2022 (6) TMI 1481 - AT - Income Tax

Unexplained cash credit u/s.68 - loan received by the assessee and disallowance of interest paid on such loan - HELD THAT - We find that assessee had also enclosed the bank statements of the lender company which proved sufficient creditworthiness available with the lender company and there was absolutely no cash deposits made in the said bank account before advancing the loan to the assessee company. Hence, the allegation levelled by the AO is factually incorrect in this regard. The loan transaction had been made through regular banking channels by account payee cheques and the said transaction is also duly reflected and disclosed in the books of accounts of the lender company. This proves the genuineness of the transaction of the loan. We find that the lender company is duly assessed to income tax which is evident from the income tax return acknowledgement enclosed before the lower authorities. This clearly proves the identity of the lender. The assessee had also filed confirmation from the lender confirming the loan transactions. All the aforesaid facts were also duly confirmed by the lender directly before the ld. AO in response to notice issued u/s.133(6) by the ld. AO. We also find from the ledger account of the lender enclosed in the paper book that the loan has been subsequently repaid by the assessee in the A.Y.2013-14. This loan has been duly subjected to interest which has been duly subjected to deduction of tax at source. All these transactions collectively prove that the entire loan transaction is genuine and hence, there is absolutely no case made out by the Revenue to make out an addition u/s.68 of the Act in the peculiar facts and circumstances of the instant case. Accordingly, the addition made u/s.68 of the Act is hereby directed to be deleted. Since the loan transaction is treated as genuine, interest paid on such loan is squarely allowable as deduction u/s.36(1)(iii) - Assessee appeal allowed.

Summary

Issues involved:
The validity of re-assessment and confirmation of addition u/s.68 of the Income Tax Act.

Validity of re-assessment:
The appeal challenged the validity of re-assessment, which was not pressed by the assessee's representative, leading to its dismissal.

Confirmation of addition u/s.68:
The assessee contested the confirmation of addition towards unexplained cash credit u/s.68 of the Act, related to a loan received and the disallowance of interest paid on the loan.

The assessee borrowed Rs.50,00,000 from a company, paid interest, and claimed it as a deduction. The lending company's identity and creditworthiness were questioned due to being a penny stock company. However, the assessee provided evidence including income tax returns, bank statements, and balance sheets to prove the genuineness of the transaction. The lending company's financial stability and the transaction details were confirmed through various documents and responses to queries and notices.

The Tribunal found that all necessary documents were provided by the assessee to prove the genuineness of the loan transaction. The transaction was made through proper banking channels, with no cash deposits before advancing the loan. The lender's identity, income tax assessment, and confirmation of the transaction were established. The loan was repaid in the subsequent assessment year, with interest subject to tax deduction at source. Consequently, the addition u/s.68 of the Act was deemed unjustified and directed to be deleted. The interest paid on the loan was allowed as a deduction u/s.36(1)(iii) of the Act.

In conclusion, the appeal of the assessee was partly allowed based on the findings related to the validity of re-assessment and the addition u/s.68 of the Income Tax Act.