2024 (5) TMI 783 - AT - Income Tax

Unexplained cash credit u/s. 68 - interest on unsecured loan - genuineness of the unsecured loan was not proved - HELD THAT - In the statement recorded u/s. 136(6) of the Act of the lenders have accepted that they have provided unsecured loans to the assessee on interest which was duly offered in the return of income of the respective years. It was also explained that the loans were granted from the professional income salary income and post savings etc. We find that the AO has neither brought any material on record nor made any investigation/ enquiry to disprove the facts and documents furnished by the lenders and the assessee in support of the genuineness of the unsecured loan transactions. Assessee has also placed reliance on the decisionss Orchid Industries (P) Ltd. 2017 (7) TMI 613 - BOMBAY HIGH COURT and CIT v. Paradise Inland Shipping Pvt Ltd. 2017 (11) TMI 1554 - BOMBAY HIGH COURT on the proposition the addition u/s. 68 cannot be made when the assessee has placed necessary documents on record to prove the genuineness of the transaction and identity and creditworthiness of the lenders. However in the case of the assessee the AO has not brought on record any prima facie material to take contrary view without disproving the documents/evidences submitted by the assessee.Thus we find that the AO has not brought any contrary material on record to disprove the genuineness of the unsecured loan obtained by the assessee from the three parties as discussed supra in the order. Decided in favour of assessee.

Summary

Issues involved:
The issues involved in this judgment are related to the assessment order passed u/s 143(3) of the Income Tax Act, 1961 for A.Y. 2019-20. The appellant challenged the jurisdiction of the Assessing Officer, addition of unsecured loans as unexplained cash credit u/s 68 of the Act, and disallowance of interest expenses u/s 37 of the Act.

Jurisdiction of Assessing Officer:
The appellant contended that the assessment order passed u/s 143(3) by the Assessing Officer was without jurisdiction, invalid, and in violation of natural justice principles. The appellant prayed for the assessment to be deemed bad-in-law and infructuous, with the addition of Rs. 30,00,000 under section 68 to be deleted, and disallowance of interest expenses of Rs. 3,56,122 under section 37 to be deleted. The appellant also sought any other relief deemed fit.

Treatment of Unsecured Loans:
The Assessing Officer treated the unsecured loans received from three parties as unexplained cash credit u/s 68 of the Act. The AO raised concerns about the creditworthiness of the lenders based on their income and savings. However, the appellant submitted various documents to prove the genuineness of the loans, including bank statements, balance sheets, and income tax returns of the lenders. The lenders confirmed providing the loans, and it was explained that the loans were granted from professional income, salary income, and past savings. The AO did not provide any material to disprove the genuineness of the loans or the documents submitted. The appellant relied on precedents to argue that the addition u/s 68 cannot be made when necessary documents are provided to prove the genuineness of the transaction and the lenders' creditworthiness. The Tribunal found that the AO failed to bring any contrary material to disprove the genuineness of the unsecured loans, leading to the allowance of the appeal.

Disallowance of Interest Expenses:
The Assessing Officer also made a disallowance of interest expenses on the loans aggregating to Rs. 3,56,122 u/s 37 of the Act. The appellant provided evidence to support the legitimacy of the loans, including bank statements and confirmation letters from the lenders. The Tribunal found that the AO did not provide any material to disprove the genuineness of the loans or the documents submitted, leading to the disallowance being unjustified. As a result, the appeal of the assessee was allowed.