MoU and Bank Records Support Loan Deal and Repayment: ITAT Flags Gaps in AO’s Unexplained Income Investigation [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has set aside the assessment order passed by the Assessing Officer (AO), which made additions totaling Rs. 2,23,53,793 under Section 68, and remanded the matter to the AO for fresh consideration.

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Uday Vithal Nagpure (assessee) filed a return of income, declaring a total income of Rs. 1,51,860. The AO initiated the reassessment proceedings based on information from the Deputy Director of Income Tax (Investigation).

The AO alleged that the assessee received Rs. 73.20 lakhs from Subhash Akerkar as an advance for arranging a loan, which was returned after a year.

The AO issued notices requiring the assessee to produce Subhash Akerkar in person and submit documents to verify the source and nature of the transactions. The assessee submitted that he received Rs. 73.20 lakhs from Akerkar as advance processing fees for arranging a loan.

The assessee submitted that loan was returned in parts, including a final payment of Rs. 16.50 lakhs, funded by Emperor Builders Pvt. Ltd. The assessee provided the Memorandum of Understanding (MoU) with Akerkar, bank statements, and passbooks to the AO.

The AO rejected the submissions and made additions under Section 68 which totaled to Rs. 2,23,53,793. Aggrieved by the AO’s order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals)[CIT(A)]. The CIT(A) upheld the AO’s order and dismissed the assessee’s appeal.

Aggrieved by the CIT(A)’s order, the assessee appealed to the ITAT. The assessee argued that the AO ignored the submitted MoU, bank statements, and ledger accounts from Emperor Builders Pvt. Ltd., which corroborated the transactions.

The assessee contended that he had no contact with Akerkar since 2011 and thus could not produce him. The assessee disclosed that the funds from Emperor Builders originated from Lalitha Cement Ind. Ltd., as per an MoU submitted to the AO.

The two-member bench comprising Om Prakash Kant (Accountant Member) and Rahul Chaudhary (Judicial Member) observed that the AO’s additions were based solely on the assessee’s inability to produce Akerkar, without verifying the submitted documents.

The tribunal further observed that the assessee’s claim of returning Rs. 73.20 lakhs to Akerkar was supported by bank records and the MoU, and the source of funds from Emperor Builders Pvt. Ltd. was disclosed.

The tribunal set aside the additions and remanded the matter to the AO for fresh adjudication. The tribunal directed the AO to conduct inquiries and consider all submitted documents. The tribunal clarified that no addition should be made solely due to the assessee’s failure to produce Akerkar. The appeal of the assessee was allowed for statistical purposes.

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