9911796707
TMI Blog2025 (1) TMI 904X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, the common trend amongst the lenders was that the bank statements of all creditors displayed a similar pattern: the credit balances were modest, a credit entry appeared, followed by the withdrawal of a cheque for nearly the same amount made out to the assessee, after which the bank balances reverted to their previous minimal levels. This recurring sequence in all creditors cases raises serious doubts about the authenticity of the transactions, as such patterns are unlikely to be coincidental. Therefore,no infirmity in the order of Ld. CIT(Appeals) in holding that the assessee s claim that it has satisfied the requirements of Section 68 remains unsubstantiated, particularly concerning the creditworthiness and genuineness of the loan transactions. The argument of assessee that it was established only in the earlier previous year and hence, no income can be attributed in its hand is also not acceptable, for the simple reason that the assessee firm was incorporated on 19-11-2014 and during the impugned year under consideration, the assessee firm was fully operational and had also claimed various expenses, with respect of its operations. Accordingly, in light of the above observatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee's scheme until the end of FY 2017-18. However, the assessing officer did not find the reason cited by the assessee as convincing for the reason that that city of Ahmedabad, where the assessee firm operates, is a large metropolitan area with a diameter of over 40 km, and therefore the 2 km non-compete radius is practically irrelevant. The size of the restriction zone was found inadequate by the Assessing Officer and he was of the view that the payment had been made only to divert the assessee firm's income. During the assessment proceedings, the assessee submitted that the payment of Rs. 76,00,000/- was decided based on the business partners' collective experience in the real estate sector. The decision was made by the continuing partners, who considered the significant reputation and past success of Shri Paras Pandit in the field, which the partners of the assessee firm believed could hinder their ongoing project in case he launched a competing project within the area. The assessee submitted that such business decisions, including the terms of the non-compete agreement and the associated payment, were based on the partners' judgment, expertise, and experience in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ready reference: 7. Heard both the parties and perused all the relevant material available on record. It is pertinent to note that the assessee being limited liability partnership firm entered into retiring partner Shri Paras C. Pandit and paid total of Rs. 70,00,000/- as noncompete charges for two years i.e. A.Y. 2017-18 2018- 19 equally Rs. 38,00,000/- approximately for each year. From the perusal of the Assessment Order the Assessing Officer has never disputed that Shri Paras C. Pandit has paid the taxes on the amount received by him through the assessee i.e. Limited Liability Partnership Firm. The noncompete clause was a strategy clause entered by the assessee LLP with Shri Paras C. Pandit in respect of ensuring the competitive element as well as profit element. The decision relied by the Revenue in case of Gillanders Case has not taken into account the same and in fact the decision of Hon ble Apex Court in the case of Shiv Raj Gupta clearly set out when the non-compete fee is paid only to the particular person in respect of considerable knowledge, skill, expertise and specialisation of that person in the field of the business of that of the assessee. There is no doubt that thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm had paid non-compete fee to the retiring partner over two assessment years i.e. 2017-18 and 2018-19) and for assessment year 2018-19, the Ahmedabad Tribunal in assessee s own case has held that the aforesaid payment is allowable to the assessee firm, as revenue expenditure. Respectfully following the above decision of Ahmedabad Tribunal in assessee s own case, Ground Number 1 of the assessee s appeal is allowed. Ground Number 2: Addition towards unexplained credit u/s 68 of the Act 9. During the course of assessment proceedings, the Assessing Officer observed that the assessee had received substantial amounts of unsecured loans from various individuals and entities. To verify the genuineness of these transactions and the creditworthiness of the lenders, notices were issued under section 133(6) of the Act to several of these lenders. Further, the Assessing Officer also issued summons u/s 131 of the Act to some of these lenders, asking them to attend in person along with their books of accounts to verify the authenticity of the loan transactions. However, none of the lenders appeared in response to the summons issued by Ld. Assessing Officer. Accordingly, the assessing officer dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch was transferred the next day, but there were no substantial other transactions. Her only reported income was interest of Rs. 73,038/-, of which Rs. 65,629/- was credited by the assessee firm itself. Given the lack of proof regarding her financial standing, the creditworthiness could not be established, and the interest paid was not allowed. The Assessing Officer noted that Shri Darshit Dilip Patel lent a sum of Rs. 53,75,000/- to the assessee firm, however, his declared income for AY 2017-18 was a mere Rs. 10,290/-. A review of his bank statement revealed that he received Rs. 42,00,000/- on 19.04.2016, which he transferred to the assessee on 21.04.2016. Despite the summons issued to him, he did not appear to verify the source of these funds. His bank records also indicated cash deposits of Rs. 2,00,000/- in March 2016 and November 2016, which were not reflected in his tax returns. As the creditworthiness of Darshit Patel could not be proved, the interest paid to him was also disallowed by Ld. Assessing Officer. The Assessing Officer noted that Shri Raj Swetalbhai Shah gave Rs. 13,20,000/- as a loan to the assessee firm, but he did not file income tax returns. His bank statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l these persons and found them to be persons of meagre means, who cannot be said to have the capacity to lend the amounts shown in the books of the appellant. The A.O. has not given any blanket finding but has discussed the financial position of each creditor. Moreover, the bank statements of all the seven creditors also show a similar modus operandi. The regular credit balances are very nominal. A credit entry appears and cheque of the same or very similar amount of then drawn in the name of the appellant and the bank balance then goes back to its previous nominal amount thereafter. 11. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(Appeals) confirming the additions made by the assessing officer. Before us, the Counsel for the assessee submitted that the Assessing Officer erred in concluding that the creditworthiness of the lenders was not adequately proved under Section 68 of the Act. It was submitted that creditworthiness can be assessed based on a person's income or ability to secure funds from other sources, and it is typical to request a statement of income or a bank statement to assess this. In some cases, a person may not have signific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessee contended that the assessee has fulfilled the primary onus cast under Section 68 of the Act, as it provided confirmations from the creditors, submitted their PAN and income tax return (ITR) details, and showed the transfer of loan amounts from the creditors bank accounts. The Counsel for the assessee also relied on several judicial precedents in support of his contention. Section 68 of the Act mandates that three key aspects must be proven for any credit entry in the books of an assessee: first, the identity of the creditor; second, the creditworthiness of the creditor; and third, the genuineness of the transaction. While the assessee submitted that it has met the initial onus by giving the relevant documentation, in our view, the creditworthiness of the creditors has not been sufficiently established. We note that the Assessing Officer reviewed the ITRs and bank statements of these creditors and held that they are individuals with limited financial means, making it questionable that they could have lent the amounts reflected in the assessee's books. The A.O. and Ld. CIT(Appeals) did not issue a blanket judgment but instead provided detailed findings on the fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled income tax returns with a meagre or nil income had to explain how they had invested such huge sums of money in the Assessee Company -Respondent. Clearly the onus to establish the credit worthiness of the investor companies was not discharged. The entire transaction seemed bogus, and lacked credibility. 15. In the instant case as well, a similar trend with respect to the lenders has been noticed. In our view, the assessing officer and Ld. CIT(Appeals) has correctly noted that the assessee has not been able to prove the creditworthiness of the parties, in the instant case. The counsel for the assessee has placed reliance on several judicial precedents, however, in our view looking into the assessee s particular set of facts, the same would be of no assistance, since it is a well established judicial principle that each decision is rendered on it s own particular set of facts. Further, the argument of the counsel for the assessee that it was established only in the earlier previous year and hence, no income can be attributed in its hand is also not acceptable, for the simple reason that the assessee firm was incorporated on 19-11-2014 and during the impugned year under considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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