2020 (11) TMI 45 - AT - Income Tax

Additions u/s 68 - loans taken from the two group lender companies u/s 68 r.w.s 115BBE - evidences necessary to discharge the onus u/s 68 placed on record to prove the identity, creditworthiness of the lenders and genuineness of the transactions OR not? - HELD THAT - A company can be creditworthy even if a company gives a loan out of the loans taken from others if the said loans have been obtained on the basis of its creditworthiness / value. It is not a case where the lender companies have obtained loans without any basis from unknown lenders but it is a case where the lender companies have obtained loans from reputed NBFCs by pledging their own valuable securities and intimated to the ROC in time and disclosed in the audited annual accounts. Thus, the creditworthiness of the lenders to grant loans to the appellant stands established. On perusal of the relevant evidences and reconciliation placed on record, the contention of the Ld. Counsel is found to be correct, because the figures of loans mentioned against Jindal Saw Ltd. were for the preceding financial year i.e. AY 2016-17. Further, only the figure of loans given has been mentioned therein and the figure of loans refunded during the year have not at all been mentioned therein. Thus, this list is misleading and does not give a correct picture of the amounts of loans given by the lender companies and cannot be relied upon at all. Lender companies owned listed equity shares worth market value of thousands of Crores of Rupees, had bank as well as demat accounts, have taken loans from the NBFCs, filed their returns of income declaring huge income in tens of crores of Rupees for the last 3 years and paid necessary applicable and due income-tax thereon, got their books audited under Companies as well as Income-tax Acts. These two lenders were assessed u/s 143(3) of the Act not only for the AY 2017-18 but also for the earlier 2 assessment years wherein substantial addition u/s 14A of the Act was made for the AY 2017-18. Thus, if an entity which is duly assessed by the Income-tax department cannot be presumed as non-existing in other assessment. In view of the all these evidences, the physical existence of the lender companies stands proved beyond doubt. On perusal of the impugned order of Ld. CIT (A), it is seen that the CIT (A) has only reiterated the averments in the assessment order, submissions of the appellant, remand report, rejoinder, synopsis, case laws etc. Even while drawing conclusion, these things have been reiterated again. CIT (A) has not brought on record his any findings to rebut the evidences placed on record by the assessee. The Ld. CIT (A) has not given any finding regarding the authenticity of the commissioner s report, its admission as evidence, why the onus cast on the appellant was not discharged in view of the evidences placed on record. Any appellate authority cannot reject the evidences without any discussion or reason. The CIT (A) has not mentioned as to what more evidence were needed to be produced by the assessee to substantiate its contention or what are the material or information to rebut the assessee s explanation and evidences as discussed above. AO as well as the CIT(A) failed to appreciate or consider the more than sufficient evidences placed on record by the assessee to discharge the onus u/s 68 - Addition made u/s 68 of the Act is hereby deleted. - Decided in favour of assessee. Disallowance of interest on loans taken from group companies - HELD THAT - Since we have held that the loans taken from the said two lender companies are genuine in the above grounds of appeal, the interest on these loans has to be held as genuine payment. Undisputedly, these loans were used for the purpose of business, due income-tax has been deducted at source on the said interest, which has also been declared as income by the lenders, the amount of interest cannot be disallowed. The loans were also used only for the purpose of its business by the assessee. In fact the authorities below have not adverted that the said loans for not used for its business by the assessee. Thus, since the loans were used by the assessee for its business, the disallowance of interest is hereby deleted. Disallowance of Education cess as a deduction while computing the assessable income - assessee submitted that Education Cess is an allowable expenditure and therefore the Education Cess paid should be allowed as deduction - HELD THAT - In view of the above judicial position, we are of the view that the education cess has to be allowed as deduction. In a recent decision in the case of M/s Agrawal Coal Corporation (P) Ltd. 2020 (8) TMI 719 - ITAT INDORE has also held that education cess is an allowable expenditure. The same is not allowable to the assessee during this year as the assessee has not paid any education cess on the income-tax for this assessment year as the returned income under the normal as well MAT provisions was at loss.

Summary

Issues Involved:
1. Addition under Section 68 of the Income Tax Act.
2. Disallowance of interest on loans.
3. Allowability of education cess as a deduction.
4. Conversion of limited scrutiny into full scrutiny without prior permission.
5. Issuance of notice under Section 143(2) on the revised return.

Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act:
Facts and Arguments:
- The assessees, part of the Jindal group, contested the addition of loans taken from Glebe Trading (P) Ltd. and Danta Enterprises (P) Ltd. under Section 68, alleging the lender companies were non-existent and merely conduits.
- The AO issued a commission to the ADIT (Inv.), Raipur, revealing no physical presence of lender companies at their registered address.
- The AO's addition was based on the lack of evidence of the lenders' existence and their financial incapacity to provide such loans.
- The assessees provided various documents, including confirmations, bank statements, PAN details, audited financial statements, incorporation certificates, and ROC filings, to prove the identity, creditworthiness, and genuineness of the lenders.

Decision:
- The Tribunal found that the assessees provided sufficient evidence to prove the identity and creditworthiness of the lenders and the genuineness of the transactions.
- The AO's reliance on the commission report was flawed, as the inspector did not visit the specific address and failed to conduct thorough inquiries.
- The Tribunal held that the lenders had substantial intrinsic value and creditworthiness, given their investments in listed shares worth thousands of crores and the loans taken from reputed NBFCs.
- The Tribunal deleted the additions under Section 68, concluding that the assessees discharged their onus of proof.

2. Disallowance of Interest on Loans:
Facts and Arguments:
- The AO allowed the interest paid on loans as a deduction, but the CIT (A) disallowed it, considering the loans unproved under Section 68.
- The assessees argued that the loans were genuine, used for business purposes, and the interest was paid through proper banking channels with TDS deducted.

Decision:
- Since the Tribunal held the loans to be genuine, the interest on these loans was also held as genuine.
- The Tribunal deleted the disallowance of interest, noting that the loans were used for business purposes, and the interest was duly declared and taxed by the lenders.

3. Allowability of Education Cess as a Deduction:
Facts and Arguments:
- The assessees claimed that education cess is an allowable expenditure, relying on judicial precedents.
- The Tribunal acknowledged the judicial position that education cess is allowable but noted that the assessees did not pay any education cess for the assessment year in question due to a loss.

Decision:
- The Tribunal held that education cess is an allowable expenditure but dismissed the ground as the assessees did not incur any education cess for the relevant year.

4. Conversion of Limited Scrutiny into Full Scrutiny Without Prior Permission:
Facts and Arguments:
- The assessees contended that the conversion of limited scrutiny into full scrutiny was done without the prior permission of the PCIT.

Decision:
- The Tribunal did not adjudicate this ground as the additions were deleted on merits.

5. Issuance of Notice under Section 143(2) on the Revised Return:
Facts and Arguments:
- The assessees argued that the assessment was completed on the revised return without issuing a notice under Section 143(2).

Decision:
- The Tribunal did not adjudicate this ground as the additions were deleted on merits.

Conclusion:
The Tribunal deleted the additions made under Section 68, disallowed the disallowance of interest on loans, and acknowledged the allowability of education cess while dismissing the procedural grounds due to the merits-based deletions.