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2023 (12) TMI 929 - AT - Income TaxAddition u/s 68 - unsecured loans raised by the assessee from nine different entities - non-appearance by the lenders in response to summons - As per AO assessee has failed to produce these parties despite specifically called upon to do so by issuing various communications by the AO - HELD THAT - Undisputedly the assessee has raised loans from eight parties aggregating to Rs. 3,95,00,000/-. As per the direction of the ld. AO, the assessee filed all the necessary evidences comprising addresses, names, PANs, Bank statements, loan confirmations, details of Directors, financials of the lenders etc. Besides we note that the notices issued under section 133(6) of the Act to all lenders were also responded by the parties confirming the transactions by filing the necessary evidences. In our opinion the failure of the loan creditors to make personal appearance is not a ground to hold that the transactions were not genuine and/or the creditworthiness of the loan creditors was not proved. We have also examined the documents filed before us and find that these companies had sources to advance the money to the assessee. We take note of the DR argument that no interest has been given on these loans, which has been controverted by the ld. A.R. by placing necessary evidences before the Bench, which showed that interest has been given and TDS has duly been deducted therefrom. We also observe that these loans were repaid in the subsequent years. We observe that the assessee had submitted the documents required to establish the genuineness of the transactions and in respect of creditworthiness submitted the copies of income tax return and their financial statements etc. AO has not brought any adverse finding based on such documents filed by the assessee. We are of the considered view that the order passed by the ld. CIT(Appeals) is well reasoned order which has been passed after taking into account all the aspects of the matter. Moreover, mere non-appearance by the lenders in response to summons would not make these transactions as non-genuine as has been held by the Hon ble Apex Court in the case of CIT Vs Orissa Corporation Pvt. Limited 1986 (3) TMI 3 - SUPREME COURT As decided in Rohini Builders 2001 (3) TMI 9 - GUJARAT HIGH COURT phraseology of section 68 is clear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In this, case the legislative mandate is not in terms of the words shall be charged to income-tax as the income of the assessee of that previous year . The Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word may and not shall . Thus the un satisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee as held by the Supreme Court in the case of CIT v. Smt. P. K. Noorjahan 1997 (1) TMI 6 - SUPREME COURT - Decided against revenue. Cessation of liability u/s 41(1) addition was made u/s 68 - HELD THAT - As we find that loan taken from M/S Knavsukh Trading Pvt. Ltd in the earlier year has been added u/s 68 of the Act which was rightly deleted by the ld CIT(A) on the ground that loan was not taken in the current year. We also note that the said lender s name was struck off from MSC and AO simplicitor held that liability on account of loan has ceased but CIT(A) correctly adjudicated the issue by holding that mere removal of name of the lender from MCA would not absolve the assessee from the liability to repay the loan. It was also held by CIT(A) that provisions of section 41(1) were not applicable to the instant case. Considering these facts and circumstances we are inclined to uphold the order of ld CIT(A) by dismissing the appeal of the revenue. Addition of interest paid on the unsecured loans - Since we have already allowed the appeal of the assessee by holding that the unsecured loans were genuine and therefore consequentially, the interest paid on the said unsecured loans during the year is also allowable. Decided in favour of assesee.
Issues Involved:
1. Deletion of addition of Rs. 3,95,00,000/- under section 68 of the Income Tax Act for A.Y. 2016-17. 2. Deletion of addition of Rs. 35,90,876/- under section 41(1) of the Income Tax Act for A.Y. 2017-18. 3. Deletion of addition of Rs. 48,14,701/- by rejecting interest paid on unsecured loans for A.Y. 2017-18. Summary: Issue 1: Deletion of addition of Rs. 3,95,00,000/- under section 68 for A.Y. 2016-17 The Tribunal examined the deletion of the addition of Rs. 3,95,00,000/- made by the Assessing Officer (AO) under section 68 of the Income Tax Act, 1961. The AO had added the unsecured loans taken by the assessee from nine different entities, questioning the identity, genuineness, and creditworthiness of the loan creditors. Despite the AO issuing notices and summons under sections 133(6) and 131, the creditors failed to appear for personal examination. The assessee, however, provided necessary documents such as income tax returns, loan confirmations, and bank statements to substantiate the transactions. The CIT(A) allowed the appeal, citing judicial precedents that non-appearance of loan creditors does not automatically render the transactions non-genuine. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee had discharged its burden of proof, and the AO did not provide any adverse findings against the submitted documents. Issue 2: Deletion of addition of Rs. 35,90,876/- under section 41(1) for A.Y. 2017-18 The AO observed that a loan from M/S Knavsukh Trading Pvt. Ltd. was non-existent as the company had been struck off by the MCA, and thus, the liability had ceased under section 41(1). However, the addition was made under section 68. The CIT(A) found that the loan was from a previous year and not raised during the current year, making section 68 inapplicable. The CIT(A) also held that the mere striking off of the lender's name does not imply cessation of liability. The Tribunal upheld the CIT(A)'s decision, agreeing that section 41(1) was not applicable in this case. Issue 3: Deletion of addition of Rs. 48,14,701/- by rejecting interest paid on unsecured loans for A.Y. 2017-18 The AO rejected the interest paid on unsecured loans of Rs. 3,95,00,000/- raised in A.Y. 2016-17. Since the Tribunal had already upheld the genuineness of these loans, it consequentially allowed the interest paid on them. The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision to allow the interest deduction. Conclusion: The Tribunal dismissed both appeals of the Revenue, upholding the CIT(A)'s decisions on all issues. The order was pronounced on 5th December 2023.
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