2024 (11) TMI 312 - AT - Income Tax

Unexplained cash credit u/s 68 - onus to prove - CIT(A) deleted addition relying on the fact that four (4) out of the six (6) loans were repaid by the assessee during the relevant year and the other two loans were repaid by the assessee during the subsequent financial years - HELD THAT - CIT(A) has considered the entire remand report and appreciated the observation of the Assessing Officer correctly and no fault could be found with the order of the CIT(A) while deleting the addition made by the AO. Assessee has correctly pointed out that the AO has made addition of ₹ 850 lakh out of total loan of ₹ 45.53 crore in the case of the assessee. In respect to loans on receipt of information under section 133(6) of the Act the Assessing Officer has considered it to be sufficient compliance to explain the credits by accepting the transaction of loan creditors. Similar evidence having come on record in remand proceedings, it is not appropriate for the AO to object the deletion of addition made. It is also noted that the AO even though noted that interest has been not paid on unsecured loan has accepted the majority of such unsecured loan in the assessment framed on receipt of information u/s 133(6) - Non-payment of interest thus could be no valid justification for making addition under the provisions of section 68 - assessee having satisfactorily discharged its onus by placing on record voluminous evidence, CIT(A) has correctly appreciated the facts and evidence on record and thus the deletion of addition made by CIT(A) is reasonable and correct. Also loan received by the assessee have been repaid during the year under consideration and in respect to one loan it has been repaid in the subsequent accounting year. Repayment of loan by the assessee is evident from evidence placed on record and is undisputed fact on record. Repayment of loan accepted by the Revenue Authorities is not controverted by the learned D.R Thus, we are of the considered opinion that the assessee has discharged its onus to explain identity and creditworthiness of loan creditors as well as genuineness of transaction. There remains no scope for invoking provisions of section 68 on the facts and evidence on record. The addition has been correctly deleted by the learned CIT(A) on the facts and evidence on record. Decided in favour of assessee. Addition u/s 14A - expenditure incurred earning exempt income - CIT(A) deleted addition - HELD THAT - It is undisputed fact on record that the assessee has own funds and non-interest borrowing fund at ₹ 62.55 crore. Investment made in securities as computed by the AO is ₹ 31.79 crore. Entire investment could be considered as explained out of available fund comprising on own fund and non-interest borrowing. As relying on Reliance Industries Ltd 2019 (1) TMI 757 - SUPREME COURT and HDFC BANK LTD. 2016 (3) TMI 755 - BOMBAY HIGH COURT learned CIT(A) has correctly deleted the addition made. Respectfully following the same, we find no merit in the ground no.3, raised by the Revenue. Addition of claim of interest paid on borrowed funds - CIT(A) deleted addition - HEDL THAT - It is undisputed fact on record that the assessee has own funds and non-interest borrowing fund at ₹ 62.55 crore. Advances given interest free are noted at ₹ 17.85 crore. Entire advances could be considered as explained out of available fund comprising of own fund and non-interest borrowing. Case of Reliance Utilities Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT is squarely applicable to the facts in the case of the assessee. In our opinion, the learned CIT(A) has correctly deleted the addition made by the Assessing Officer. Addition being sundry balances written-of - as argued advance was given in the course of business and on abandonment of project which was written-of in its books of account - CIT(A) deleted addition - HELD THAT - On perusal of decision of learned CIT(A) and judgment of Binani Cement Ltd. 2015 (3) TMI 849 - CALCUTTA HIGH COURT we are of considered opinion that the amount written-of in the books of account on abandonment of project is allowable as business expenses. We do not find any fault or infirmity in the impugned order passed by the learned CIT(A). Revenue appeal dismissed.

Summary

Issues Involved:

1. Deletion of addition of Rs. 8.50 crore as unexplained cash credit under Section 68 of the Income Tax Act.
2. Restriction of disallowance under Section 14A of the Income Tax Act.
3. Deletion of addition of Rs. 5,37,962/- related to interest on borrowed funds.
4. Deletion of addition of Rs. 9,99,999/- as sundry balances written off.

Detailed Analysis:

1. Deletion of Addition of Rs. 8.50 Crore as Unexplained Cash Credit:

The Revenue challenged the deletion of an addition of Rs. 8.50 crore made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, claiming it as unexplained cash credit. The AO had noted discrepancies in unsecured loans received by the assessee, including lack of original confirmation letters and non-payment of interest on these loans. However, the learned Commissioner of Income Tax (Appeals) [CIT(A)] admitted additional evidence submitted by the assessee, including original confirmations, bank statements, and financial statements of loan creditors. The CIT(A) considered this evidence sufficient to delete the addition, as the documents were verified during remand proceedings and no adverse evidence was brought by the AO. The CIT(A) relied on various judicial precedents, including the decision in CIT v/s Orissa Corporation (P) Ltd., which established that the assessee is not required to prove the source of the source once the primary onus is discharged. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had satisfactorily explained the identity, creditworthiness, and genuineness of the transactions, and the loans were repaid during the relevant financial years.

2. Restriction of Disallowance under Section 14A:

The Revenue contested the CIT(A)'s decision to restrict the disallowance under Section 14A to Rs. 15,89,749/- instead of Rs. 25,99,737/-. The AO had computed the disallowance based on interest and other expenses related to income not forming part of the total income. The CIT(A) deleted the interest-related disallowance, following the jurisdictional High Court's decision in HDFC Bank Ltd. v/s DCIT, which held that if the assessee has sufficient interest-free funds, no disallowance should be made. The Tribunal agreed with the CIT(A), citing the Supreme Court's decision in CIT v/s Reliance Industries Ltd., which supported the view that interest-free funds should be presumed to be used for investments generating exempt income.

3. Deletion of Addition of Rs. 5,37,962/- Related to Interest on Borrowed Funds:

The AO had disallowed Rs. 5,37,962/- out of the interest claimed by the assessee, arguing that the assessee failed to substantiate that Rs. 17.85 crore was advanced from non-interest-bearing funds. The CIT(A) deleted this addition, relying on the jurisdictional High Court's decision in CIT v/s Reliance Utilities & Power Ltd., which established that if the assessee has sufficient own funds, it should be presumed that investments are made from such funds. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had sufficient own and non-interest-bearing funds to cover the advances, and thus, the disallowance was unjustified.

4. Deletion of Addition of Rs. 9,99,999/- as Sundry Balances Written Off:

The AO disallowed the write-off of Rs. 9,99,999/- as sundry balances, arguing that the assessee failed to explain the nature of the business transactions. The CIT(A) deleted the addition, citing the Calcutta High Court's decision in Binani Cement Ltd. v/s CIT, which allowed such write-offs if they were for business purposes. The CIT(A) found that the write-off was related to a business investment that was abandoned, and thus, it was a legitimate business expense. The Tribunal agreed with the CIT(A), concluding that the write-off was allowable as a business expense due to the abandonment of the project.

In conclusion, the Tribunal upheld the CIT(A)'s decisions on all contested grounds, finding that the assessee had satisfactorily explained the transactions and discharged its burden of proof, and that the Revenue's grounds for appeal were without merit.