2011 (10) TMI 759 - AT - Income Tax

Summary

Issues Involved:

1. Deletion of addition of Rs. 3,30,55,000/- made by the Assessing Officer on account of unsecured loans.
2. Genuineness of the transactions and creditworthiness of the loan creditors.

Summary:

Issue 1: Deletion of Addition of Rs. 3,30,55,000/-

The Revenue appealed against the CIT(A)'s order, which deleted the addition of Rs. 3,30,55,000/- made by the Assessing Officer (AO) on account of unsecured loans. The AO had observed that the assessee, a Private Limited Company, had shown unsecured loans amounting to Rs. 3,33,09,596/- from various parties, including M/s. Shradha Agencies and M/s. Sourabh Cotton. The AO questioned the genuineness of these transactions and the creditworthiness of the lenders, leading to the addition of the loan amounts to the assessee's income.

Issue 2: Genuineness of Transactions and Creditworthiness of Loan Creditors

The AO's investigation included sending information requests u/s 133(6) and recording statements u/s 131. The AO found that the transactions were circular in nature, with funds being routed through various entities and returning to the assessee. The AO concluded that the creditworthiness of the lenders, particularly Shri Hastimal Jain and Shri Rajendra Kumar Chhajed, was not proven due to their low returned incomes in previous years.

The CIT(A) deleted the addition, noting that the AO did not dispute the identity of the lenders but questioned the genuineness of the transactions and their creditworthiness. The CIT(A) observed that the lenders had appeared before the AO and confirmed the transactions. The CIT(A) found that the source of the funds was established through the creditors' bank accounts, and the transactions were supported by proper documentation.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee had provided detailed accounts and bank statements proving the source and flow of funds. The Tribunal noted that the creditors were regular income tax payers, and their statements confirmed the loans given to the assessee. The Tribunal concluded that the identity, genuineness, and creditworthiness of the loan creditors were adequately proven, and no interference with the CIT(A)'s order was required.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order to delete the addition of Rs. 3,30,55,000/- made by the AO on account of unsecured loans. The Tribunal found that the assessee had sufficiently proven the identity, genuineness, and creditworthiness of the loan creditors.