2015 (3) TMI 61 - AT - Income Tax

Bogus loan transaction - difference between interest received and interest paid by the assessee to sister concerns - CIT(A) deleted the addition - Held that - Loan transactions have been carried out through account payee cheques and the same has been duly recorded in the books of account. The receipt and the payment of interest has also been recorded in the books of account. It is not disputed that the assesee is engaged in the business in dispute from the last and subsequent years and for that proof the assessee has filed the assessment order passed by the AO under section 143(3) of the I.T. Act for the asstt. years 2005- 06, 2006-07 and 2008-09 in which no such disallowance has been made by the Revenue Authorities. Even otherwise, the Revenue has not produced any documentary evidence establishing that the business of the assessee is not genuine and the transactions is also sham. Thus CIT(A) has passed a well reasoned order on the basis of the assessment orders passed u/s. 143(3) of the Act for the previous as well as in the subsequent assessment years, wherein no such disallowance has been made by the Revenue Authorities. - Decided against revenue.

Summary

Issues:
1. Addition of difference between interest received and interest paid to sister concerns.
2. Justification for loans to sister concerns and sham transaction allegations.

Analysis:

Issue 1: Addition of difference between interest received and interest paid to sister concerns
The case involved the Revenue appealing against the deletion of an addition of Rs. 26,02,839, representing the difference between interest received and interest paid by the assessee to sister concerns. The Assessing Officer (AO) observed that the assessee had taken an unsecured loan from one sister concern and advanced a loan to another sister concern, both at 10% interest. The AO deemed the transaction as sham, rejecting the books of accounts and disallowing the difference in interest. The Commissioner of Income Tax (Appeals) deleted the addition, stating that the loans were used for acquiring fixed assets, meeting past losses, and providing loans to sister concerns at the same interest rate. The AO's decision was based on the lack of profit in the transaction and passing off loans between sister concerns. However, the appellate tribunal upheld the CIT(A)'s decision, emphasizing that the transactions were genuine, recorded properly, and confirmed by concerned parties, with no previous disallowances in subsequent years.

Issue 2: Justification for loans to sister concerns and sham transaction allegations
The Revenue argued that the AO rightly declared the transaction as sham, emphasizing the lack of profit and the passing off of loans between sister concerns. However, the assessee's counsel highlighted the genuine nature of the transactions, supported by proper documentation and confirmation from concerned parties. The tribunal noted that the loans were transacted through account payee cheques, recorded in the books of accounts, and used for business purposes. The tribunal found no basis for the AO's rejection of the books of accounts and deemed the disallowance unjustified. Additionally, the tribunal noted that no evidence was presented to establish the business as non-genuine or the transactions as sham. Ultimately, the tribunal upheld the CIT(A)'s decision, citing well-reasoned orders and lack of interference warranted, dismissing the Revenue's appeal.

In conclusion, the appellate tribunal upheld the CIT(A)'s decision to delete the addition of the difference between interest received and paid to sister concerns, emphasizing the genuine nature of the transactions and lack of justification for the AO's disallowance.