2022 (3) TMI 247 - AT - Income Tax

Unexplained expenditure u/s. 69C - Addition confirmed on non-traceability of the suppliers - CIT-A deleted the addition - HELD THAT - We find from the impugned order that the Ld. Commissioner thoroughly examined the issue and rightly held that merely because the party was not traceable could not in itself be a reason sufficient enough to draw and adverse inference, when the transaction was visible in the books. The matter needed further enquiry on part of the A.O when the counsel had given all the details in this regard particularly when the amounts are already applied for charitable purpose. The A.O neither in assessment nor in remand report has never doubted the charitable purpose and application of funds. Hence, the contention of the revenue/department is untenable. Non-submission of the valuation report before the AO - It was duly explained by the Assessee before the ld. Commissioner that during the assessment proceedings the said valuation report was not available, therefore, the Assessee filed the same along with application u/s. 46A of the IT Rules. Even otherwise said valuation report was forwarded to the AO for remand report and had duly been considered by the AO while conducting remand proceedings. Hence, the said contention also is untenable. Resultantly, ground Nos. 1 and 2 raised in the appeal by the revenue department stands dismissed. Addition on account of loan repayment u/s. 69 - HELD THAT - We find that the ld. Commissioner while considering the issue in hand, thoroughly considered the factual position to the effect that actually the loans was received in the AYs 2009-10 and 2010-11, however, the same were repaid in the assessment year under appeal - There is no justification to invoke the provisions of section 69 of the act of repayment of loans taken earlier and the loans were duly recorded in the books of account and repayment was made through banking channel and also duly recorded in the books of account therefore, AO had wrongly applied the provisions of section 69 of the Act to the case of the Assessee. Addition of unsecured loan u/s. 68 - Assessee could not prove creditworthiness of the lenders during the assessment proceedings - HELD THAT - If the ITR was not filed by the persons who had advanced money to the Assessee then the Assessee cannot be held responsible as it was for the AO to make further inquiry and confront the Assessee. It was further observed by the ld. Commissioner, when the lenders had confirmed the nature of transactions and if the AO was not satisfied then he could have made further inquiry or ensured that action is taken in the hands of the lenders but not in the hands of the Assessee. Assessee trust had fully discharged its onus, however, the AO without making further inquiry made the addition arbitrarily in the case of the Assessee trust which is illegal. The ld. Commissioner further held that the Assessee has provided correct PAN and copy of PAN card qua Shuvam Yadav from whom the loan was received by the Assessee. Thus commissioner ultimately correctly deleted the addition by considering the facts and circumstances and evidences produced on record. -Decided against revenue.

Summary

Issues Involved:

1. Deletion of addition on account of unexplained expenditure under Section 69C of the Income Tax Act.
2. Deletion of addition on account of loan repayment under Section 69.
3. Deletion of addition on account of unsecured loan under Section 68.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Unexplained Expenditure under Section 69C:

The Revenue Department challenged the deletion of ?1,03,94,934/- added by the Assessing Officer (AO) under Section 69C of the Income Tax Act due to unexplained expenditure. The AO's addition was based on a report from the ACIT, Circle Jhunjhunu, which stated that the suppliers from whom the Assessee claimed to have purchased construction material did not exist. The Assessee responded that the suppliers were still operational and payments were made by cheque, but the AO was not convinced.

Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] considered the Assessee’s written submissions, an application under Rule 46A, and a remand report from the AO. The CIT(A) concluded that the Assessee, a charitable trust, had recorded the expenditures in its books, and the source of funds was verifiable. The CIT(A) noted that the non-traceability of suppliers alone was insufficient to draw adverse inferences, especially when the transactions were recorded in the books and applied for charitable purposes. The CIT(A) deleted the addition, and the Tribunal upheld this decision, finding no merit in the Revenue's contentions regarding non-traceability and non-submission of the valuation report during assessment proceedings.

2. Deletion of Addition on Account of Loan Repayment under Section 69:

The Revenue contended that the CIT(A) erred in deleting the addition of ?5,04,00,000/- on account of loan repayment under Section 69, arguing that the loans of ?2,94,00,000/- and ?2,99,50,000/- received from Nishyam Farms (P) Ltd. pertained to earlier assessment years (2009-10 and 2010-11, respectively).

The CIT(A) found that the loans were indeed received in the earlier years and were repaid in the assessment year under appeal. The loans had been treated as genuine in earlier appeals and by the ITAT. The CIT(A) noted that the loans were recorded in the books and repaid through banking channels. The Tribunal agreed with the CIT(A), finding no justification for invoking Section 69 for the repayment of previously accepted loans, and dismissed the Revenue's ground.

3. Deletion of Addition on Account of Unsecured Loan under Section 68:

The AO added ?21,50,000/- under Section 68, citing the Assessee’s failure to prove the creditworthiness of the lenders. The CIT(A) observed that the Assessee had received the amount through banking channels and provided bank statements, PANs, and confirmations from the lenders. The CIT(A) held that if the AO was unsatisfied, further inquiry should have been made with the lenders, not the Assessee. The Assessee had discharged its onus, and the AO's arbitrary addition was deemed illegal. The Tribunal upheld the CIT(A)'s deletion of the addition, finding no impropriety in the decision.

Conclusion:

The Tribunal dismissed the Revenue Department's appeal, upholding the CIT(A)'s deletions of the additions under Sections 69C, 69, and 68. The Tribunal found that the Assessee had adequately explained and substantiated the expenditures, loan repayments, and unsecured loans, and the AO's additions were not justified. The order was pronounced in the open court on 22/02/2022.