2024 (11) TMI 565 - AT - Income Tax

Addition of unsecured loans - accommodation entries receipts - addition of interest payment in respect of these loans - HELD THAT - The assessee had furnished copy of ledger account, bank statement of the creditors reflecting the loan transaction, income tax returns and their audited financial statements wherein they have shown the source of giving the loans and were regularly assessed the tax. Not only that, ld.AO himself carried out his own enquiry and issued notice u/s. 133(6) and in response these parties had given the entire details as required by the ld.AO. Once these parties have confirmed the source of their loan, which is out of their own funds from the balance sheet, then the creditworthiness stands proved and ld. AO has not further brought anything on record that such source of funds are fictitious. Then again, when ld. AO summoned all the three parties, two of them personally appeared before him and have given their statement on oath and they have categorically admitted of giving of loan; have explained their operation of the business and the extent of their turnover and the funds in the balance sheet. Thus, the onus which lied upon the assessee was duly discharged at the assessment stage. The entire premise of the ld. AO is based on Investigation report in the case of Bhanwarlal Jain and nothing has been brought on record by him that any particular information or material was found relating to the assessee that assessee was beneficiary of accommodation entry of loan or advance from any of the group concerns of Bhanwarlal Jain. Once AO himself has carried out his enquiry and nothing adverse has been found, then simply relying upon the investigation report cannot justify the addition. Disallowance of interest especially on the loan taken in the earlier year by the assessee and the said party has duly confirmed that it has given loan and has given all the details then, there is no question of disallowing any interest. Once, the loans have been accepted to be genuine, then disallowance and interest made by the ld.AO is deleted. Appeal of the Revenue is dismissed.

Summary

Issues Involved:

1. Deletion of addition of Rs. 1,50,00,000/- related to unsecured loans alleged to be accommodation entries.
2. Deletion of addition of Rs. 28,90,574/- related to interest payment on the aforementioned loans.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 1,50,00,000/-:

The Revenue challenged the deletion of an addition of Rs. 1,50,00,000/- which was made in respect of unsecured loans alleged to be taken from entities linked to the Bhanwarlal Jain Group. The group was identified by the Investigation Wing as providing accommodation entries. The Assessing Officer (AO) noted that the assessee received unsecured loans from M/s. Mehul Gems Pvt. Ltd. and M/s. White Stone. During the assessment, the AO scrutinized the financial statements and observed certain discrepancies, such as high turnover and nominal advance tax payments, which raised doubts about the creditworthiness of the lenders. The AO concluded that the creditworthiness was not proven and treated the unsecured loans as unexplained cash credits under Section 68 of the Income Tax Act.

However, the CIT (A) deleted the addition after the assessee provided comprehensive documentation, including income tax returns, bank statements, and affidavits from the lending parties. The CIT (A) found that the assessee had discharged its burden under Section 68 by proving the genuineness, creditworthiness, and identity of the lenders. The appellate authority noted that the AO failed to provide specific evidence linking the assessee to the alleged accommodation entries and relied solely on the investigation report without further substantiation.

The Tribunal upheld the CIT (A)'s decision, emphasizing that the AO's reliance on the investigation report without concrete evidence specific to the assessee was insufficient to justify the addition. The Tribunal confirmed that the assessee had adequately demonstrated the legitimacy of the loan transactions through the documentation and the lenders' responses to inquiries.

2. Deletion of Addition of Rs. 28,90,574/-:

The Revenue also contested the deletion of an addition of Rs. 28,90,574/- made on account of interest payments related to the unsecured loans. The AO disallowed the interest payments, arguing that since the loans were treated as unexplained cash credits, the interest payments should also be disallowed.

The CIT (A) allowed the interest payments, reasoning that once the loans were established as genuine, the corresponding interest payments should also be recognized. The Tribunal agreed with this conclusion, stating that since the loans had been accepted as genuine, there was no basis for disallowing the interest payments. The Tribunal found that the assessee had provided sufficient evidence, including confirmations from the lenders, to substantiate the interest payments.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming the CIT (A)'s decision to delete the additions related to both the unsecured loans and the interest payments. The Tribunal held that the assessee had fulfilled its obligations under the Income Tax Act, and the AO's reliance on the investigation report without specific evidence against the assessee was inadequate to sustain the additions. The order pronounced on 14th October, 2024, confirmed the genuineness of the transactions and the appropriateness of the interest payments.