2020 (12) TMI 925 - AT - Income Tax

Addition u/s.68 - unexplained cash credits and consequential disallowance of interest expenses on unsecured loans - Admission of additional evidence - HELD THAT - As perusing the additional evidences furnished by the assessee, we are of the view that all these additional evidences furnished by the assessee in respect of the 16 creditors would go to the root of the matter of the addition made in respect of these unsecured loan creditors. Thus, in the interest of justice we admit these additional evidences and restore them to the file of the Assessing Officer for denovo adjudication of the addition made in respect of these creditors as these evidences were not produced before the AO. Thus, this issue of addition towards unsecured loans and the disallowance of consequential interest thereon is restored to the file of the Assessing Officer for deciding afresh. Correct head of income - interest received from partners - treated as income from other sources or income earned in the course of the business of the assessee - HELD THAT - Department having accepted the treatment of the assessee in reducing interest from partners from work-in-progress in the immediately preceding assessment year and also in the immediately succeeding assessment year, we see no reason to reject the very same treatment given by the assessee for the interest received from the partners for the current Assessment Year i.e. A.Y. 2010-11. Therefore, applying principle of consistency we direct the Assessing Officer to delete the addition made under the head income from other sources . Ground of appeal is allowed.

Issues Involved:
1. Addition of ?48,94,662/- as unexplained cash credits under Section 68 of the Income Tax Act.
2. Disallowance of interest expenses amounting to ?3,71,809/- on unsecured loans.
3. Treatment of interest from partners amounting to ?52,22,821/- as "income from other sources" instead of business income.

Issue-wise Detailed Analysis:

1. Addition of ?48,94,662/- as Unexplained Cash Credits under Section 68 of the Income Tax Act:

The Assessing Officer (AO) observed that the assessee received unsecured loans totaling ?88,55,181/- from various parties during the assessment year. The assessee provided details for some creditors but failed to furnish complete information for 11 parties (?33,55,628/-) and provided only confirmations for 15 parties (?54,99,553/-). Consequently, the AO treated the entire amount as unexplained cash credits under Section 68. The Learned Commissioner of Income Tax (Appeals) [Ld.CIT(A)] deleted the addition for 11 creditors but sustained it for 16 creditors.

The assessee submitted additional evidence, including PAN, addresses, bank statements, confirmations, Income Tax Returns, Form-15G, and loan repayment details. The Tribunal admitted these additional evidences and restored the matter to the AO for a fresh adjudication, emphasizing the need for the AO to provide adequate opportunity to the assessee to present these evidences. Thus, Ground Nos. 1 and 2 were allowed for statistical purposes.

2. Disallowance of Interest Expenses Amounting to ?3,71,809/- on Unsecured Loans:

The disallowance of interest expenses was a consequential issue arising from the addition of unexplained cash credits. Since the Tribunal restored the issue of unexplained cash credits to the AO for a fresh adjudication, the disallowance of interest expenses was also restored for a fresh decision. The AO was directed to reconsider this issue based on the additional evidence provided by the assessee.

3. Treatment of Interest from Partners Amounting to ?52,22,821/- as "Income from Other Sources" Instead of Business Income:

The AO treated the interest received from partners as "income from other sources," arguing that the assessee was in the pre-production stage and the interest was not connected to the construction activities. The AO relied on the Supreme Court decision in M/s. Tuticorin Alkali Chemicals and Fertilizers Limited [227 ITR 172].

The assessee contended that the interest should be treated as business income and reduced from the work-in-progress (WIP). The assessee's treatment had been accepted by the revenue in the preceding (A.Y. 2009-10) and succeeding (A.Y. 2011-12) assessment years. The Tribunal noted the principle of consistency and directed the AO to delete the addition, allowing the interest to be treated as business income and reduced from WIP.

Conclusion:

The Tribunal partly allowed the appeal, restoring the issues of unexplained cash credits and disallowance of interest expenses to the AO for fresh adjudication based on additional evidence. The Tribunal also directed the AO to treat the interest from partners as business income, consistent with the treatment in other assessment years. The order was pronounced on 09.11.2020.

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