2024 (11) TMI 768 - AT - Income Tax

Addition in respect of unsecured loans received - As argued appellant satisfied all the ingredients viz. identity, genuineness and creditworthiness - HELD THAT - AO and the CIT(A) have not accepted the creditworthiness of the lender but to rebut the said finding, the Ld. AR has stated that the lender was staying at Bhulabhai Desai Road in the upmarket Breach Candy locality of South Mumbai. Further, he was treated at Breach Candy Hospital which is a very expensive hospital. His legal heir and wife also migrated to London after his death. The lender was also operating a diamond factory at Kandivali, Mumbai. Therefore, it would be wrong to infer that the lender was not a man of means and lacked creditworthiness. Assessee has given PAN, ITR and confirmation of the lender to show that the loan was genuine. The loan was also undisputably advanced through account payee cheque. The immediate source of the fund was the repayment received by the lender in cheque and not in cash from one M/s Pranjal Star, who has given the confirmations from AY.2013-14 to 2015-16. Bank extracts of loan receipt and loan repayment by M/s Pranjal Star are enclosed at pages 35 and 44 of the paper books. Since the lender expired on 29.06.2016 in Breach Candy Hospital, he was not able to respond to the notices issued to him u/s 133(6) of the Act. This fact alone cannot negate the overwhelming factual and circumstantial evidences advanced by the appellant. In view of this fact discussed above, we are of the considered view that the appellant has satisfactorily explained the nature and source of the credit of Rs. 25,00,000/- in its books for the subject assessment year. Accordingly, the order of CIT(A) is set aside and the AO is directed to delete the addition made u/s 68 of the Act. Disallowance of interest paid to creditor - AR submitted that interest was paid through banking channel and assessee has made TDS wherever interest was paid - HELD THAT - As we have already deleted the addition of cash credit u/s 68 of the Act of the impugned loan. Hence, disallowance of interest is also deleted and the ground is allowed.

Summary

Issues:
1. Confirmation of addition in respect of unsecured loans received
2. Disallowance of interest paid to the creditor

Analysis:

Issue 1: Confirmation of addition in respect of unsecured loans received

The appellant appealed against the order passed by the Commissioner of Income Tax (Appeals) confirming the addition of Rs. 25,00,000 in unsecured loans received. The Assessing Officer raised concerns regarding the creditworthiness of the lender, Mr. Rafique Peer Mohammad, as replies were not received from him. The appellant claimed that the loan was genuine and had been repaid through the sale of polished diamonds. The CIT(A) dismissed the appeal citing lack of conclusive evidence on creditworthiness and past transactions with the lender. However, the Tribunal found in favor of the appellant, noting that the lender's identity, genuineness of the transaction, and creditworthiness were established. The Tribunal emphasized the chain of loan transactions and the repayment made in kind, leading to the deletion of the addition under section 68 of the Act.

Issue 2: Disallowance of interest paid to the creditor

The appellant also contested the disallowance of interest amounting to Rs. 1,25,000 paid to the creditor, Mr. Rafique Peer Mohammad. The appellant argued that interest was paid through banking channels with TDS deductions. The Tribunal, having already deleted the addition of the cash credit, ruled in favor of the appellant on this issue as well. The disallowance of interest was overturned, and the ground was allowed.

In conclusion, the Tribunal allowed the appeal of the assessee, directing the Assessing Officer to delete the addition of Rs. 25,00,000 made under section 68 of the Act and also overturning the disallowance of interest amounting to Rs. 1,25,000. The decision was pronounced in the open court on 14/11/2024.