Facts of the Case

The assessee filed her return of income on 28.09.2017 declaring total income of Rs.20,06,120/-. The case was selected for scrutiny under CASS on account of:

  • Large increase in unsecured loans,
  • Large cash deposits during demonetization period,
  • Abnormal increase in sales with decrease in profitability.

Notice under Section 143(2) was issued on 24.09.2018 and duly served. Assessment under Section 143(3) was completed on 30.12.2019 determining total income at Rs.1,28,33,042/- after:

  • Addition of Rs.1,02,97,095/- under Section 69A on account of unsecured loans treated as unexplained money.
  • Disallowance of depreciation of Rs.5,29,827/-.

Before the CIT(A), additional evidences were admitted under Rule 46A and remand report was called. The CIT(A) sustained additions of:

  • Rs.93,08,207/- (loan from Shri Umang Grover – husband),
  • Rs.11,75,000/- (loan from Shri Piyush Verma),
  • Confirmed depreciation disallowance.

Issues Involved

  1. Whether unsecured loans from husband (Rs.93,08,207/-) and Shri Piyush Verma (Rs.11,75,000/-) were rightly treated as unexplained under Section 69A.
  2. Whether assessee discharged primary onus of proving identity, creditworthiness and genuineness.
  3. Whether test of human probabilities applies to interest-free unsecured loans.
  4. Whether depreciation of Rs.5,29,827/- was allowable when invoices were in spouse’s name.

 

Petitioner’s Arguments

The assessee contended:

  • Complete details including PAN, confirmations, ledger accounts and bank statements were furnished.
  • For Shri Umang Grover (husband), bank accounts with SBI and Bandhan Bank showed sufficient credits from business receipts.
  • Thus, identity, creditworthiness and genuineness stood proved.
  • For Shri Piyush Verma, bank statement showed large credits, proving creditworthiness.
  • Therefore, addition of Rs.1,02,97,095/- should be deleted.
  • Regarding depreciation, husband was actively involved in business expansion; suppliers inadvertently mentioned his name or his firm’s name “Umang Sarees”.
  • Payments were made from assessee’s bank account; hence depreciation should be allowed.

 

Respondent’s Arguments

The Revenue contended:

  • During assessment, only PANs, confirmations and ledger copies were filed.
  • ITRs and financial statements of lenders were not produced.
  • Husband was assessed under Section 44AD, implying no books were maintained; therefore, ledger confirmation was questionable.
  • Assessee failed to produce lenders for examination.
  • For Shri Piyush Verma, cash credits were not verifiable from his ITRs.
  • Loans were interest-free and unsecured, failing test of human probabilities.
  • Relied upon judicial precedents:
    • Sumati Dayal vs CIT (SC)
    • CIT vs P. Mohanakala (SC)
    • Sadiq Sheikh
    • Gayathri Associates
    • CIT vs Maithan International

 

Court Order / Findings

1. Loans from Shri Umang Grover (Husband)

  • Assessee failed to produce ITR, signed confirmation and financial statements of husband.
  • Since husband was assessed under Section 44AD (no books maintained), issuance of ledger statement raised doubt.
  • Being spouse, he could have been produced for examination.
  • Assessee failed to satisfactorily prove genuineness and creditworthiness.

Addition of Rs.93,08,207/- was confirmed.

 

2. Loan from Shri Piyush Verma – Rs.11,75,000/-

  • Bank statement showed credits of Rs.66,41,860/- during year.
  • However, impugned cash credits were not verifiable from his ITRs.
  • No evidence regarding creditworthiness was furnished.
  • No interest paid; no security; no evidence of repayment.
  • Transactions failed the test of human probabilities.
  • Mere PAN, confirmation and bank statement are insufficient to discharge onus under Section 68 principles.

Addition of Rs.11,75,000/- was confirmed.

  • CIT vs P. Mohanakala (SC)
  • Sumati Dayal (SC)
  • Gayathri Associates
  • Maithan International

 3. Depreciation – Rs.5,29,827/-

  • Invoices were in name of husband or M/s Umang Sarees.
  • However, payments were made from assessee’s bank account or adjusted through husband’s account.
  • Husband was actively involved in establishing business.
  • In substance, assets were acquired for assessee’s business.

The Tribunal held that CIT(A) erred in disallowing depreciation.

Depreciation claim of Rs.5,29,827/- was allowed.

 Important Clarification

 In loan cases involving close relatives, higher burden of proof applies.

  • Identity alone is insufficient; creditworthiness and genuineness must be independently established.
  • Interest-free unsecured advances without security and benefit to lender may fail human probability test.
  • Depreciation cannot be denied merely because invoice bears spouse’s name, if business use and payment are established.

Link to download the order -  https://www.mytaxexpert.co.in/uploads/1770885539_POOJAGROVERALLAHABADVS.DCITCIR2ALLAHABAD2.pdf 

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.