2021 (6) TMI 211 - AT - Income Tax

Unexplained cash credit u/s 68 - assessee obtained from dubious companies providing accommodation entries and having no justified financial for lending such money - grievance of the assessing officer is that these companies do not have substantial income and hence are not capable of giving loans - HELD THAT - We find that the funds position of the companies as noted by the ld.CIT(A) is quite capable of granting loans. The adverse inference drawn from the financial statement of lending companies is only a surmise by the assessing officer without making any enquiry. As in the case of Pr.CIT vs Veedhata Tower Pvt.Ltd, 2018 (4) TMI 1004 - BOMBAY HIGH COURT has held that when all the necessary details of the fund provider was available with the assessing officer, he was free to make the necessary enquiry and addition under section 68 in the hands of the recipient were unjustified. Furthermore, assessee has also paid interest to the lenders. It has also deducted tax at source. Loan have been duly repaid, some part has been repaid even in the present assessment year. In these circumstances, in our considered opinion assessee has discharged the onus. AO has not brought on record any cogent material to make the addition as unproved cash credit. Hence, the addition made by the assessing officer is not sustainable. No infirmity in the order of Ld.CIT(A) regarding deletion of addition on account of loan. Accordingly, we are uphold the same. Addition on account of deduction claimed by the assessee for interest payment on unexplained unsecured loan from dubious lenders - Since, we have already held that addition of loan as unexplained credit is not sustainable, the disallowances of interest thereon, on the same reasoning is liable to be deleted. Hence, we uphold the order of the Ld.CIT(A) on the issue also. Revenue appeal dismissed.

Issues Involved:
1. Deletion of addition on account of unexplained cash credit under Section 68 of the Income Tax Act.
2. Deletion of addition on account of deduction claimed for interest payment on unexplained unsecured loans.

Detailed Analysis:

Issue 1: Deletion of Addition on Account of Unexplained Cash Credit under Section 68

Facts and Findings:
The Assessing Officer (AO) observed that the assessee had shown unsecured loans from various parties totaling ?16,54,00,000/-. The AO asked the assessee to furnish details of these loans, including confirmations and interest paid. The assessee provided a list of 22 parties from whom loans totaling ?13,87,50,000/- were received. The AO issued notices under Section 133(6) to these parties, who complied and provided the requested details. Despite this, the AO concluded that 19 out of the 22 parties lacked sufficient creditworthiness, based on their small income and sources of funds being security premium and share capital. Consequently, the AO added ?13,10,50,000/- to the assessee's income as unexplained cash credit.

CIT(A) Decision:
Upon appeal, the CIT(A) noted that the assessee had provided comprehensive documentation to support the transactions, including:
- Ledger account confirmations
- Bank statements reflecting loans given by account payee cheques
- Financial statements of lenders
- Copies of acknowledgment of Return of Income

The CIT(A) found that the assessee had adequately proved the identity, genuineness, and creditworthiness of the lenders. The CIT(A) emphasized that the AO had issued notices under Section 133(6), to which all parties had responded. The CIT(A) criticized the AO for not conducting further inquiries if doubts persisted and held that the AO's addition was based on suspicion and presumption without any adverse findings. Thus, the CIT(A) directed the deletion of the addition of ?13,10,50,000/-.

Tribunal's Analysis:
The Tribunal upheld the CIT(A)'s decision, noting that the assessee had submitted:
- Confirmation from lenders
- Bank statements of lenders
- Financial statements of lenders
- Copies of acknowledgment of Return of Income
- Company master data from the MCA website
- Statement of loan repayment

The Tribunal observed that the AO had not brought any cogent material on record to dispute the genuineness of the transactions. The Tribunal found that the identity of the lenders was proven, and the transactions were conducted through banking channels. The Tribunal also noted that the AO's adverse inferences were based on surmises without any substantial inquiry. Citing precedents, the Tribunal concluded that the addition made by the AO was not sustainable.

Issue 2: Deletion of Addition on Account of Deduction Claimed for Interest Payment on Unexplained Unsecured Loans

Facts and Findings:
The AO disallowed the interest expenditure of ?69,10,197/- on the grounds that the loans were not for business purposes. The assessee argued that the interest was paid on loans taken for business purposes, and the interest payments were duly confirmed and credited to the lenders' profit and loss accounts.

CIT(A) Decision:
The CIT(A) noted that the loans were taken for business purposes and that the interest payments were genuine, as they were paid after deducting tax at source and shown as income by the lender parties. The CIT(A) directed the deletion of the disallowance of ?69,10,197/-.

Tribunal's Analysis:
The Tribunal upheld the CIT(A)'s decision, stating that since the loans were found to be genuine, the interest paid on these loans was also genuine. The Tribunal noted that the interest payments were made after deducting tax at source and were reflected in the lenders' income. The Tribunal concluded that the disallowance of interest was not justified, as the addition of loans as unexplained credit was not sustainable.

Conclusion:
The Tribunal dismissed the appeal filed by the Revenue, upholding the CIT(A)'s decisions to delete the additions on account of unexplained cash credit and disallowance of interest payments. The Tribunal emphasized that the assessee had discharged its onus of proving the identity, genuineness, and creditworthiness of the lenders, and the AO had not provided any substantial evidence to dispute the transactions.

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