2021 (4) TMI 478 - AT - Income Tax

Disallowance on account of bogus loan - addition u/s 68 on unexplained cash credit - findings of the DGIT(Inv.) during the search that the assessee had deliberately made accommodation entry in the Profit Loss account and balance sheet - CIT- A deleted the addition - HELD THAT - CIT(Appeals) has decided the matter of controversy on the basis of the decision of Hon ble Supreme Court in the case of Lovely Exports Pvt. Ltd. 2008 (1) TMI 575 - SC ORDER , Anant Shelters Pvt. Ltd. 2012 (4) TMI 272 - ITAT MUMBAI and various decision of the Hon ble Courts mentioned above. Moreover, no law contrary to the law relied by the CIT(A) has been produced before us. The facts are not distinguishable at this stage. CIT(A) has considered the each and every aspects of the facts of the case.Taking into account, all the facts and circumstances, we are of the view that the finding of the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. - Decided in favour of assessee.

Issues Involved:
1. Deletion of disallowance on account of bogus loan.
2. Presumption of loans from unknown sources for computing profit and gains.
3. Non-application of the Supreme Court judgment in Navodaya Castle (P) Ltd. vs CIT.
4. Addition of interest expenditure on alleged bogus loans.

Issue-wise Detailed Analysis:

1. Deletion of disallowance on account of bogus loan:
The revenue contended that the CIT(A) erred in deleting the disallowance of ?2,07,15,630/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961. The Assessing Officer (AO) argued that the loans were bogus, based on the findings from the search and seizure action on Shri Bhanwarlal Jain Group, which indicated that the group provided accommodation entries. However, the CIT(A) noted that the assessee had provided substantial evidence, including PAN cards, IT return copies, bank statements, confirmations, affidavits, and audited accounts to prove the identity, creditworthiness, and genuineness of the transactions. The CIT(A) emphasized that the AO failed to conduct further independent investigations to substantiate the claim of bogus transactions and relied excessively on third-party statements without giving the assessee an opportunity to cross-examine the witnesses.

2. Presumption of loans from unknown sources for computing profit and gains:
The revenue argued that the CIT(A) incorrectly presumed that loans received from unknown sources should be considered for computing profit and gains under Section 28 of the Act. The CIT(A) refuted this by stating that the transactions were supported by documentary evidence and were routed through banking channels, thereby establishing their genuineness. The CIT(A) further referenced the principles laid down by the ITAT Mumbai in the case of Anant Shelters P Ltd., highlighting that the AO must act reasonably and base their opinion on proper appreciation of material and other attending circumstances available on record.

3. Non-application of the Supreme Court judgment in Navodaya Castle (P) Ltd. vs CIT:
The revenue criticized the CIT(A) for not applying the Supreme Court judgment in Navodaya Castle (P) Ltd. vs CIT, which held that mere possession of a certificate of incorporation and PAN was insufficient for identifying a subscriber company when material evidence showed it was a paper company. The CIT(A) countered this by stating that the AO did not provide any additional evidence to prove that the transactions were sham, fictitious, or artificial. The CIT(A) also noted that the AO did not address several valid points raised by the assessee or prove how the documents submitted by the assessee could not be considered credible.

4. Addition of interest expenditure on alleged bogus loans:
The AO disallowed the interest expenditure of ?2,16,630/- on the alleged bogus loans, arguing that the credits were given by bogus concerns floated by the Bhanwarlal Jain Group. The CIT(A) reversed this decision, stating that since the loans were treated as genuine, the interest paid on these loans should also be considered genuine. The CIT(A) directed the AO to withdraw the addition, emphasizing that the payments were made through banking channels and were duly subjected to TDS.

Conclusion:
The appellate tribunal upheld the CIT(A)'s findings, dismissing the revenue's appeal. The tribunal noted that the CIT(A) had judiciously considered all aspects of the case, including relevant judicial precedents and the substantial evidence provided by the assessee. The tribunal affirmed that the AO had failed to conduct necessary investigations and relied excessively on third-party statements without corroborative evidence. Consequently, the tribunal concluded that the CIT(A)'s decision to delete the disallowance and interest expenditure was justified and not liable to interference.

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