2019 (7) TMI 1530 - AT - Income Tax

Addition u/s 68 - bogus unsecured loan availed - HELD THAT - Assessee by placing on record the supporting documentary evidence had duly discharged the onus that was cast upon him to substantiate the identity of the loan creditors, genuineness of the transactions and also the creditworthiness of the parties. As is discernible from the orders of the lower authorities, the assessee by placing on record the PAN details and the copies of the returns of income along with the complete addresses of the aforementioned lenders had substantiated the identity of the aforesaid parties Genuineness of the loan transactions stood duly substantiated from the fact that both the acceptances and repayments of the loans were made through banking channels. Apart there from, the fact that the aforesaid parties had duly responded to the notices issued to them under Sec. 133(6) and confirmed the respective loan transactions also adduces the genuineness of the said loan transactions. As regards the creditworthiness of the lenders, we find that the assessee by placing on record the copies of the bank statements of the creditors out of which the loans were advanced to the assessee, alongwith the copies of their Income Tax returns, balance sheets and capital accounts, had duly substantiated the same. Now when the assessee had duly discharged the onus that was cast upon him, and had substantiated the nature‟ and source‟ of the aforesaid credits appearing in his books of accounts, therefore, there was no justification on the part of the A.O to have characterised the same as unexplained cash credits in the hands of the assessee - Decided in favour of assessee. Disallowance of the interest paid by the assessee to the aforesaid lenders - HELD THAT - As the genuineness of the loan transactions advanced by the assessee to the aforesaid parties viz. (i) M/s Minakshi Exports; and (ii) M/s Puspak Gems have been upheld by us, therefore, the disallowance of interest paid by the assessee cannot be sustained. Interest paid by the assessee to M/s Suman Exports is concerned, we find that as observed by the CIT(A), the loan of ₹ 30 lac that was raised by the assessee from M/s Suman Exports was held by him to be genuine while disposing off the appeal of the assessee for A.Y. 2010-11, vide his order dated 18.12.2017. Accordingly, there would be no justification for disallowing the interest paid by the assessee on the said loan. We uphold the order of the CIT(A) as regards the deletion of the addition of interest that of ₹ 5,69,250/- that was paid by the assessee on the loans raised from the aforementioned parties. - Decided against revenue

Issues Involved:
1. Deletion of addition on account of bogus unsecured loans.
2. Deletion of disallowance of interest expenditure related to the alleged bogus loans.

Issue 1: Deletion of Addition on Account of Bogus Unsecured Loans

The revenue challenged the CIT(A)'s decision to delete the addition of ?70,00,000/- on account of bogus unsecured loans allegedly obtained from M/s. Meenakshi Exports and M/s. Pushpak Gems, entities controlled by the Bhanwarilal Jain Group. The assessee, a civil contractor, had initially declared a loss in their return for A.Y. 2011-12. The case was reopened under Sec. 147 based on information that the assessee had obtained accommodation entries from entities linked to Bhanwarlal Jain. During the assessment, the AO observed that the assessee had claimed loans from three parties: Meenakshi Exports, Suman Exports, and Pushpak Gems. The AO directed the assessee to provide documentary evidence to substantiate these loans. The assessee complied, providing bank statements, loan confirmations, and affidavits from the proprietors/partners of the lending entities. However, the AO was not convinced, particularly because the parties did not appear for cross-examination, and added the loans from Meenakshi Exports and Pushpak Gems as unexplained cash credits under Sec. 68.

Upon appeal, the CIT(A) found that the assessee had adequately substantiated the nature and source of the loans with sufficient documentary evidence, including bank statements, loan confirmations, and affidavits. The CIT(A) thus deleted the addition made by the AO. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had discharged the onus of proving the identity of the creditors, the genuineness of the transactions, and the creditworthiness of the parties. The Tribunal dismissed the revenue's appeal on this ground.

Issue 2: Deletion of Disallowance of Interest Expenditure

The revenue also challenged the CIT(A)'s decision to delete the disallowance of ?5,69,250/- in interest expenditure related to the alleged bogus loans. During the assessment, the AO had disallowed the interest payments made to Meenakshi Exports, Suman Exports, and Pushpak Gems, adding the amounts back to the total income of the assessee. The CIT(A), however, noted that the interest payments were made through account payee cheques after deducting applicable TDS and that the lenders had included this interest income in their tax returns. The CIT(A) thus vacated the disallowance of the interest payments.

The Tribunal upheld the CIT(A)'s decision, noting that the genuineness of the loan transactions had been established, and the interest payments were duly substantiated. Consequently, the disallowance of interest paid by the assessee was not justified. The Tribunal dismissed the revenue's appeal on this ground as well.

Conclusion:

The Tribunal dismissed the revenue's appeal in its entirety, upholding the CIT(A)'s order to delete both the addition of ?70,00,000/- as unexplained cash credits and the disallowance of ?5,69,250/- in interest expenditure. The Tribunal found that the assessee had adequately substantiated the genuineness of the loan transactions and the related interest payments.

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