Taxpayer to Prove Fund Flow of Loans through Partner's Repayments to HUFs: ITAT Remands Unsecured Loan Addition Matter [Read Order]
The Tribunal observed that the newly submitted evidence demonstrated a complete fund flow from HUFs to a partner and then back to the HUFs, and finally to the assessee which needed verification.
The Chandigarh Bench of the Income Tax Appellate Tribunal (ITAT) remanded the matter ₹35,00,000 to the Commissioner of Income Tax (Appeals) [CIT(A)] to allow the assessee to prove the complete fund flow trail of unsecured loans received from three Hindu Undivided Families (HUFs) by linking them to repayment transactions made by one of its partners.
Jankey Polymers (assessee), a partnership firm, had its assessment for the AY 2012-13 reopened, leading the Assessing Officer (AO) to make a total addition of ₹40,00,000 under Section 68, citing the failure of the firm to prove the genuineness, identity, and creditworthiness of four lenders.
Aggrieved by the order of the AO, the assessee filed an appeal before the CIT(A). The CIT(A) upheld the AO's addition. Aggrieved by the CIT(A)’s order, the assessee filed an appeal before the ITAT.
The assessee contended that the loans received from three HUFs, namely Balkrishan Damahi HUF amounting to ₹18,00,000, Chunni Lal Kothari HUF amounting to ₹7,00,000, and Kanhaiyalal Rathor HUF amounting to ₹10,00,000, were genuine.
The assessee argued that these HUFs had earlier given loans to one of its partners, Shri Sanjay Jajju, and that Shri Jajju had repaid these amounts through banking channels during the year under consideration. These repaid amounts were then forwarded by the HUFs as fresh loans to the assessee firm.
The Single-member bench comprising LalietKumar (Judicial Member) observed that while the lower authorities were correct in confirming the addition based on the material available at that time as the assessee had failed to produce documentary evidence of the entire fund flow.
The tribunal observed that the new evidence now placed before the Tribunal could not be ignored. The Tribunal noted that the assessee now produced documents like balance sheets, confirmations, and bank statements to demonstrate the full trail of transactions.
The tribunal observed that the earlier loans from HUFs to partner Sanjay Jajju, the exact repayment of those amounts by Jajju to the respective HUFs, and the subsequent advancement of those funds by the HUFs as loans to the assessee.
The tribunal held that since these crucial documents demonstrating the complete chain of transactions were never verified by the AO or the CIT(A), the issue relating to the addition of ₹35,00,000 required detailed factual verification.
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The Tribunal remanded the matter to the CIT(A) with directions to verify the complete chain of transactions and all relevant documents like bank statements, ledgers, loan agreements. The tribunal directed the assessee to pay a cost of ₹3,000 to the Prime Minister Relief Fund and present all documents at the very first hearing.
The Tribunal deleted the addition of ₹5,00,000 observing that she was a regular taxpayer, received funds from her husband, and the loan repaid by the assessee in the same year were undisputed and not rebutted by the Revenue. The appeal of the assessee was allowed for statistical purposes.
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