2019 (10) TMI 1383 - AT - Income Tax

Addition made towards unsecured loan u/s.68 - proof of necessary ingredients of Section 68 - notice u/s.133(6) of the Act returned unserved - HELD THAT - As assessee had submitted all the documentary evidences to prove the three necessary ingredients of Section 68 of the Act justifying the veracity of the loan taken by the assessee from M/s. Fastline Multitrade Pvt. Ltd. - It is not in dispute that the assessee had paid interest on the said loan after due deduction of tax at source and that the said interest income has also been offered by the lender company and the revenue had given due credit for the TDS claim thereon in the assessment of lender company. Even in the hands of the assessee company, the interest paid on loans is allowed as deduction. From the elaborate findings given by the ld. CIT(A) above, we find that the assessee had duly discharged the necessary three ingredients of Section 68 of the Act in the instant case. Merely because the notice u/s.133(6) of the Act returned unserved, no adverse inference could be drawn on the assessee ignoring the various documentary evidences on record. Nothing prevented the ld. AO to make enquiries from his side with the Assessing Officer of the lender company, and examine the veracity of the loan taken by the assessee, the details of which are very much available before the ld. AO. There is no case for the revenue to draw adverse inference on the various documentary evidences submitted by the assessee eventually to treat the loan received from M/s. Fastline Multitrade Pvt. Ltd., as ingenuine loan . Unexplained share capital and share premium - HELD THAT - CIT(A) had elaborately dealt with the entire issue by due appreciation of the various documentary evidences submitted in respect of investor companies duly proving the three necessary ingredients of Section 68 of the Act viz. identity of the investors, creditworthiness of the investors and genuineness of the transactions. We find that none of these documentary evidences were controverted by the ld. AO by proceeding to make further enquiry in this regard. None of these facts were even denied by the ld. AO or any deficiencies were found thereon by the ld. AO and we also take note of the fact that out of the five investor companies who had invested monies in the assessee company, four of them are public limited companies which are listed in various stock exchanges - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition towards unsecured loan of ?25 lakhs under Section 68 of the Income Tax Act.
2. Deletion of addition towards unexplained share capital and share premium amounting to ?2,50,00,000 under Section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition Towards Unsecured Loan of ?25 Lakhs:

The primary issue in this appeal was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the addition of ?25 lakhs made by the Assessing Officer (AO) towards unsecured loans under Section 68 of the Income Tax Act. The AO had observed that the assessee received an unsecured loan of ?25 lakhs from M/s. Fastline Multitrade Pvt. Ltd., which was allegedly involved in providing accommodation entries according to findings from a search and seizure operation on Shri Praveen Kumar Jain and his group. The notice issued under Section 133(6) to the lender returned unserved, leading the AO to conclude that the transaction was not genuine and the loan was an unexplained cash credit under Section 68.

The assessee, however, provided various documentary evidences including confirmation from the lender, copies of income tax returns, financial statements, and bank statements to prove the genuineness of the loan. The CIT(A) observed that the AO had not provided any evidence from the search action to establish that the loan was an accommodation entry and had not allowed cross-examination of the persons whose statements were relied upon. The CIT(A) found that the assessee had discharged its onus by proving the identity, genuineness, and creditworthiness of the lender, and thus deleted the addition.

The Tribunal upheld the CIT(A)'s decision, noting that the assessee had provided all necessary documentary evidence to prove the genuineness of the loan. The AO had failed to make further enquiries or provide the statements relied upon to the assessee. The Tribunal concluded that there was no infirmity in the CIT(A)'s order and dismissed the revenue's appeal on this ground.

2. Deletion of Addition Towards Unexplained Share Capital and Share Premium:

The second issue was whether the CIT(A) was justified in deleting the addition of ?2,50,00,000 made by the AO towards unexplained share capital and share premium. The AO observed that the assessee received share capital and share premium from five entities, which were allegedly controlled by Shri Shirish C. Shah, who was found to be engaged in providing accommodation entries during a search and seizure operation.

The assessee submitted various documentary evidences including confirmations from the investors, bank statements, financial statements, share application forms, and board resolutions to prove the genuineness of the transactions. The CIT(A) noted that the AO had disregarded these evidences without finding any deficiencies and had solely relied on the investigation report of Shri Shirish C. Shah. The CIT(A) observed that the assessee had discharged its onus by proving the identity, creditworthiness, and genuineness of the transactions and that the AO had not brought any contrary evidence on record.

The Tribunal upheld the CIT(A)'s decision, noting that the assessee had provided ample documentary evidence to prove the genuineness of the transactions. The AO had not made further enquiries or disproved the evidences submitted by the assessee. The Tribunal also noted that four of the five investor companies were public limited companies listed on stock exchanges. The Tribunal referred to the decision of the Hon’ble Jurisdictional High Court in Vodafone India Services Pvt. Ltd. and the CBDT's instruction not to file SLPs against this decision, which supported the CIT(A)'s view. The Tribunal concluded that there was no reason to interfere with the CIT(A)'s order and dismissed the revenue's appeal on this ground.

Conclusion:

The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision to delete the additions towards unsecured loan of ?25 lakhs and unexplained share capital and share premium of ?2,50,00,000 under Section 68 of the Income Tax Act.