2022 (6) TMI 185 - AT - Income Tax

Addition u/s 68 - Unsecured loans - proportionate disallowance of interest - CIT(A) had deleted the entire addition made u/s. 68 of the Act and correspondingly deleted the disallowance of interest paid on such loans - HELD THAT - CIT(A) had granted relief to the assessee based on the remand report of the ld. AO by categorically stating that assessee had proved all the three necessary ingredients of Section 68 of the Act, viz., identity of loan creditors, genuineness of the transactions and creditworthiness of the loan creditors in respect of loans received during the year under consideration. Accordingly, the ld. CIT(A) had deleted the entire addition made u/s. 68 of the Act and correspondingly deleted the disallowance of interest paid on such loans. Since, the ld. AO in his remand report had categorically admitted the fact that fresh loans received during the year was only Rs. 30,00,000/-, the Revenue ought not to have challenged the addition made u/s. 68 of the Act in respect of opening balance of loans. Hon'ble Madras High Court in the case of B Jayalakshmi 2018 (8) TMI 208 - MADRAS HIGH COURT wherein it was held that where the Commissioner (Appeals) on the basis of remand report of Assessing Officer allowed the claim of the assessee, revenue was not entitled to maintain an appeal before the Tribunal against said order of Commissioner (Appeals). Also appeal of the Revenue would be liable to be dismissed on the ground of low tax effect itself as not maintainable. Apart from this, we also find that assessee had duly proved the three necessary ingredients of Section 68 of the Act in respect of loans received during the year. The ld. CIT(A) had also granted relief to the assessee on merits and categorically held that no addition u/s. 68 of the Act could survive in the instant case. This finding of the ld. CIT(A) had not been controverted by the Revenue before us. Hence, even on merits, we do not find any infirmity in the order of the ld. CIT(A) granting relief to the assessee. Hence, appeal of the Revenue is dismissed.

Summary

Issues:
Appeal against addition of loans under section 68 of the Income Tax Act for A.Y. 2010-11, 2011-12 & 2013-14.

Issue 1: A.Y. 2010-11
The Revenue challenged the addition of loans under section 68 of the Act and the disallowance of interest. The Assessing Officer (AO) made an addition towards loans and disallowed interest. However, during the first appellate proceedings, the AO confirmed that fresh loans received were only Rs. 30,00,000, and the remaining amount represented the opening balance. The Commissioner of Income Tax (Appeals) held that the assessee proved the necessary ingredients of Section 68, leading to the deletion of the entire addition and the interest disallowance. The Revenue's challenge was based on the tax effect, but the Tribunal found that the appeal fell within the low tax effect limit. The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision based on merits and the remand report.

Issue 2: A.Y. 2011-12
The facts for this year were identical to A.Y. 2010-11, with no fresh loans received by the assessee. The interest disallowance made on opening balance loans also fell within the low tax effect limit. The CIT(A) granted relief to the assessee on both merits and based on the remand report. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeal.

Issue 3: A.Y. 2013-14
The AO confirmed that the total addition made in the assessment was Rs. 70,15,014, falling within the low tax effect limit. Despite an error in the appeal mentioning a higher figure, the correct amount was confirmed by the Principal Commissioner of Income Tax. The Tribunal dismissed the appeal of the Revenue based on the low tax effect circular. The Revenue was given the liberty to file a Miscellaneous Application if they could prove that the appeals did not fall within the low tax effect limit.

In conclusion, the Tribunal dismissed all appeals of the Revenue for A.Y. 2010-11, 2011-12, and 2013-14, based on the findings of the CIT(A) and the low tax effect limit as confirmed by the AO and the Principal Commissioner of Income Tax.