2024 (5) TMI 1499 - AT - Income Tax

Addition on account of interest on unsecured loans - HELD THAT - Even during the course of assessment proceedings the notices were issued to all the entities u/s 133(6) of the Act which were responded by the parties by filing / furnishing all the documents as desired by the AO. Therefore we find merit in the contention of the assessee when the unsecured loans were not doubted for being nongenuine in the earlier assessment years how the corresponding interest on the said loans could be added u/s 68 - CIT(A) has erred in sustaining the addition - Decided in favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

• Whether the reopening of the assessment under Section 147 read with Section 148 of the Income Tax Act was justified.
• Whether the addition of Rs. 93,40,810/- on account of interest on unsecured loans by the Assessing Officer (AO) was appropriate and supported by evidence.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Reopening of Assessment

• Relevant Legal Framework and Precedents: The reopening of an assessment is governed by Section 147 and Section 148 of the Income Tax Act, which allow the AO to reassess income if there is a reason to believe that income has escaped assessment.
• Court's Interpretation and Reasoning: The issue of reopening was not pressed by the assessee during the hearing, and thus, the tribunal dismissed this ground as not pressed.

Issue 2: Addition of Interest on Unsecured Loans

• Relevant Legal Framework and Precedents: The addition of income under Section 68 of the Income Tax Act pertains to unexplained cash credits. The AO must have a valid basis to treat loans or interest as non-genuine.
• Court's Interpretation and Reasoning: The tribunal observed that the interest of Rs. 93,40,810/- was related to loans taken in earlier assessment years, which were not questioned as non-genuine during those years. Notices issued under Section 133(6) were responded to by the parties, providing necessary documents.
• Key Evidence and Findings: The tribunal noted that the unsecured loans were not doubted in earlier assessment years, and the corresponding interest should not be added under Section 68.
• Application of Law to Facts: The tribunal applied the principle that if the loans were accepted as genuine in previous assessments, the interest on such loans could not be disallowed without new evidence.
• Treatment of Competing Arguments: The tribunal found merit in the assessee's argument that the interest should not be added since the loans were accepted as genuine in prior assessments.
• Conclusions: The tribunal concluded that the Ld. CIT(A) erred in sustaining the addition of Rs. 93,40,810/- and directed the AO to delete the addition.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "We find merit in the contention of the assessee when the unsecured loans were not doubted for being non-genuine in the earlier assessment years how the corresponding interest on the said loans could be added u/s 68 of the Act."
• Core Principles Established: The principle that interest on loans considered genuine in previous assessments should not be disallowed without substantial evidence in subsequent assessments.
• Final Determinations on Each Issue: The tribunal dismissed the issue of reopening as not pressed and allowed the appeal of the assessee regarding the addition of interest, directing the AO to delete the addition of Rs. 93,40,810/-.

In summary, the tribunal allowed the appeal of the assessee, setting aside the order of the Ld. CIT(A) concerning the addition of interest on unsecured loans, while the issue of reopening the assessment was dismissed as not pressed.