2015 (11) TMI 854 - AT - Income Tax

Addition as unsecured loan received from one of its directors - Held that - Before us the assessee has filed loan account of the director in the books of the assessee-company. However, the question raised by the Commissioner of Income-tax (Appeals) regarding the source of funding the assessee-company remained unanswered. The Commissioner of Income-tax (Appeals) had raised a very valid doubt, that is, if the director has returned his income of ₹ 1,50,820 in the assessment year 2008-09, how he can extend loan of ₹ 40,00,702 to the assessee-company. The learned authorised representative has not been able to place on record for any cogent evidence in the form of bank statement, statement of asset and liability of the assessee, etc., to dispel the shadow of doubts. It is a well accepted principle that to accept a credit as genuine all the three conditions, i.e., identity of person who has accepted the loan, genuineness of transaction and creditworthiness of the person extending loan has to be satisfied. If any of the aforesaid conditions are absent the loan transaction comes under cloud. In the present case the assessee has not been able to establish the creditworthiness of the director of the company who has purportedly extended loan. We concur with the findings of the Commissioner of Income-tax (Appeals) on this issue. - Decided against assessee. Ad hoc disallowance under the head Other expenses - Held that - In the absence of details of expenditure, the Assessing Officer made ad hoc disallowance of ₹ 5,00,000. In the first appeal the Commissioner of Income-tax (Appeals) examined each and every expenditure and thereafter, reduced the disallowance to ₹ 2,00,000. We do not find any infirmity with the findings of the Commissioner of Income-tax (Appeals).- Decided against assessee.

Summary

Issues Involved:
- Cross-appeals by assessee and Revenue against Commissioner's order for AY 2008-09
- Confirmation of unsecured loan addition and ad hoc expense disallowance
- Admission of additional evidence in violation of rule 46A
- Disallowance of unsecured loans and other expenses
- Director's creditworthiness and genuineness of loan transactions
- Ad hoc disallowance of expenses under "Other expenses"

Analysis:
1. The appeal involved cross-appeals by the assessee and Revenue against the Commissioner's order for the assessment year 2008-09. The assessee challenged the addition of an unsecured loan and ad hoc disallowance of expenses, while the Revenue primarily contested the admission of additional evidence in violation of rule 46A of the Income-tax Rules, 1962.

2. The Commissioner of Income-tax (Appeals) partially allowed the assessee's appeal by deleting certain additions/disallowances but confirmed the addition of unsecured loans allegedly extended by a director of the company. The assessee contended that the director's bank account was operated on behalf of the company, and the outstanding balance was accumulated over transactions. However, the Revenue argued that the director's creditworthiness was not established, as his income was significantly lower than the loan amount extended.

3. Regarding the admission of additional evidence, the Revenue claimed that the assessee had not submitted the documents to the Assessing Officer initially and that the Commissioner of Income-tax (Appeals) erred in admitting them, violating rule 46A. However, the Tribunal found that the Commissioner had provided a reasonable opportunity to the Assessing Officer to examine the documents, dismissing the Revenue's appeal on this ground.

4. The Tribunal upheld the Commissioner's decision on the unsecured loan, emphasizing the necessity to establish the creditworthiness, genuineness, and identity of the creditor. Despite the director's identity being confirmed, the Tribunal agreed that the creditworthiness aspect was not adequately proven by the assessee, leading to the dismissal of this ground of appeal.

5. The second ground of appeal by the assessee related to an ad hoc disallowance of expenses under "Other expenses." The Tribunal noted that the Commissioner had examined each expenditure item and reduced the disallowance from an ad hoc amount to a specific sum after due consideration. Consequently, this ground of appeal was also dismissed.

6. Ultimately, the Tribunal dismissed both the Revenue's and the assessee's appeals, finding them devoid of merit based on the detailed analysis of the issues raised and the Commissioner's order. The judgment was pronounced on June 10, 2015, at Pune, by the Appellate Tribunal ITAT Pune, with R. K. Panda as the Accountant Member and Vikas Awasthy as the Judicial Member.