2023 (8) TMI 1275 - AT - Income Tax

Revision u/s 263 - assessee had utilized the unsecured loans for non business purpose and interest paid on the same has been claimed as business expenses - HELD THAT - As perused the copy of notice u/s 142(1) issued by the AO vide which various details in respect of the unsecured loan reflected in the balance sheet was called from the assessee. In response the assessee has furnished name and address of the unsecured loans creditors, their PAN no. and amount of unsecured loans taken during the year along with copies of confirmation of loan account and copies of income tax return filed by the lenders, their bank statement and their ledger account as placed in the paper book by the assessee. Ld. Counsel has demonstrated from the copy of various documents placed in the paper book as referred above that assessee has provided the complete details of unsecured loan obtained by the assessee during the year under consideration. However, we have find that regarding utilization of the loans the assessee has only stated that the loans were utilized for import of goods. Assessee has not provided any other relevant material to demonstrate that unsecured loans were utilized for import of goods - AO has not verify the utilization of unsecured loan for the business purpose. Therefore, the order of the PCIT passed u/s 263 of the Act is sustained to the limited extent of verification of the claim of the assessee with respect to utilization of unsecured loan for business purpose. Accordingly, the appeal of the assessee is partly allowed.

Summary

Issues:
The judgment involves the invocation of Section 263 of the Income Tax Act, 1961 by the Principal Commissioner of Income Tax against the assessment order for the assessment year 2018-19, based on issues related to unsecured loans and their utilization for business purposes.

Summary:

Issue 1: Invocation of Section 263 of the Income Tax Act
The assessee appealed against the order passed by the Principal Commissioner of Income Tax invoking Section 263 of the Income Tax Act, claiming it to be erroneous and prejudicial to the revenue. The initial assessment accepted the returned income but was later scrutinized for unsecured loans and utilization issues. The Commissioner observed discrepancies in the utilization of unsecured loans for non-business purposes, leading to the conclusion that interest expenses claimed were not justifiable as business expenses.

Issue 2: Verification of Unsecured Loans Utilization
The Principal Commissioner directed the Assessing Officer to frame a denovo assessment due to the inadequacy of verification regarding the utilization of unsecured loans for business purposes by the assessee. The appellant submitted details during the appellate proceedings, including documents supporting the utilization of loans for importing goods. However, the Departmental Representative argued that there was a lack of evidence regarding the loan utilization for importing goods.

Judgment:
Upon review, it was found that while the assessee provided complete details of the unsecured loans obtained, there was a lack of substantial evidence demonstrating the utilization of loans for business purposes, specifically for importing goods. The Assessing Officer had not adequately verified this aspect, leading to the sustenance of the Principal Commissioner's order under Section 263 for further verification. Consequently, the appeal was partly allowed, subject to the condition of verifying the claim regarding the utilization of unsecured loans for business purposes.

Conclusion:
The appeal filed by the assessee was partly allowed, emphasizing the importance of verifying the utilization of unsecured loans for business purposes to ensure compliance with the Income Tax Act.