2021 (3) TMI 6 - AT - Income Tax

Addition u/s 69A - Addition of bank loan liability with the income of the appellant as unexplained money - assessee maintained personal loan account - CIT(A) was of the view that the loan transaction should have been reflected in the balance sheet and non-disclosure of the same need to be treated as undisclosed liability incurred by the assessee - HELD THAT - From this observation the AO made it clear that the assessee has not shown any asset being acquired by the assessee for the amount of loss which the assessee has recorded as an item of asset in the balance sheet. Therefore, the question of taxing the asset which is not existing in the balance sheet does not arise and the AO erred in making the addition u/s 69B of the Act. Coming to the action of the Ld. CIT(A) he confirmed the addition u/s 69A of the Act treating it as unexplained money in possession of the assessee u/s 69A of the Act which is also erroneous, since the source of loan is acknowledged by the AO as from Vijaya Bank and therefore the question of unexplained money does not arise and so addition u/s. 69A of the Act is not legally sustainable. Therefore, the addition made by the authorities below on the facts and circumstances of the case is erroneous and, therefore, even though for whatever reason/over-sight the assessee had not disclosed the loan as liability in the balance sheet and since the incurring of interest on it has been disallowed being personal in nature and the source of loan is from Vijaya Bank as noted by the AO, the loan amount of ₹ 2,33,950/- cannot be taxed as it is a liability and not income, so, I am inclined to direct the deletion of ₹ 2,33,950/-.

Summary

Issues:
1. Addition of bank loan liability as undisclosed investment under section 69B of the Income Tax Act.
2. Tax treatment of the loan amount and interest expenditure in the balance sheet.

Issue 1: The primary issue in this case revolved around the addition of a bank loan liability as an undisclosed investment under section 69B of the Income Tax Act. The Assessing Officer (AO) observed that the assessee had not shown the liability in his accounts, leading to the addition of the loan amount as undisclosed investment. However, the CIT(A) disagreed with the application of section 69B and directed the AO to tax the undisclosed loan under section 69A as unexplained money. The Tribunal, upon review, found fault with both decisions, emphasizing that a liability (loan) cannot be treated as income. The Tribunal concluded that the loan amount should not be taxed and directed its deletion.

Issue 2: Another critical issue was the tax treatment of the loan amount and interest expenditure in the balance sheet. The AO noted that the assessee had paid interest on the loan but had not disclosed the liability in the balance sheet. The CIT(A) upheld the addition under section 69A, treating it as unexplained money. However, the Tribunal disagreed with this approach, highlighting that the source of the loan was acknowledged to be from a bank, eliminating the basis for treating it as unexplained money. The Tribunal concluded that the loan amount, being a liability and not income, should not be taxed. Consequently, the Tribunal partially allowed the appeal, directing the deletion of the loan amount from the tax assessment.

In summary, the judgment addressed the incorrect application of tax provisions regarding the treatment of a bank loan liability as undisclosed investment and the tax implications of the loan amount and interest expenditure in the balance sheet. The Tribunal ruled in favor of the assessee, emphasizing that a loan liability cannot be considered income and directing the deletion of the loan amount from the tax assessment.