2014 (7) TMI 128 - AT - Income Tax

Confirmation of additions on account of share application money - Unsecured loan Held that - The unsecured loan provided by the Director Mr. Rajiv Chilakalapudi was to the tune of ₹ 3 lakhs out of which, outstanding amount was ₹ 2,61,550/-, which was added by the A.O. as unexplained income of the assessee - as far as the unsecured loan was concerned, the source of ₹ 3 lakhs advanced by Mr. Rajiv Chilakalapudi stands explained by way of personal loan obtained from Citi Bank - addition of ₹ 2,61,550/- cannot be sustained on the facts the explanation given for various withdrawals by Mr. Rajiv Chilakalapudi s bank account was confused with the loan account of the company both by AO and CIT(A) - to the extent of addition of unsecured loan, it cannot be sustained on facts. Both Mr. B.P. Jain and Mr. Rajiv Chilakalapudi has explained the sources and are very much assessees on record - In case, the credit worthiness is doubted and source of funds are doubted, the proper course would have been to initiate proceedings in their individual hands as the persons are identified and they have confirmed the amounts which are invested in the company - on the basis of the confirmation and necessary evidence placed on record and also after perusing the remand report by the AO - there have proper sources for the amounts invested in the company the AO is directed to set aside the additions Decided in favour of Assessee.

Summary

Issues:
1. Confirmation of share application money
2. Unsecured loan assessment

Confirmation of Share Application Money:
The appeal by the assessee was against the order of the CIT(A)-III, Hyderabad regarding confirmation of share application money and unsecured loan. The Assessing Officer (A.O.) noted an increase in share application money and unsecured loan. The A.O. considered the confirmation letters for share application money monotonous and lacking proper supporting documents. Consequently, the difference in the balance sheet amounts was added to the assessee's income. The CIT(A) called for a remand report and confirmed the unsecured loans, partially allowing relief for share application money. The appellant contended that most share application money came from related parties and provided necessary details. The Tribunal found the A.O.'s assessment casual and lacking clarity in the amounts confirmed, directing the A.O. to delete the unsecured loan amount as it was explained by a personal loan.

Unsecured Loan Assessment:
The unsecured loan amount was linked to a personal loan obtained from Citi Bank, which clarified the source of funds. The Tribunal found the A.O. and CIT(A) confused in their assessment of withdrawals from the bank account versus the company's loan account. The Tribunal concluded that the unsecured loan addition could not be sustained based on the facts presented. The Tribunal directed the A.O. to delete the unsecured loan amount. Regarding share application money, the Tribunal observed discrepancies in the nature of the amounts and doubted whether they were actual share application money. The Tribunal noted that the amounts were not in multiples of the face value of shares, indicating they might be treated as a cash credit account. After reviewing confirmation letters and bank details, the Tribunal found proper sources for the investments, directing the A.O. to delete the amounts and allowing the appeal.

In conclusion, the Tribunal allowed the appeal, directing the A.O. to delete the unsecured loan amount and share application money additions. The judgment highlighted discrepancies in the assessment process and lack of clarity in confirming the amounts, ultimately ruling in favor of the assessee.