2012 (11) TMI 60 - AT - Income Tax

Unsecured loans u/s.68 - assessee failed to produce any of the depositors/cash creditors - Held that - As decided in DCIT Vs Rohini Builders 2001 (3) TMI 9 - GUJARAT HIGH COURT in terms of Section 68 by proving the identity of the creditors by giving complete address, GIR number / PAN, copies of assessment orders wherever readily available and it has also proved the capacity of the creditors by showing that the amount was received by the assessee by a/c payee cheques drawn from the bank account of the creditors and the assessee is not expected to prove the genuineness of cash deposited in the bank accounts of those creditors because under law, the assessee can be asked to prove the source of the credit in his books of accounts but not the source of the source. As in the present case in respect of all the loan creditors, the evidence regarding filing of return of income has been brought on record by the assessee which contains PAN also of all the depositors. Along with this, the assessee has also brought on record the balance sheet of each of such loan creditors along with bank statement of the loan creditors in question - addition made by the A.O. u/s 68 is not sustainable - in favour of assessee. Disallowance of interest payment on unsecured loans - Held that - Since the addition on account of unsecured loans itself is deleted, the disallowance of interest cannot survive - in favour of assessee.

Summary

Issues involved:
1. Addition of unsecured loans under section 68 of the Income Tax Act, 1961.
2. Disallowance of interest payment on unsecured loans.

Analysis of the Judgment:

Issue 1: Addition of unsecured loans under section 68 of the Income Tax Act, 1961:
The case involved the appellant challenging the addition of Rs.28,80,000 as alleged unsecured loans under section 68 of the Income Tax Act, 1961. The assessing officer required the appellant to prove the identity, creditworthiness, and genuineness of transactions with cash creditors who had provided unsecured loans. Despite various attempts to verify the creditors' details, including issuing notices and summons, the appellant failed to produce the creditors for examination. However, the appellant submitted documents such as income tax return acknowledgments, balance sheets, TDS certificates, and bank statements of the creditors. The appellant also highlighted judicial pronouncements supporting their case, emphasizing the repayment of loans through a/c payee cheques. The tribunal analyzed the evidence presented and cited a judgment by the Hon'ble Gujarat High Court in a similar case, where the court held that the appellant had sufficiently proved the identity and creditworthiness of the creditors, and the genuineness of transactions. Consequently, the tribunal ruled in favor of the appellant, stating that the addition made by the assessing officer under section 68 was not sustainable.

Issue 2: Disallowance of interest payment on unsecured loans:
The disallowance of interest payment was a consequential issue stemming from the addition of unsecured loans under section 68. Since the tribunal allowed the appellant's appeal regarding the addition of unsecured loans, it logically followed that the disallowance of interest payment could not be upheld. The tribunal reasoned that once the basis for disallowance was removed, i.e., the addition of unsecured loans, the disallowance of interest payment could not stand. Therefore, the tribunal also allowed ground No.2 of the appellant related to the disallowance of interest.

In conclusion, the tribunal allowed the appeal of the appellant, finding in their favor on both issues of addition of unsecured loans under section 68 and the consequential disallowance of interest payment. The judgment was pronounced in open court, with the appellant succeeding in their appeal.