2024 (8) TMI 680 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - bogus unsecured loan - AO added the peak credit - no satisfaction on genuineness, creditworthiness of the lenders - interest disallowed u/s 69C - HELD THAT - We find that the assessee has provided substantial evidence to establish the identity, genuineness, and creditworthiness of the loan creditors. AO's conclusions were largely based on assumptions and the principle of preponderance of human probability, without substantial evidence contradicting the assessee's claims. Assessee complied with statutory requirements, including the provision of confirmations, ID proofs, bank statements, and tax return details of the loan creditors. The repayment of loans in subsequent years further supports the genuineness of the transactions. The case of Ayachi Chandrashekhar Narsangji 2013 (12) TMI 372 - GUJARAT HIGH COURT is appropriate, wherein the Hon ble Court held that no addition should be made, if the repayment of loans is accepted by the department in subsequent years. CIT(A) has rightly noted that the AO s remand report did not provide substantial adverse comments on the identity and genuineness of the transactions. AO's reliance on the principle of human probability without concrete evidence does not warrant the additions made under sections 68 and 69C of the Act. Based on the above findings, and following the judicial precedents relied upon, we conclude that the appeal of the Revenue lacks merit and the CIT(A) s order deleting the additions under sections 68 and 69C of the Act is upheld. Revenue s grounds of appeal are, therefore, dismissed.

Summary

Issues:
- Addition of unsecured loans under section 68 of the Income Tax Act
- Treatment of interest paid on loans as unexplained expenditure under section 69C of the Act

Analysis:

Issue 1: Addition of unsecured loans under section 68 of the Income Tax Act

The case involved the assessment of an assessee-company engaged in the business of Non-Banking Finance Companies. The Assessing Officer (AO) observed that the company had taken unsecured loans from parties based in Kolkata, but notices and summonses issued to these parties remained unserved as they were found to be non-existing at the given addresses. The AO added the peak credit of these loans to the total income of the assessee under section 68 of the Act, treating the interest paid on these loans as unexplained expenditure under section 69C. The Commissioner of Income Tax (Appeals) (CIT(A)) deleted the additions, partly allowing the appeal of the assessee. The CIT(A) considered the genuineness and creditworthiness of the lenders, noting that the AO did not provide substantial adverse comments on these aspects in the remand report. The CIT(A) also highlighted that the AO's reliance on assumptions without concrete evidence did not justify the additions made. The Appellate Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee had provided substantial evidence establishing the authenticity of the transactions, including confirmations, ID proofs, and bank statements of the loan creditors. The repayment of loans in subsequent years further supported the genuineness of the transactions, as per judicial precedents cited.

Issue 2: Treatment of interest paid on loans as unexplained expenditure under section 69C of the Act

Regarding the disallowance of interest paid on the loans as unexplained expenditure under section 69C of the Act, the assessee contended that the AO's disallowance was based on assumptions and surmise. The assessee argued that the interest payments were made after complying with TDS provisions. The Authorized Representative (AR) of the assessee explained that the company had not only explained the source of the loans but also the source of the source. The AR relied on a judgment of the Gujarat High Court, emphasizing that where the department accepted the repayment of the loans in subsequent years, no addition should be made in the current year on account of cash credit. The Appellate Tribunal, after reviewing the facts, submissions, and judicial precedents, concluded that the AO's conclusions lacked substantial evidence contradicting the assessee's claims. The Tribunal upheld the CIT(A)'s decision to delete the additions under sections 68 and 69C of the Act, dismissing the Revenue's appeal for lack of merit.

In conclusion, the Appellate Tribunal upheld the CIT(A)'s order, emphasizing the assessee's provision of substantial evidence to establish the authenticity of the transactions and the lack of concrete evidence supporting the AO's additions. The Tribunal's decision highlighted the importance of compliance with statutory requirements and the repayment of loans in subsequent years as indicators of the genuineness of the transactions.