2023 (12) TMI 881 - AT - Income Tax

Unexplained cash credit u/s.68 - assessee taken loan from nine parties being companies connected with an accommodation entry provider - mere submission of PAN, account number and books of accounts could not establish the creditworthiness of the parties - CIT(A) deleted addition on the basis of details/documents submitted by the assessee - HELD THAT - The assessee submitted the reply with respect to these 9 loans, submitting the ledger confirmation, their bank statements, their return of income and their balance sheet.The assessee also categorically stated that there is no material provided to the assessee, which suggests that the loans taken by the assessee are not genuine. Assessee further stated that AO has relied upon the statement of accommodation entry provider, however, neither the cross examination of the same despite request, was provided and further no material was also given by AO to show that the impugned loans are not genuine. Ld AO did not give any evidence to the assessee to show that loans are not genuine. When the assessee has discharged its initial onus, it is duty of AO to carry out necessary enquiries either 1 by issuing notice under Section 133(6) of the Act to the lenders, 2 by issuing summons to the parties, 3 by asking the assessee to produce parties or 4 by deputing the inspectors for verification, or 5 or carry out survey etc. at the premises of the lenders. AO has not conducted any enquiry with respect to all or any of the lenders. This is also when the assessee has made a written request to the ld AO to examine his evidences submitted and make inquiry. Despite this, LD AO did not conduct any inquiry. It merely stated that income shown by the parties from trading activities is a loss to offset interest income, etc. That may be the reasons for suspicion, the learned Assessing Officer should have conducted further enquiry to support his suspicion, and otherwise the suspicion merely remains suspicion. If it is without any evidence, it has no value. So We agree with the argument of the learned Authorized Representative that mere suspension without further enquiry does not take place of proof or evidence that the loans are not genuine. We agree with the arguments of DR that mere repayment of the loans subsequently does not make the original acceptance of loan as genuine. Such an argument is against the language of the provision of section 68 of the act. Criteria of identity, creditworthiness and genuineness are to be tested at the time of amount credited in the books of the assessee. All subsequent events are immaterial. Thus the order of the CIT (A) in deleting the addition under Section 68 confirmed - Decided against revenue. Interest disallowance with respect to lenders whose loans are added u/s 68 - As we find that addition u/s 68 is deleted of those parties; consequent disallowance of interest also cannot survive. Accordingly, we confirm the order of the learned CIT (A) in deleting the disallowance on account of interest. Ground no.2 of the appeal is also dismissed. Disallowance u/s 14A - HELD THAT - As we find that assessee has suo moto disallowed ₹9,60,000/-, whereas exempt income earned by the assessee is merely ₹4,60,006/-, CIT (A) has correctly deleted the disallowance following the decision of Hon'ble jurisdictional high court in M/S. NIRVED TRADERS PVT. LTD. 2019 (4) TMI 1738 - BOMBAY HIGH COURT - Thus, the learned CIT (A)‟s order deleting the disallowance under Section 14A of the Act is upheld and ground no. 3 and 4 of the appeal is dismissed.

Summary

Issues Involved:
1. Deletion of addition under Section 68 of the Income Tax Act for unexplained cash credits.
2. Disallowance of interest payments related to unsecured loans.
3. Disallowance under Section 14A read with Rule 8D concerning expenses related to exempt income.
4. Admission of additional evidence during appellate proceedings.

Summary of Judgment:

1. Deletion of Addition under Section 68:
The learned Assessing Officer (AO) challenged the deletion of an addition of Rs. 9 crores made under Section 68 of the Income Tax Act for unexplained cash credits. The AO argued that the loans were from parties operated by an accommodation entry provider and questioned the genuineness of the transactions. However, the assessee provided substantial documentary evidence, including the lenders' bank statements, income tax returns, and balance sheets, proving the identity, creditworthiness, and genuineness of the transactions. The CIT(A) and ITAT found that the AO failed to conduct necessary inquiries or provide evidence to counter the assessee's claims. The ITAT upheld the CIT(A)'s decision to delete the addition, citing a similar ruling for the assessee's case in A.Y. 2012-13, which remains binding until reversed by a higher court.

2. Disallowance of Interest Payments:
The AO disallowed interest payments of Rs. 56,29,040/- related to the loans added under Section 68 and Rs. 1,43,262/- for loans from previous years. The CIT(A) and ITAT ruled that since the addition under Section 68 was deleted, the disallowance of interest payments could not be sustained. The ITAT confirmed the deletion of the disallowance of interest payments.

3. Disallowance under Section 14A read with Rule 8D:
The AO disallowed Rs. 3,93,53,012/- under Section 14A read with Rule 8D, whereas the assessee had already disallowed Rs. 9,60,000/- suo moto. The CIT(A) restricted the disallowance to the exempt income of Rs. 4,60,006/-, following the jurisdictional High Court's decision. The ITAT upheld the CIT(A)'s decision, confirming that the disallowance cannot exceed the exempt income earned by the assessee.

4. Admission of Additional Evidence:
In a separate appeal for A.Y. 2017-18, the AO contested the CIT(A)'s admission of additional evidence and the deletion of an addition of Rs. 150 lakhs under Section 68. The CIT(A) admitted the additional evidence, citing reasonable cause for the assessee's failure to produce it earlier. The ITAT found no fault in the CIT(A)'s decision to admit the evidence and ruled that the addition could not be made for A.Y. 2017-18, as the loan was received in A.Y. 2014-15. Consequently, the ITAT dismissed the AO's appeal and directed the deletion of the addition and the related interest expenditure.

Conclusion:
The ITAT dismissed the appeals filed by the AO, upholding the CIT(A)'s decisions on all grounds, including the deletion of additions under Section 68, disallowance of interest payments, and disallowance under Section 14A. The ITAT also validated the CIT(A)'s admission of additional evidence and the subsequent deletion of the addition for A.Y. 2017-18.