Pranav B Prem

In significant relief to a Mumbai-based real estate trader, the Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has deleted an addition of ₹4.27 crore made under Section 68 of the Income Tax Act, 1961, in respect of an unsecured loan allegedly received from the assessee’s daughter-in-law. The bench comprising Sandeep Singh Karhail (Judicial Member) and Padmavathy S (Accountant Member) observed that there was no allegation by the lower authorities of any circular trading of unaccounted money between related parties. It also found no evidence contrary to the assessee’s claim that the transaction was linked to a proposed property assignment in Aamby Valley City.

Also Read: NCLAT Dismisses Appeal by Suspended Directors; Says ₹5.5 Crore Investment Makes Claim of Ignorance of CIRP Unbelievable

Facts and Proceedings

The assessee, Gopaal Bhagwandas Ahuja, proprietor of M/s Ahuja Traders, filed his return of income for AY 2014–15 declaring ₹47.45 lakh. The case was selected for scrutiny due to a large increase in unsecured loans and squared-up loans during the year. During assessment, the Assessing Officer (AO) noted loans taken and repaid from related parties, including the assessee’s wife, his daughter-in-law Mrs. Prerna Ahuja, and M/s Komal Exotic Spices Pvt. Ltd., where both women were directors. The AO focused on the ₹4.27 crore loan shown from Mrs. Prerna Ahuja, whose declared income was only ₹3,434 for the relevant year, questioning her creditworthiness.

The assessee was unable to produce proof of any actual banking transactions between himself and Mrs. Prerna Ahuja. Consequently, the AO concluded that the loan was not genuine and added the amount to the assessee’s taxable income under Section 68.

CIT(A)’s Findings

On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the addition, citing that in the assessee’s books, the unsecured loan was recorded as received from Mrs. Prerna Ahuja and the auditor had certified it as received by cheque. The CIT(A) found that the assessee had failed to provide a complete link between transactions involving M/s Komal Exotic Spices Pvt. Ltd., Mrs. Prerna Ahuja, and himself, and had not produced bank statements to establish that funds were held in an escrow account. Given Mrs. Prerna Ahuja’s low income, her creditworthiness was deemed doubtful, and the genuineness of the transaction was not accepted.

Assessee’s Stand Before ITAT

Before the Tribunal, the assessee argued that no real loan was ever taken from Mrs. Prerna Ahuja. Instead, funds originally received from M/s Komal Exotic Spices Pvt. Ltd. were temporarily recorded in her name through journal entries as part of an escrow arrangement connected to a lease and property assignment deal in Aamby Valley City between Aamby Valley Ltd. and Mrs. Prerna Ahuja.

The assessee produced documentary evidence, including the Memorandum of Understanding with Aamby Valley Ltd., the deed of assignment between Mrs. Prerna Ahuja and M/s Komal Exotic Spices Pvt. Ltd., board resolutions, ledger accounts, and bank statements. It was explained that the transaction ultimately did not materialize, and the money held in escrow was returned to M/s Komal Exotic Spices Pvt. Ltd.

Tribunal’s Findings

The ITAT noted that records clearly showed the funds came from M/s Komal Exotic Spices Pvt. Ltd. and were transferred to Mrs. Prerna Ahuja’s name through journal entries. These entries were substantiated by bank statements, and the authorities had not disputed the source of funds. The bench remarked that the CIT(A) had inconsistently argued that the assessee personally was an escrow while simultaneously treating the proprietary concern’s transactions as his own for making the addition. It further noted that there was no allegation of circular trading or introduction of unaccounted money.

Finding that the assessee had sufficiently explained the transaction’s nature and that no actual loan was taken from Mrs. Prerna Ahuja, the Tribunal held that the conditions for invoking Section 68 were not satisfied.

Also Read: NCLAT: Orders Passed by NCLT President on Listed Transfer Applications Are Judicial, Appealable Under Companies Act

Verdict

The ITAT allowed the appeal and deleted the ₹4.27 crore addition made under Section 68, holding that the lower authorities had erred in doubting the creditworthiness of Mrs. Prerna Ahuja when the funds were never advanced by her in reality.

Appearance

Counsel For Appellant: Tanzil R. Padvekar, Advocate

Counsel For Respondent: Swapnil Choudhary, Sr.DR

Cause Title: Gopaal Bhagwandas Ahuja V. ACIT

Case No: ITA No.925/MUM/2025

Coram: Sandeep Singh Karhail [Judicial Member], Padmavathy S [Accountant Member]