2021 (10) TMI 1006 - AT - Income Tax

Unexplained credit u/s. 68 - addition has made by the AO owing to non-production of principle officer of the 9 entities who have lend the monies to the assessee - assessee argued for non issue of summons - HELD THAT - We find that the assessee has given the new addresses and requested the AO to send the summons u/s. 131 to the new address which the AO failed to do. Having failed to issue the summons and making the enquiries at the new address despite having the information provided to the AO by the assessee, Assessing Officer made the addition, holding that the Directors of the companies have failed to attend for recording of the statement. CIT(A) issued summons which have been duly complied by the Principle Officer of the loan parties and duly recorded the statement. The facts of recording of the statement and the compliance made has also been conveyed to the Assessing Officer who has not objected to the proceedings before the ld. CIT(A). Hence, in view of the undisputed facts on the record with regard to proving of the identity, creditworthiness, genuineness of the loan parties, the statement recorded by the ld. CIT(A), the turnover of the companies the profits earned thereof, the position of the reserves surplus available with the lenders, we hereby decline to interfere with the well reasoned order of the ld. CIT(A). Accordingly, the interest disallowed by the Assessing Officer on account of interest expenses claimed by the assessee is also directed to be deleted. - Decided against revenue.

Issues Involved:
1. Deletion of addition of ?8,48,00,000/- made by the AO on account of unexplained credit under Section 68 of the Income Tax Act, 1961.
2. Deletion of addition of ?12,59,870/- made by the AO on account of disallowance of interest expenses.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?8,48,00,000/- Under Section 68 of the Income Tax Act, 1961:

The revenue challenged the deletion of ?8,48,00,000/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961, which pertained to unexplained unsecured loans from nine parties. The AO's addition was based on the non-production of the principal officers of the entities that lent the monies to the assessee.

The assessee provided various documents to prove the genuineness of the loan, including:
- Company Master Details from the Ministry of Corporate Affairs
- Copy of PAN details of the company
- Income Tax Return Acknowledgement
- Confirmation containing all the details of the amount invested
- Copies of Audited Accounts
- Bank statement reflecting the relevant transaction

The AO, however, held that the creditworthiness of the creditors was not proven, as the entities appeared to be entry operators rather than genuine lenders, citing the nature of their bank transactions. The AO emphasized that the onus was on the assessee to prove the sources of the credits.

During the proceedings before the First Appellate Authority, the CIT(A) issued summons under Section 131 to the principal officers of the loan parties. Several directors and representatives attended and provided detailed statements regarding the loans, confirming the genuineness and creditworthiness of the transactions. The CIT(A) noted that the companies had significant reserves and surplus as of 1st April 2013 and that the loans were repaid, with interest paid regularly after deducting the requisite tax at source.

The CIT(A) concluded that the creditworthiness and genuineness of the transactions were established, as evidenced by the companies' financial positions and the absence of cash deposits in their bank statements. The CIT(A) also noted the presence of a Deputy Commissioner of Income Tax during the proceedings, who confirmed the examination of the directors and authorized representatives.

The Tribunal found that the AO failed to issue summons to the new addresses provided by the assessee and did not make necessary inquiries. The CIT(A) issued summons, which were duly complied with, and the statements recorded were conveyed to the AO, who did not object to the proceedings.

Based on the evidence and the statements recorded, the Tribunal upheld the CIT(A)'s decision, confirming the identity, creditworthiness, and genuineness of the loan parties, and declined to interfere with the well-reasoned order of the CIT(A).

2. Deletion of Addition of ?12,59,870/- on Account of Disallowance of Interest Expenses:

The AO disallowed the interest expenses claimed by the assessee amounting to ?12,59,870/-. The CIT(A) directed the deletion of this disallowance, and the Tribunal upheld this decision, aligning with the findings on the genuineness and creditworthiness of the loans.

Conclusion:

The appeal of the revenue was dismissed, and the Tribunal upheld the CIT(A)'s order, confirming the deletion of the addition of ?8,48,00,000/- under Section 68 and the disallowance of interest expenses amounting to ?12,59,870/-. The judgment pronounced in the open court on 13/10/2021 affirmed the findings regarding the identity, creditworthiness, and genuineness of the loan transactions.

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