2022 (6) TMI 830 - AT - Income Tax

Reopening of assessment u/s 147 - addition u/s 68 - unsecured loan creditor - HELD THAT - Assessee has taken unsecured loan from M/s. Navkar Diamonds and paid relevant interest to them. AO based on the information from investigation wing, reopened the assessment and based on the statement given by Shri Bhanwarlal Jain he made certain enquiries before the assessee as well as unsecured loan creditor by issuing relevant notices and came to the conclusion that this transaction is accommodation entry and assessee has not proved the genuineness and creditworthiness of the transactions. As relying on M/S.INDRAVADAN HANJARIMAL JAIN, VERSUS ACIT 31 (2) , KAUTILYA BHAVAN, BANDRA KURLA COMPLEX, MUMBAI 2021 (9) TMI 1396 - ITAT MUMBAI Assessing Officer has issued notice u/s.133(6) of the Act and received the response. Therefore, we are inclined to set-aside the order of the Ld.CIT(A) and direct the AO to delete the addition. - Decided in favour of assessee.

Issues Involved:
1. Reopening of assessment under section 148 of the Income Tax Act.
2. Addition of unsecured loan as unexplained cash credit under section 68 of the Income Tax Act.
3. Disallowance of interest expenditure on unsecured loan.
4. Penalty under section 271(1)(c) of the Income Tax Act.
5. Interest under section 234B of the Income Tax Act.

Detailed Analysis:

1. Reopening of Assessment under Section 148 of the Income Tax Act:
The assessee contested the reopening of the assessment, arguing that all relevant information was provided during the original assessment. The CIT(A) upheld the reopening, citing the Supreme Court's decision in Asst. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. The CIT(A) noted that the assessment was reopened based on specific information from the DGIT (Investigation) indicating that the assessee had received accommodation entries from entities controlled by Shri Bhanwarlal Jain. The CIT(A) emphasized that the AO had a valid reason to believe that income had escaped assessment, and the reopening was justified.

2. Addition of Unsecured Loan as Unexplained Cash Credit under Section 68:
The AO added ?25 Lakhs as unexplained cash credit, arguing that the assessee failed to prove the identity, genuineness, and creditworthiness of the loan from M/s. Navkar Diamonds. The CIT(A) sustained this addition, relying on the information from the investigation wing and the statement of Shri Bhanwarlal Jain, which indicated that the loan was an accommodation entry. The ITAT, however, reversed this decision, noting that the assessee had provided sufficient evidence, including ITRs, balance sheets, and bank statements, to prove the genuineness of the loan. The ITAT cited several cases, including M/s. Pabal Housing Pvt. Ltd. vs. DCIT, where similar additions were deleted due to lack of further investigation by the AO.

3. Disallowance of Interest Expenditure on Unsecured Loan:
The AO disallowed ?64,932/- as interest expenditure on the unsecured loan, treating it as non-genuine. The CIT(A) upheld this disallowance. The ITAT, however, allowed the appeal, stating that since the loan itself was genuine, the interest expenditure should also be allowed. The ITAT referred to the case of Shri Sumit J. Jain vs. ACIT, where similar disallowances were deleted.

4. Penalty under Section 271(1)(c):
The penalty under section 271(1)(c) was upheld by the CIT(A), but the ITAT did not specifically address this issue in the detailed analysis, focusing instead on the genuineness of the loan and interest disallowance.

5. Interest under Section 234B:
The CIT(A) upheld the interest under section 234B, but the ITAT's decision to allow the appeal on the primary issues implies that the interest under section 234B would also be affected, though this was not explicitly detailed in the judgment.

Conclusion:
The ITAT allowed the assessee's appeals, reversing the additions made by the AO and sustained by the CIT(A). The ITAT emphasized that the assessee had provided sufficient evidence to prove the genuineness of the unsecured loan and the related interest expenditure. The reopening of the assessment was deemed valid, but the primary additions under section 68 and the disallowance of interest were deleted.

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