2020 (11) TMI 937 - AT - Income Tax

Addition u/s 68 - Loan taken from shell company - HELD THAT - Assessee is engaged in the business of providing security personals consisting of security guards to provide security to various industries, individuals etc. During this year, Assessee has taken unsecured loans from 7 parties to the extent of ₹ 6 crores and the details are already placed on record. All these companies gave the unsecured loans through the banking channel and the assessee has already declared the details of the parties in its tax audit report with the details like address, PAN and details of loan taken. In order to verify, the assessing officer issued the show cause notice and summons to all the parties. Assessee has submitted all the relevant information required to substantiate that the transactions are genuine. The assessee has received the funds through banking channel and recorded the same in its books of account and filed relevant information in order to prove the identity by filing PAN and address of the parties, in few cases the parties have moved their place of work and upon enquiry assessee was able to bring on record the present address. On record that the parties are in existence as per the ROC records and they are traceable with the fact that they ve filed the PAN detail and letter of confirmation. As discussed above, as long as the assessee submits the PAN and other details to trace the parties from whom assessee has taken unsecured loans and as per the financial records, all the parties are in a position to lend money to the assessee and the transactions are routed thru banking channel and there are no findings on record of the revenue that there is no involvement of cash deposits in the immediate past to the unsecured loan transaction. There is no dispute with regard to utilization of funds in the business and applied for the business purpose. As long as it is utilized in the business and the assessee has demonstrated that it has repaid the same along with the relevant interest, it does demonstrate that the present transaction made by the assessee is proper and for the purpose of business, therefore the transaction can only be treated as genuine business transaction. The genuineness has to be seen in two aspects, one, whether it is sourced from the concerns, who can be traced and second, whether it is sourced for the business requirement and utilized for the purpose of business. In the given case, the parties can be traced and it is utilized for the purpose of business. Therefore all the criteria mentioned in the provisions of section 68 were fulfilled by the assessee and we do not agree with the tax authorities who assessed the income of the assessee with the presumption and assumption, they also applied criteria for assessing the introduction of share capital and premium with the unsecured loan taken by the assessee, further applying the concept of human probabilities in the present transaction is far-fetched and it demonstrate that they rely on presumptions. We allow the grounds raised by the assessee relating to addition u/s 68 - Decided in favour of assessee.

Issues Involved:
1. Validity of unsecured loans under Section 68 of the Income Tax Act, 1961.
2. Disallowance of interest expenditure under Section 69C of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of Unsecured Loans under Section 68:

a) M/s Suraksha Projects Private Limited:
The Assessing Officer (AO) observed that the company had low returned income and alleged that the directors were dummy directors under an entry operator. Despite the submission of financials, the AO concluded that the company was a shell company and disallowed the loan under Section 68.

b) M/s Vallabh Diamonds Private Limited:
The AO found no business activities at the address provided and noted discrepancies in the financials. The AO disallowed the loan of ?2.5 crores under Section 68, citing insufficient proof of creditworthiness.

c) M/s Pokhrana Impex Private Limited:
The AO issued a summon which was not attended. The AO noted nil income in the ITR and discrepancies in financials, concluding a lack of creditworthiness and disallowed the loan under Section 68.

d) M/s Aprateem Gems Private Limited:
The AO found multiple addresses and concluded that the onus of proving creditworthiness was not met. The loan was disallowed under Section 68.

e) M/s Indian Infotech and Software Ltd:
The party did not respond to the show cause notice. The AO concluded that the assessee failed to prove the genuineness of the loan and disallowed it under Section 68.

f) M/s Daffodil Traders Private Limited:
The AO found the address incorrect and discrepancies in financials. Based on an investigation report, the AO concluded the company was a bogus concern and disallowed the loan under Section 68.

g) M/s Baba Bhoothnath Nirman Private Limited:
The AO noted low returned income and dummy directors under an entry operator. Based on an investigation report, the AO concluded the company was a shell company and disallowed the loan under Section 68.

Appellant's Arguments:
The appellant argued that the loans were genuine, supported by confirmations, bank statements, and financials. They contended that the AO's reliance on statements made by third parties without cross-examination was unjust. They cited various judgments supporting the genuineness of transactions when identity, creditworthiness, and genuineness are proven.

Tribunal's Findings:
The Tribunal observed that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the transactions. The loans were received through banking channels, and the parties were traceable with substantial reserves. The AO's rejection of PAN and MCA records was deemed unreasonable. The Tribunal concluded that the assessee had fulfilled the criteria under Section 68 and allowed the appeal.

2. Disallowance of Interest Expenditure under Section 69C:
The AO disallowed interest expenditure of ?13,85,475/- related to the unsecured loans, treating them as sham transactions.

Appellant's Arguments:
The appellant argued that the interest was paid on genuine loans, with TDS duly deducted. They contended that the AO's disallowance was based on assumptions and lacked concrete evidence.

Tribunal's Findings:
The Tribunal noted that the interest was paid through banking channels and the loans were utilized for business purposes. The disallowance was based on presumptions without substantial evidence. The Tribunal allowed the appeal, deleting the disallowance of interest expenditure.

Conclusion:
The Tribunal allowed the appeal, concluding that the unsecured loans and related interest expenditure were genuine and fulfilled the criteria under Sections 68 and 69C of the Income Tax Act, 1961. The additions made by the AO were deleted.

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