2021 (10) TMI 215 - AT - Income Tax

Addition u/s 68 - Unexplained unsecured loan - failure to reply to summons - whether assessee company has satisfied the three ingredients of section 68 namely (i) Identity; (ii) Genuineness; and (iii) Creditworthiness, in respect of Lenders/Creditors? - main plank on which the assessing officer made the addition was because the Lenders did not turn up before him - HELD THAT - Merely because the summons could not be served on these lenders for want of complete addresses or that they failed to comply with the summons, the loans taken by the assessee from them cannot be treated as non-genuine mere particularly when from sufficient documentary evidences furnished by the assessee. Merely because the summons could not be served on these lenders for want of complete addresses or that they failed to comply with the summons, the loans taken by the assessee from them cannot be treated as non-genuine mere particularly when from sufficient documentary evidences furnished by the assessee. AO has not brought on record any finding or report of investigation agency to establish his allegation that impugned lenders were 'paper companies' or found indulged in racket of providing 'accommodation entries'. In absence of such material, we cannot take judicial notice about unfounded allegation in respect of these Lender Companies. Hence, reasons mentioned by the assessing officer in his assessment order, is not sufficient for making the addition under section 68. both the nature and source of the lenders were fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the Lenders. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments, subsequent repayment through banking channel, were placed on assessing officer's record. Accordingly all the three conditions as required u/s 68 of the Act i.e. the identity, creditworthiness and genuineness of the transactions were placed before the assessing officer and the onus shifted to assessing officer to disprove the materials placed before him. Without doing so, the addition made by the assessing officer is based on conjectures and surmises, hence cannot be justified. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition on account of unexplained unsecured loan amounting to ?2,85,00,000.
2. Deletion of disallowance on account of vehicle expenses amounting to ?3,77,374.
3. Deletion of disallowance on account of telephone expenses amounting to ?65,719.

Issue 1: Deletion of Addition on Account of Unexplained Unsecured Loan

The Revenue challenged the deletion of an addition of ?2,85,00,000 made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961, on account of unexplained unsecured loans. The AO noted that the assessee company had received loans from 11 companies, which were suspected to be bogus based on an investigation by the Kolkata Investigation Wing. The AO found that summons could not be served to most of these companies due to incomplete addresses, and concluded that the companies were paper entities providing accommodation entries.

The assessee argued that it had provided sufficient documentary evidence to prove the identity, genuineness, and creditworthiness of the lenders, including account confirmations, Income Tax Return acknowledgments, bank statements, and audited financial statements. The assessee contended that the loans were part of the lenders' NBFC business and were repaid through banking channels.

The Tribunal noted that the AO had not pursued further inquiries with the respective AOs of the lenders, as required by the legal precedents set by the Supreme Court in the case of *CIT v. Smt. P. K. Noorjahan* and the Gujarat High Court in the case of *Dy. CIT Vs. Rohini Builders*. The Tribunal found that the assessee had discharged its burden of proof by providing sufficient evidence, and the AO's addition was based on conjectures and surmises. The Tribunal upheld the CIT(A)'s order deleting the addition.

Issue 2: Deletion of Disallowance on Account of Vehicle Expenses

The AO disallowed vehicle expenses amounting to ?3,77,374 on the ground that the assessee had not maintained a log register to distinguish between business and personal use of the vehicle. The CIT(A) deleted the disallowance, and the Revenue appealed.

The Tribunal upheld the CIT(A)'s order, noting that the AO had not provided any specific evidence to support the disallowance. The Tribunal found that the disallowance was made on mere assumptions without any concrete basis.

Issue 3: Deletion of Disallowance on Account of Telephone Expenses

The AO disallowed telephone expenses amounting to ?65,719, citing the lack of a call register to differentiate between business and personal use. The CIT(A) deleted the disallowance, and the Revenue appealed.

The Tribunal upheld the CIT(A)'s order, observing that the AO had not substantiated the disallowance with any specific evidence. The Tribunal concluded that the disallowance was made on presumptive grounds without any factual support.

Conclusion

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order in all respects. The Tribunal found that the assessee had provided sufficient evidence to prove the identity, genuineness, and creditworthiness of the lenders, and the AO's additions and disallowances were based on conjectures and assumptions without any concrete evidence. The Tribunal emphasized the importance of following legal precedents and conducting proper inquiries before making additions under Section 68 of the Income Tax Act.