2019 (9) TMI 1135 - AT - Income Tax

Addition towards unsecured loan - unexplained cash credit u/s 68 - AO not making basic verification with the lenders by using the statutory powers vested in him u/s 133(6) or u/s 131 - HELD THAT - When the assessee had submitted his bank statements even for the subsequent year to prove that the said loans were duly repaid by him to the concerned lenders. It is not in dispute that these loan creditors are duly assessed to income tax and their income tax assessment particulars together with their addresses were on record. AO without making even the basic verification with the lenders by using the statutory powers vested in him u/s 133(6) or u/s 131 of the Act , cannot simply make an addition towards the unsecured loans as unexplained cash credit merely on surmise and conjecture. Hence we direct the ld AO to delete the addition made in respect of loans received from Arabian Sea Food and Shatrunjaya Estate Pvt Ltd Loans received from Smt Nikita Mahesh Sagar and Smt Usha Chauhan, we find that apart from primary documents , the assessee had also furnished the bank statements of the lenders and an affidavit from them confirming the entire loan transactions with the assessee. We find that the ld AO had merely disregarded this affidavit by stating that the same lacks verification. Even in this case, no verification was carried out by the AO either u/s 133(6) or u/s 131 of the Act to clear the doubts that were in mind of the ld AO with regard to the veracity of the loan creditors. It is not in dispute that these loan creditors are duly assessed to income tax and their income tax assessment particulars together with their addresses were on record. We find that both these parties had duly affirmed in their affidavit that they were engaged in respective businesses for the past 15 and 30 years respectively. Hence the availability of source in their hands stands proved beyond doubt - Decided in favour of assessee Net income under the head Income from Business - gross receipts minus direct expenditure - HELD THAT - We find that the CIT-A in Asst Year 2013-14 had accepted the fact that the assessee was engaged in the actual business of consultancy to SRA projects of Kamla Mills group, wherein he has to negotiate with the slum dwellers / squatters and get them agree/vacated with compensation/ incentive or an alternate accommodation in the constructed SRA tower. For this he used to get the money from the builders which he used to deposit in the bank account. CIT-A in that order categorically observed that assessee was doing similar business in earlier years and nature of business was mentioned as service sector in the audit report. Hence it is proved beyond doubt that assessee was deriving business income during the year under consideration. Hence we direct the ld AO to treat the net income of ₹ 2,20,20,125/- as income from business i.e gross business receipts of ₹ 2,57,79,500/- minus business expenditure of ₹ 37,59,375/-

Summary

Issues Involved:
1. Deletion of addition towards unsecured loans amounting to ?1,18,00,000/-.
2. Classification of business income as income from other sources.

Issue-wise Detailed Analysis:

1. Deletion of Addition towards Unsecured Loans:

The first issue revolves around whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the addition of ?1,18,00,000/- towards unsecured loans. The assessee, an individual, declared unsecured loans from four parties: Arabian Sea Food (?78,00,000/-), Shatrunjaya Estate Pvt Ltd (?20,00,000/-), Nikita M Gogar (?10,00,000/-), and Usha J Chauhan (?10,00,000/-). The Assessing Officer (AO) questioned the identity, creditworthiness, and genuineness of these loans.

- Arabian Sea Food: The AO noted that the entity had returned a loss of ?9,75,086/- and concluded it lacked the creditworthiness to advance the loan. The assessee failed to produce the party for examination, leading the AO to add ?78,00,000/- as unexplained cash credit.

- Shatrunjaya Estate Pvt Ltd: Similar to Arabian Sea Food, the AO added ?20,00,000/- as unexplained cash credit due to doubts about the creditworthiness.

- Nikita M Gogar: The AO observed a deposit and subsequent loan transaction in her bank statement and rejected her affidavit, adding ?10,00,000/- as unexplained cash credit.

- Usha J Chauhan: The AO noted similar bank transactions and rejected her affidavit, adding ?10,00,000/- as unexplained cash credit.

The CIT(A) deleted these additions, noting that the assessee provided PAN, loan confirmations, return copies, and bank passbooks. The CIT(A) emphasized that the loans were repaid, and the transactions were through account payee cheques. The Tribunal upheld the CIT(A)’s decision, stating that the AO failed to use statutory powers to verify the creditors and relied on mere surmise and conjecture. The Tribunal directed the AO to delete the addition of ?1,18,00,000/-.

2. Classification of Business Income as Income from Other Sources:

The second issue concerns the AO's classification of the assessee’s business income as income from other sources. The assessee declared net business income of ?2,20,20,125/- (gross receipts of ?2,57,79,500/- minus direct expenditure of ?37,59,375/-). The AO assessed this as income from other sources, arguing that the assessee failed to prove the list of parties from whom the sums were received.

The Tribunal noted that the AO acknowledged the assessee’s business activities and that the depreciation on assets was allowed in subsequent years. The Tribunal found that the assessee consistently declared business income in previous years and that the CIT(A) accepted the nature of the business in subsequent assessments. Thus, the Tribunal directed the AO to treat the net income of ?2,20,20,125/- as business income, allowing the assessee’s cross-objections.

Conclusion:

The Tribunal dismissed the revenue’s appeal and allowed the assessee’s cross-objections, upholding the deletion of the addition towards unsecured loans and directing the classification of the income as business income. The order was pronounced in the open court on 18/09/2019.