2023 (10) TMI 650 - AT - Income Tax

Unexplained unsecured loan u/s. 68 - AO inter-alia observed that the assessee has shown squared off unsecured loans allegedly received from an entity - bona fides of credits appearing in the books of assessee on the contours of s. 68 - CIT(A) deleted the addition - HELD THAT - We find ostensible rationale in the view taken by the CIT(A) which is backed by evidences and whole set of speaking circumstances. On the other hand, the reasonings advanced on behalf of revenue lack merits. While the transactions are shown to be impressed with commercial spirit and eventually squared up, the parties to such banking transactions are identifiable on the tax records of the department. Additions made is fundamentally flawed for another reason too i.e. assessing the gross total of all credits disregarding the fact of rotation of money and peak credit being very low in the context. The facts in the present case thus speaks for itself and there appears no need to amplify the findings of CIT(A). Without reiteration of wide ranging observations led by the CIT(A), we are convinced that the onus which lays upon the assessee to explain that the entries made are real and not fictitious, has been duly discharged. Ordinarily, it is difficult to fathom an onus tagged upon the assessee to explain the circumstances as to why third party had needed such funds so long as the transactions are embedded with commercial considerations. Furthermore, the onus towards source in the hands of borrower in relation to repayment entries qua preexisting loans is indeed onerous and can seldom be visualized. We are thus in agreement with the pith and substance of plea advanced on behalf of assessee and endorse the action of the CIT(A) in toto. Appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Deletion of addition on account of unexplained unsecured loan under Section 68 of the Income Tax Act, 1961.

Summary:

Issue 1: Deletion of Addition on Account of Unexplained Unsecured Loan under Section 68

The Revenue filed an appeal against the order of the Commissioner of Income Tax (Appeals)-III, Delhi, which deleted the addition of Rs. 47,72,95,676/- made by the Assessing Officer (AO) on account of unexplained unsecured loans under Section 68 of the Income Tax Act, 1961.

The assessee, engaged in investments and financial activities, filed its return of income for AY 2015-16. During the assessment, the AO observed unsecured loans squared off to the tune of Rs. 47,72,95,676/- from M/s. Pioneer Fincon Services Pvt. Ltd. (PFSPL). The AO alleged that PFSPL lacked the capacity to provide such credits and was used merely to route funds. Consequently, the AO added the amount as unexplained credit under Section 68.

The CIT(A) entertained additional evidence from the assessee, obtained a remand report from the AO, and concluded that the assessee had discharged its onus under Section 68. The CIT(A) noted that the transactions were through banking channels, the account was squared up within the year, and the assessee earned interest from PFSPL. The CIT(A) found that the AO failed to distinguish between repayments and loans, and the maximum outstanding at any time was Rs. 2,06,00,000/-. The CIT(A) also observed that PFSPL was regularly filing its ITRs and had been assessed under Section 143(3) for earlier years.

The Revenue, in its appeal, argued that PFSPL's bank statements indicated fund routing, and the absence of a formal loan agreement raised doubts about the genuineness of the transactions. However, the Tribunal found that the AO misinterpreted the nature of the credits, which were repayments of pre-existing loans. The Tribunal noted that the transactions were through banking channels, both parties were regularly assessed to tax, and the loans were ultimately repaid.

The Tribunal upheld the CIT(A)'s order, concluding that the assessee had explained the nature and source of the credits, and the AO's addition under Section 68 was not justified. The Tribunal dismissed the Revenue's appeal, affirming that the onus under Section 68 was duly discharged by the assessee.

Order pronounced in the open Court on 19/09/2023