2022 (11) TMI 7 - AT - Income Tax

Unexplained credit u/s 68 - unsecured loans received by the assessee - HELD THAT - DR only submitted that the lender company did not return any income for the last four years which means that there was no activity going on and that even the inspector did not find sign board of the lender company at the given address. However, the above submissions of the ld. DR have been proved to be without merits. As noted above, not only the lender company responded to the notices issued u/s 133 of the Act but also the director of the said company appeared in response to notice u/s 131 of the Act, even the inspector also met the director cum employee of the lender company at the given address. The assessee has duly proved not only the identity, creditworthiness of the lender company but also the genuineness of the transaction by way of demonstrating about the running account of the assessee with the said company and that the total loan liability of the assessee company during the year being decreased. We do not find justification on the part of the lower authorities in making the impugned additions and the same are accordingly ordered to be deleted. Appeal of the assessee stands allowed.

Issues:
1. Addition of unsecured loans treated as unexplained credit under section 68 of the Income Tax Act.
2. Disallowance of interest paid on the loan amount.

Analysis:

Issue 1: Addition of Unsecured Loans
The appellant contested the addition of Rs.4,73,20,190 of unsecured loans received, treated as unexplained credit under section 68 of the Act. The Assessing Officer raised concerns regarding loans from de-listed shell companies. Despite the lender being a Non-Banking Financial Company (NBFC) with a registered director, the Assessing Officer doubted the creditor's credibility due to low income. The appellant provided details, but the Assessing Officer deemed the creditor's credibility questionable, leading to the addition. The CIT(A) upheld this decision.

Analysis Continued:
The appellant argued that the Assessing Officer's assumption of loans from shell companies was incorrect, emphasizing the lender's NBFC status and relationship with the appellant. The appellant highlighted the lender's turnover, reserves, and net worth, crucial for an NBFC's license maintenance. The appellant demonstrated running accounts and substantial repayments, disproving the Assessing Officer's doubts. Despite the lender's high income in previous years, the Assessing Officer's suspicions persisted. The appellant's evidence, including responses to official notices and inspector visits, refuted doubts on identity, creditworthiness, and transaction genuineness.

Issue 1 Conclusion:
The Tribunal found the lower authorities unjustified in the additions, ordering their deletion. The appellant's appeal against the addition of unsecured loans was allowed.

Issue 2: Disallowance of Interest Paid
The appellant also contested the disallowance of interest amounting to Rs.1,30,12,424 paid on the loan. The Assessing Officer's doubts on the loan's credibility led to this disallowance, which the CIT(A) upheld.

Issue 2 Conclusion:
Given the deletion of the loan addition, the disallowance of interest paid on the loan was also deemed unjustified. The appeal on the disallowance of interest was allowed as well.

Final Verdict:
The Tribunal allowed the appellant's appeal, overturning the additions of unsecured loans and the disallowance of interest paid. The judgment favored the appellant, emphasizing the lender's credibility and the genuine nature of the transactions.

This detailed analysis covers the issues of addition of unsecured loans and disallowance of interest, providing a comprehensive understanding of the judgment's key points and legal reasoning.

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