2018 (7) TMI 215 - AT - Income Tax

Addition u/s 56(2)(vii)(a) - assessee has claimed to have received a loan - AO was of the opinion that the agreement in this regard was not proper agreement - Held that - As noted by the ld. Commissioner of Income Tax (Appeals), the amount received from the M/s. San Finance Corporation by the assessee fully qualifies as loan. The M/s. San Finance Corporation has shown the same amount as loan in its balance sheet, the same has been duly accepted by the Revenue. As a matter of fact, in the hands of M/s. San Finance Corporation, the assessing officer has disallowed 12% on the interest-free loan given by the M/s. San Finance Corporation to various persons including the assessee. Commissioner of Income Tax (Appeals) is quite correct in holding that Revenue cannot take contradictory stands. In the case of the M/s. San Finance Corporation, it has held that the same is loan. When such a stand has been taken, the Revenue cannot take up a contrary stand and treat the same loan in the hands of the assessee as a gift or a sum received without consideration taxable under section 56(2)(vii)(a) of the Act. See THE COMMISSIONER OF INCOME TAX VERSUS MR. CHANDRAKANT H. SHAH 2010 (9) TMI 1221 - BOMBAY HIGH COURT - Decided in favour of assessee

Summary

Issues:
1. Whether the addition made under section 56(2)(vii)(a) of the Income Tax Act, 1961 should be deleted.
2. Whether the transaction of loan between the assessee and M/s San Finance Corporation is genuine.

Analysis:
1. Issue 1 - Addition under Section 56(2)(vii)(a):
The Assessing Officer added an amount of ?65,05,768 to the assessee's income under section 56(2)(vii)(a) as it was deemed that the transaction with M/s San Finance Corporation was not a loan. The AO concluded that the absence of a legally enforceable repayment agreement indicated that the amount was not repayable as a loan. However, the ld. Commissioner of Income Tax (Appeals) noted that the assessee provided substantial evidence to establish that the amount received was indeed a loan. The SFC had treated the amount as a loan in its books, and the assessing officer of SFC disallowed interest on the interest-free loan given to various persons, including the assessee. The ld. Commissioner of Income Tax (Appeals) emphasized that the Revenue cannot take contradictory stands for the same transaction, treating it as a loan in one instance and as a gift in another. The order of the ld. Commissioner of Income Tax (Appeals) deleted the addition under section 56(2)(vii)(a) based on the evidence presented.

2. Issue 2 - Genuine Transaction of Loan:
The Assessing Officer contended that the transaction lacked essential characteristics of a loan, such as interest, security, repayment schedule, and time of maturity. However, the ld. Commissioner of Income Tax (Appeals) analyzed the evidence provided by the assessee and SFC, establishing that the transaction was indeed a loan. The ld. Commissioner referred to the case law and the principle of approbate and reprobate, stating that the Revenue cannot treat the same transaction as a loan in one assessment and as a gift in another. The order emphasized that the intention to repay the loan was evident from the balance sheets of both the assessee and SFC, and all requirements of section 68 were met. The order concluded that the transaction was a loan and directed the deletion of the addition made by the AO.

In conclusion, the ITAT Nagpur upheld the order of the ld. Commissioner of Income Tax (Appeals) and dismissed the Revenue's appeal, stating that the transaction in question was a genuine loan and not subject to taxation under section 56(2)(vii)(a) of the Income Tax Act, 1961.