Rs 50 lakh as unexplained money under Section 69A.

Before the Tribunal, the assessee pointed out that the Tamil Nadu Mercantile Bank had separately confirmed that the debit entries of Rs.50 lakh each reflected payments made to Bhagwati Marketing Co.

The Tribunal observed that the assessee had provided complete details of the loan transactions, including cheque numbers, dates and banking particulars, during the assessment proceedings itself.

“The clarification issued by the Tamil Nadu Mercantile Bank fortifies the assessee’s claim that the loan transactions were through the banking channel and not in cash, as alleged by the department.”

The Bench held that merely because Bhagwati Marketing Co. did not respond to the notice issued under Section 133(6), the evidence produced by the assessee could not be ignored. It further observed that if the AO had doubts regarding the entries reflected in the bank statements, necessary verification should have been conducted directly with the bank instead of summarily rejecting the documents.

Therefore, the Tribunal held that the assessee had successfully established the source and genuineness of the loan transaction through documentary evidence and directed deletion of the addition made under Section 69A.

On the separate issue relating to the reversal of the provision for interest income amounting to Rs 9.47 lakh, the Tribunal restored the matter to the AO for factual verification. The Bench directed the AO to examine whether such interest income had already been offered to tax in earlier years and whether it was actually received by the assessee.

Thus, the appeal was partly allowed for statistical purposes.

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