2024 (11) TMI 629 - AT - Income Tax

Addition of unsecured loans u/sec. 68 and interest component - as argued A.O has ignored the information, evidences and audited financial statements and unilaterally made addition u/sec 68 - HELD THAT - AR demonstrated the copy of bank statements reflecting the repayment of unsecured loans in the paper book which is not disputed by the revenue. A.O has failed to make further enquiries and relied on the statement recorded, overlooking the factual aspects that the assessee has discharged the initial burden placed by furnishing the details. AR referred to the copy of details of unsecured loans provided by the lenders and subsequent repayment of loans along with the financial statements, confirmations and bank statements filed by the two unsecured loans creditors directly with the assessing officer in lieu of notice issued u/sec 133(6) of the Act in the assessment proceedings placed. Whereas the A.O has ignored the information, evidences and audited financial statements and unilaterally made addition u/sec 68 of the Act only on the basis of statement provided by third party without any iota of evidences discrediting the evidence furnished by the assessee and the statement of Shri Vipul Vidur Bhatt has been retreated which cannot use as reliable evidence. The information submitted by the assessee satisfied the three ingredients of provisions of Sec. 68 - loan transactions are not believed and alleged as non genuine and treated as unexplained cash credit u/sec 68 of the Act and these unsecured loans were repaid through account payee / banking channels in the subsequent years which is not disputed. AR submitted that the assessee has substantiated the stand by submitting the details before the A.O. and CIT(A) and discharged the burden. We considering the facts, circumstances and ratio of judicial decisions referred above, set-aside the order of the CIT(A) and direct the Assessing officer to delete the addition of unsecured loans and disallowance of interest - Decided in favour of assessee.

Issues Involved:

1. Violation of principles of natural justice in confirming the assessment order.
2. Validity of reopening the assessment under Section 147 and issuance of notice under Section 148.
3. Addition of Rs. 1,05,12,704/- on account of unexplained cash credit under Section 68.
4. Addition of Rs. 5,69,672/- on account of interest paid on bogus loans.

Issue-wise Detailed Analysis:

1. Violation of Principles of Natural Justice:

The appellant argued that the CIT(A) erred in law and facts by confirming the assessment order, which was passed in violation of the principles of natural justice. The appellant maintained that adequate opportunity to present evidence and explanations was not provided during the assessment proceedings. However, the Tribunal did not specifically address this issue in detail, focusing instead on the substantive issues of the case.

2. Validity of Reopening the Assessment:

The appellant contested the validity of the reopening of the assessment under Section 147 and the issuance of notice under Section 148, arguing that they were invalid and bad in law. The Tribunal did not elaborate on this issue, as it primarily focused on the substantive grounds related to the additions made under Section 68 and the disallowance of interest under Section 37. The Tribunal's decision on the merits rendered the issue of reopening academic, leaving it open without a specific ruling.

3. Addition of Rs. 1,05,12,704/- on Account of Unexplained Cash Credit:

The Tribunal examined the addition of Rs. 1,05,12,704/- made by the AO under Section 68 for unexplained cash credits. The appellant provided documentary evidence, including confirmations from loan creditors, bank statements, and financial statements, to substantiate the genuineness, identity, and creditworthiness of the loan creditors. The Tribunal noted that the AO overlooked these vital documents and relied on the statement of Shri Vipul Vidur Bhatt, which was later retracted. The Tribunal emphasized that the appellant discharged its burden of proof by submitting comprehensive evidence. Citing various judicial precedents, the Tribunal found that the addition under Section 68 was unsustainable and directed the AO to delete the addition.

4. Addition of Rs. 5,69,672/- on Account of Interest Paid on Bogus Loans:

The appellant challenged the disallowance of interest paid on unsecured loans, arguing that it was contrary to the provisions of the Act. The Tribunal observed that the interest component was already included on an accrual basis in the outstanding loans. The appellant provided evidence of TDS deduction on interest payments, further supporting the genuineness of the transactions. The Tribunal found that the AO failed to make necessary inquiries and relied on unsubstantiated statements. Consequently, the Tribunal directed the deletion of the disallowed interest, supporting the appellant's claim.

Conclusion:

The Tribunal, after considering the documentary evidence and judicial precedents, concluded that the appellant had adequately demonstrated the identity, creditworthiness, and genuineness of the loan creditors. The Tribunal set aside the CIT(A)'s order, directed the deletion of the additions under Section 68, and allowed the appeal in favor of the appellant. The issue regarding the validity of the reassessment proceedings was left open as the decision on the merits rendered it academic.

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