2022 (12) TMI 536 - AT - Income Tax

Disallowance of interest on account of unsecured loans - unsecured loan u/s. 68 - assessee to avail the scheme of direct taxes VSV Act 2020 - HELD THAT - It is clear that the impugned unsecured loans were taken in A.Y. 2010-11 i.e. A.Y. 2009-10 and not during the year under consideration. It is worthwhile to note that in A.Y. 2009-10 these loans were accepted as genuine but since under the VSV Act 2020. The assessee had to settle the dispute in respect of the entire amount, therefore, the dispute relating the unsecured loans taken by the assessee has been settled under the VSV Act, 2020 which also included the impugned loans whose genuineness had already been accepted in earlier assessment years As in our considered opinion the CIT(A) could not have imputed the surrender under the VSV Act, 2020 and sustained the impugned disallowance of interest which was not part of the settlement of dispute under the VSV Act, 2020. Considering the facts of the case in totality in the light of the discussion herein above we direct the AO to delete the impugned disallowances of interest from the captioned assessment years.

Summary

Issues:
Four separate appeals against CIT(A) orders for A.Y. 2011-12, 2012-13, 2014-15, and 2015-16; Disallowance of interest on unsecured loans from specific parties; Interpretation of Direct Tax Vivad Se Vishwas Act 2020.

Analysis:
The Appellate Tribunal ITAT Delhi considered four separate appeals by the assessee against CIT(A) orders for different assessment years. The Tribunal decided to address all appeals together due to common grievances and identical underlying facts. The focus was on the assessment year 2011-12 for the disposal of the appeals. The case involved a search and seizure operation resulting in an assessed income different from the returned loss. Specifically, Rs. 50 lakhs were added as an unsecured loan under section 68 of the Act, with corresponding interest disallowances from various parties totaling Rs. 15,88,548. The CIT(A) partially sustained the disallowance of interest on loans from two specific parties, citing issues with the genuineness of the loans.

The CIT(A) justified the disallowance of interest on certain loans due to the assessee withdrawing an appeal related to those loans under the Direct Tax Vivad Se Vishwas Act 2020. However, the Tribunal noted that loans considered genuine in earlier assessment years were now disputed due to the VSV Act settlement. The Tribunal highlighted provisions from the VSV Act and a CBDT circular clarifying that declarations under the Act should not be construed as accepting the tax position. Therefore, the CIT(A) was deemed incorrect in attributing the VSV Act settlement to the disallowance of interest not covered by the settlement.

Ultimately, the Tribunal directed the Assessing Officer to delete the disallowed interest amounts from the assessment years in question, as they were not part of the VSV Act settlement. Consequently, the appeals were allowed, and the decision was pronounced in open court on 24.11.2022.