2023 (8) TMI 1065 - AT - Income Tax

Addition on account of unsecured loan - Addition of unsecured loans, merely on the basis of the statement of Rajendra Jain entry provider - CIT(A) upheld the addition of unsecured loan as well as disallowance of interest expense by holding that to prove the genuineness of unsecured loan it is the duty of assessee as mandated u/s 68 to prove the identity, creditworthiness and genuineness of such transactions - HELD THAT - We find that in response to the show cause notice, the assessee furnished loan confirmation, PAN, bank statement along with ITR of lenders. We further find that assessing officer in order to verify the genuineness of such loan transactions issued notice u/s 133(6), such notice was duly served upon both the lenders. Both the lenders filed their respective reply. AO recorded that complete details as desired by him was not furnished. AO by referring the modus operandi alleged entry provider treated the loan transaction as accommodation entry and also disallowed the interest expenses. We find that before Ld. CIT(A) the assessee made similar submissions as argued before us. CIT(A) neither verified the repayment of loan nor sought any remand report from Assessing Officer. Such evidence is self-sufficient to prove the facts that the loan amount alongwith interest was repaid. We find that assessee placed on record copy of their bank statements, reflecting the repayment of loans on 22.03.2016. We find that in the case of Ayachi Chandershekhar Narsangi 2013 (12) TMI 372 - GUJARAT HIGH COURT held that when the department has accepted repayment of loan in subsequent year and no addition was to be made on account of loan. We find that such plea of repayment of loan was not raised for the first time before Tribunal, rather categorically contended before ld CIT(A) as well. We find that repayment of loan was made much before passing of assessment order. The assessing officer passed assessment order on 26.12.2016, however, the loan with current year interest was repaid on 22.03.2016. No evidence was brought on record if receipt of loan was circulated transaction. Decided in favour of assessee.

Summary

Issues Involved:
1. Addition on account of unsecured loan of Rs. 1,50,00,000/-
2. Addition on account of interest expenditure on loan of Rs. 7,18,581/-
3. Miscellaneous grounds of appeal.

Summary:

1. Addition on account of unsecured loan of Rs. 1,50,00,000/-:
The assessee contested the addition of Rs. 1,50,00,000/- made by the Assessing Officer (AO) and sustained by the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the loans were genuine and supported by complete particulars and evidence. The AO had treated the loans as bogus based on the statement of Rajendra Jain, which was later retracted. The Tribunal noted that the assessee had provided loan confirmations, PAN details, bank statements, and income tax returns of the lenders. The AO's rejection of the assessee's evidence was based on the lenders' alleged lack of creditworthiness and their association with Rajendra Jain, who was involved in providing accommodation entries. The Tribunal found that the assessee had repaid the loans in subsequent years, which was not disputed by the Department. Citing judicial precedents, the Tribunal held that the repayment of loans in subsequent years indicated the genuineness of the transactions. Consequently, the addition of Rs. 1,50,00,000/- was deleted.

2. Addition on account of interest expenditure on loan of Rs. 7,18,581/-:
The interest expenditure of Rs. 7,18,581/- was disallowed by the AO as it was related to the alleged bogus loans. The CIT(A) upheld this disallowance. The Tribunal, however, noted that the interest was paid through banking channels and tax was deducted at source. Since the primary addition of Rs. 1,50,00,000/- was deleted, the related disallowance of interest expenditure was also deleted.

3. Miscellaneous:
The assessee's appeal included a general ground to add, alter, or vary any grounds of appeal. However, since the primary issues were resolved in favor of the assessee, this ground became academic and was not adjudicated.

Conclusion:
The Tribunal allowed the appeal of the assessee, deleting both the addition of Rs. 1,50,00,000/- on account of unsecured loans and the disallowance of Rs. 7,18,581/- on account of interest expenditure. The judgment emphasized the importance of providing cross-examination opportunities and the relevance of loan repayment in subsequent years as evidence of genuine transactions.