2020 (2) TMI 789 - AT - Income Tax

Unexplained unsecured loan and interest - Addition u/s 68 - HELD THAT - Lenders of assessee are income-tax assessees whose PAN have been disclosed, AO cannot ask assessee to further prove genuineness of transactions without first verifying such fact from income-tax returns of lenders. In view of the foregoing, we are of the considered opinion, that addition sustained by the CIT (A) were not justified. Hence these grounds of appeal of the assessee are allowed. Unexplained investment / expenditure - HELD THAT - We find that the assessee has filed copy of acknowledgement of return of income, contra confirmation for Kalpesh K Gosalina incurred for compound wall, copy of bills and proof of payment made though cash book. The payment has been shown in balance sheet as capital expenditure. This expenditure is not claimed in Profit Loss Account. Therefore, disallowance of it is not justified. The assessee has filed copy of Adinath Textile AND cashbook of Adinath Textile. Hence, source of expenditure is explained and expenditure being capital in nature cannot be disallowed. Accordingly, this addition is deleted.

Summary

Issues:
1. Addition of unexplained unsecured loan and interest.
2. Addition of undisclosed income interest.
3. Addition of unexplained investment/expenditure.

Issue 1: Addition of unexplained unsecured loan and interest:
The Assessing Officer (AO) added &8377; 23,31,000 as an unexplained unsecured loan and interest of &8377; 2,13,708, as the assessee failed to prove the identity and genuineness of the transaction with the lenders. The Commissioner of Income tax (Appeals) upheld the addition, stating that the assessee did not establish the identity, creditworthiness, and genuineness of the transaction despite opportunities. However, the Tribunal found that the son of the assessee, who provided a significant loan, had sufficient capital and the source of the funds was explained. The Tribunal also noted that the loan from another lender was repaid in a subsequent year, as accepted by the Department. Therefore, the Tribunal deleted the addition of both loans and interest, relying on precedents and the initial onus discharged by the assessee.

Issue 2: Addition of undisclosed income interest:
The issue related to interest of &8377; 47,103 being treated as undisclosed income interest. The counsel for the assessee did not press this ground, leading to its dismissal as not pressed.

Issue 3: Addition of unexplained investment/expenditure:
The AO added &8377; 1,98,750 as unexplained investment/expenditure towards a plot, as no documentary evidence was submitted. The CIT(A) confirmed the addition, stating that the appellant failed to provide sufficient evidence regarding the payment. However, the Tribunal found that the expenditure was incurred in cash, not claimed in the Profit & Loss Account, and was reflected in the cashbook. The Tribunal noted that the source of the expenditure was not doubted by the AO and that the expenditure was capital in nature. Therefore, the Tribunal deleted the addition, as the expenditure was adequately explained with corroborative evidence.

In conclusion, the Tribunal partly allowed the appeal of the assessee, deleting the additions related to unexplained unsecured loans and interest, as well as the unexplained investment/expenditure. The order was pronounced on 11th February 2020.