2015 (1) TMI 692 - AT - Income Tax

Addition under section 68 - Ingenuine loans - CIT(A) partly deleted addition on admitting additional evidence - procedural default on the part of the ld.CIT(A) in terms of Rule 46A - Held that - There is no procedural default on the part of the ld.CIT(A) in terms of Rule 46A and consequently there is no merits in the grounds raised by revenue regarding violation of Rule 46A as AO in the remand report has accepted the additional evidences and has raised no objections which he was given chance in terms of Letter written by the ld.CIT(A) to the AO. Once the AO has himself admitted the genuineness of loan in respect of all the the creditors and same has been accepted by the ld. CIT(A) after calling for the rejoinder submissions and on perusal of records then we do not find any reason to reverse the deletion of addition of loan amounts in respect of 31 creditors merely on the ground that there is no elaborate discussion in the appellate order. Once the fact has been admitted after detailed inquiry and examination which is evident from the material placed on record then there need not be any detailed discussion about acceptance of the loan.. Moreover as submitted by the ld. counsel these loans have been repaid to the creditors in the subsequent years which fact can be very well be verified by the AO. Thus we do not find any merits in the grounds raised by the revenue and accordingly the same are dismissed.- Decided against revenue. Now coming to the grounds raised by the assessee in respect of three creditors we find that there is a categorical finding by the AO as well as the ld. CIT(A) that creditworthiness of the said persons have not been proved by the assessee. Even before us no documentary evidence has been filed to rebut the findings of the ld. CIT(A).- Decided against assessee. Disallowance of interest @ 8% on the addition for the loans - part relief by CIT(A) - Held that - As said by CIT(A) the interest paid by the assessee was @ 8%. On the other hand the assessee advanced loan of 38, 53, 285/- as per the Balance sheet of the assessee and collected interest of 1, 99, 972/- which works out to 5.1%. It is to be mentioned that it did not prove that the amount of 38.53 lakhs was advanced for business purposes To be reasonable the assessee should also have collected 8% interest on 38, 53, 285/- which comes to 3, 08, 000/-. Secondly the assessee s without prejudice submission that the issue of charging interest on loan advanced was not the case of the Assessing Officer is misplaced for the reason when in the assessment proceedings while charging interest @ 18% on the loans of 96, 30, 000/- the issue of charging difference in the interest rate did not arise. The verification of the details during remand proceedings reveals that majority of loans received are in order. Therefore issue of charging interest and payment of interest comes to the fore. This issue has become relevant and the same has to be adjudicated. Accordingly I direct the AO to charge interest @8% on 38, 53, 285/- on the amounts advanced - the difference of which works out to. 1, 08, 028/- (Rs.3, 08, 000 - 1, 99, 972) as income of the assessee. The A.O. is further directed to calculate interest @ 8% on 2, 50, 000/- which has been confirmed in Ground no.2 above. Thus reasons given by the ld. CIT(A) for giving part relief on this score appears to be factually correct. - Decided against assessee.

Summary

Issues Involved:
1. Admission of additional evidence by CIT(A) under Rule 46A.
2. Addition of loan creditors under Section 68 of the Income Tax Act.
3. Disallowance of interest on loans.
4. Confirmation of business loss disallowance.

Issue-wise Detailed Analysis:

1. Admission of Additional Evidence by CIT(A) under Rule 46A:
The Revenue contended that the CIT(A) should not have admitted additional evidence without assigning reasons, as the assessee failed to provide necessary documents during the assessment proceedings. The CIT(A) forwarded the additional evidence to the AO for a remand report. The AO examined the evidence and accepted the loans from 31 creditors, raising objections only for three creditors. The Tribunal found no procedural default by the CIT(A) in admitting the additional evidence, as the AO had ample opportunity to examine and did not object to the admission of the evidence. Therefore, the Tribunal dismissed the Revenue's ground regarding the violation of Rule 46A.

2. Addition of Loan Creditors under Section 68 of the Income Tax Act:
The AO added Rs. 96,30,000/- as unexplained loan credits under Section 68 due to the assessee's failure to provide confirmation letters during the assessment. The CIT(A), based on the remand report, accepted the loans from 31 creditors but confirmed the addition for three creditors (Shri Mahadevlal Mahatto, Shri Prakash Kishinchand Butaney, and Shri Babulal L. Shah) due to insufficient evidence of their creditworthiness. The Tribunal upheld the CIT(A)'s decision, noting that the assessee failed to provide adequate documentary evidence to prove the creditworthiness of these three creditors.

3. Disallowance of Interest on Loans:
The AO disallowed interest of Rs. 17,33,400/- on the new loans due to the lack of a detailed break-up provided by the assessee. During the remand proceedings, it was found that the assessee paid interest of Rs. 26,70,011/- on loans taken and received interest of Rs. 1,99,972/- on loans advanced. The CIT(A) directed the AO to charge interest at 8% on the amount advanced and on the confirmed loans, resulting in a partial relief. The Tribunal affirmed the CIT(A)'s decision, finding it factually correct and reasonable.

4. Confirmation of Business Loss Disallowance:
The AO disallowed the business loss of Rs. 10,31,062/- claimed by the assessee due to lack of supporting evidence. The CIT(A), based on the remand report and the assessee's submissions, accepted the business loss. The Revenue did not raise any ground against this decision. The Tribunal did not find any reason to reverse the acceptance of the business loss by the CIT(A).

Conclusion:
The Tribunal dismissed both the Revenue's and the assessee's appeals, upholding the CIT(A)'s decisions on all the issues. The order was pronounced in the open court on 14th Jan, 2015.