2019 (7) TMI 1996 - AT - Income Tax

Addition u/s.68 for unsecured loans taken - HELD THAT - The assessee has discharged the onus of proving the creditors and the Revenue did not make required enquiries. The balance sheet and the business affairs clearly prove the financial capability of the lenders - As decided in the case of Vaibhav Cotton Pvt. Ltd. 2012 (8) TMI 1129 - MADHYA PRADESH HIGH COURT held that where the Tribunal on its independent analysis of the matter had reached the factual conclusion about genuineness of unsecured loan transaction and in this process Tribunal has taken note of fact that detailed account of concerned party were filed by the assessee and entries in account were through account payee cheques, source of deposit in the bank was not in dispute and identity of the parties was established and also creditworthiness of the creditors was established, it was right to hold that the loans taken cannot be assessed u/s 68 of the Act. Hence we hereby delete the addition made on account of loans received by the assessee. Revenue has invoked the provisions of Section 115BBE - We find that the section has been amended w.e.f. 01.04.2017 which is prospective and hence not applicable to the year in question before us. Since, the additions have been deleted the applicability of the section to the case would be superfluous. Appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Addition of Rs.1,00,00,000/- under Section 68 for unsecured loans.
2. Deduction of current year losses from the addition for arriving at the figure of income assessed at a special tax rate under Section 115BBE.

Issue-wise Detailed Analysis:

1. Addition of Rs.1,00,00,000/- under Section 68 for unsecured loans:
The assessee received unsecured loans from two parties: M/s Awasthi Medi Equipments Pvt. Ltd. (Rs.45,00,000/-) and M/s Regal Infotech Pvt. Ltd. (Rs.55,00,000/-). The Assessing Officer (AO) issued notices under Section 133(6) of the Act, which were returned unserved. The AO deemed the loans bogus due to non-service of notices and insufficient financials of the lender companies. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the addition, citing failure to prove the genuineness and creditworthiness of the loans.

The assessee argued that M/s Awasthi Medi Equipments Pvt. Ltd. had sufficient funds with a share capital of Rs.5.91 crores and short-term borrowings of Rs.13.55 crores. The company showed business income of Rs.95.86 lakhs and a net profit of Rs.10.56 lakhs. It was also argued that the AO's observation of non-reply to notices was incorrect as details were sent to the ACIT. For M/s Regal Infotech Pvt. Ltd., the loan was interest-bearing at 8%, with interest and TDS duly paid.

The Tribunal found that the AO's reliance on non-service of summons was misplaced as the Inspector went to an incorrect address. The lender companies had sufficient financial capability, and the loans were interest-bearing with TDS deducted. The Tribunal noted that the Revenue did not conduct further investigations or corroborative inquiries. The Tribunal relied on case laws where the genuineness of unsecured loans was established through proper documentation and financial capability of lenders. Hence, the addition of Rs.1,00,00,000/- was deleted.

2. Deduction of current year losses from the addition for arriving at the figure of income assessed at a special tax rate under Section 115BBE:
The assessee contended that the AO erred in not deducting current year losses of Rs.1,24,13,900/- from the addition of Rs.1 crore for arriving at the figure of income assessed under Section 115BBE. The Tribunal found that Section 115BBE was amended prospectively from 01.04.2017 and was not applicable to the assessment year in question. Since the additions were deleted, the applicability of Section 115BBE became superfluous.

Conclusion:
The appeal of the Revenue was dismissed, and the additions made on account of loans received by the assessee were deleted. The Tribunal concluded that the assessee had discharged the onus of proving the identity, genuineness, and creditworthiness of the creditors, and the Revenue failed to conduct necessary inquiries to substantiate the addition under Section 68. The applicability of Section 115BBE was deemed irrelevant for the assessment year in question.