2021 (10) TMI 24 - AT - Income Tax

Addition u/s.68 - unsecured loans - HELD THAT - From the financial status as enumerated by ld CIT(A) in the impugned order, we find that all three creditors have sufficient reserves and surplus as reflected in their audited balance sheet, hence, there is no question to doubt their creditworthiness to advance the loan to the assessee. As noted by ld CIT(A) has accepted that Shri Narendra Kumar Jain is an entry provider in Kolkata but he is not a director of above three companies. Based on the fact that Shri Narendra Kumar Jain is an entry provider, it cannot be assumed that he has managed to rout the money from the creditors to the assessee - in the absence of any specific defect being pointed out in the order of the CIT(A), we find no good reason to interfere with the order of the CIT(A), which is hereby confirmed and the grounds of appeal of the revenue are dismissed.

Summary

Issues:
- Addition of unsecured loans under section 68
- Treatment of interest payments on unsecured loans

Analysis:
1. Addition of Unsecured Loans under Section 68:
- The Assessing Officer (AO) observed that the assessee received loans from various companies, but notices sent to the creditors were returned unserved, raising doubts about the genuineness of the transactions.
- The AO treated the loans as unexplained cash credits under section 68 and added them to the assessee's income.
- The ld CIT(A) noted that during remand proceedings, notices were sent to creditors, and their responses were received. The creditors provided confirmations, bank statements, and other documents.
- The ld CIT(A) analyzed the financial position of the creditors and found that they had sufficient funds to advance the loans. He emphasized the income tax returns and reserves of the creditors to establish their creditworthiness.
- Based on the financial details provided, the ld CIT(A) concluded that the identity, creditworthiness, and genuineness of the transactions were not in doubt. Therefore, he deleted the addition made by the AO.
- The Tribunal upheld the ld CIT(A)'s decision, stating that there was no reason to doubt the creditworthiness of the creditors, especially considering the reserves and surplus reflected in their audited balance sheets.

2. Treatment of Interest Payments on Unsecured Loans:
- The AO also treated the interest paid on the unsecured loans as unexplained and added it to the assessee's income under section 68.
- The ld CIT(A) reasoned that since the addition of unsecured loans was deleted, there was no justification for treating the interest payments as unexplained.
- The Tribunal concurred with the ld CIT(A) and dismissed the appeal of the revenue, stating that there was no specific defect in the order and no reason to interfere with it.
- It was highlighted that the entry provider in Kolkata was not a director of the creditor companies, and the financial status of the creditors supported their creditworthiness, further solidifying the decision to delete the addition of interest payments.

In conclusion, the Tribunal upheld the ld CIT(A)'s decision to delete the addition of unsecured loans and interest payments, emphasizing the creditworthiness of the creditors based on their financial details and confirming that there was no valid reason to question the genuineness of the transactions.