2015 (6) TMI 636 - AT - Income Tax

Addition of unsecured loans u/s. 68 - CIT(A) deleted addition - Held that - The assessee had produced all the required documentary evidences and discharged its onus as far as those 76 creditors are concerned.The AO did not make any further inquiry.So,in our opinion,order of the FAA does not suffer from any legal infirmity.In case of remaining 14(JVA and 13 creditors about whom the assessee filed details before the FAA)creditors the FAA had rightly held that it had failed to discharge the initial burden. FAA had rightly deleted the addition of ₹ 2.99 Crores.The AO had made no effort to verify the details filed by the assessee before him.He could have at least made preliminary inquiry about them.He made inquiry about four persons directly and on the basis of such inquiry made an addition of ₹ 3.55 Crores. Provisions of the section 68 do not permit such action- on the basis of specific inquiry general additions cannot be made.Hon ble Rajasthan High Court in the case of R S Rathore (1994 (7) TMI 45 - RAJASTHAN High Court) has clearly laid down the said principle. No discrepancy was found by the AO in the documents filed by the assessee. Therefore,upholding the order of the FAA, we decide the first limb of the first ground of appeal against the AO. Second part of the first ground deals with deletion of interest amount of ₹ 40.37 lakhs.While deciding the appeal filed by the assessee,we have upheld the decision of the FAA in restricting the interest disallowance.Second ground of appeal is also decided against the AO.

Summary

Issues Involved:
1. Addition of Rs. 36,00,000 out of total unsecured loans of Rs. 3,35,00,000 under Section 68 of the Income Tax Act, 1961.
2. Partial disallowance of interest paid to various unsecured loan creditors.
3. Deletion of addition of Rs. 2,99,00,000 out of unsecured loans and interest of Rs. 40,37,326 by the CIT(A).

Detailed Analysis:

1. Addition of Rs. 36,00,000 out of total unsecured loans of Rs. 3,35,00,000 under Section 68 of the Income Tax Act, 1961:
The assessee, a firm engaged in the business of builders and developers, declared an income of Rs. 7.72 lakhs, which was later assessed at Rs. 3.40 crores by the AO. The AO found discrepancies in the unsecured loans amounting to Rs. 3.35 crores. Out of 90 creditors, confirmations were received from 77. The AO conducted external enquiries and found inconsistencies, particularly with the involvement of a Chartered Accountant (CA), DK, who admitted to arranging bogus loans. The assessee failed to produce witnesses or supporting documents to substantiate its claims. Consequently, the AO added Rs. 3.35 crores under Section 68 of the Act. The First Appellate Authority (FAA) upheld the addition of Rs. 36 lakhs, citing the assessee's failure to prove the genuineness and creditworthiness of the lenders.

2. Partial disallowance of interest paid to various unsecured loan creditors:
The AO disallowed the entire interest payment of Rs. 40.97 lakhs on unsecured loans due to the assessee's failure to provide evidence of TDS deduction or copies of Form 15G/15H. The FAA directed the AO to disallow interest paid only to 14 creditors deemed non-genuine, reducing the disallowance significantly.

3. Deletion of addition of Rs. 2,99,00,000 out of unsecured loans and interest of Rs. 40,37,326 by the CIT(A):
The FAA deleted the addition of Rs. 2.99 crores, stating that the AO did not conduct specific enquiries for 55 creditors. The FAA found the assessee had discharged its primary onus by providing necessary documents and confirmations. The AO failed to make further enquiries, thus the addition was not sustainable. The FAA also held that the AO's reliance on DK's statement was insufficient without corroborative evidence. The FAA upheld the addition of Rs. 36 lakhs where the assessee failed to discharge the burden of proof. The FAA's decision to restrict interest disallowance to 14 creditors was upheld.

Conclusion:
The Tribunal upheld the FAA's decision, confirming the addition of Rs. 36 lakhs and the restricted disallowance of interest. The appeals filed by both the assessee and the AO were dismissed. The Tribunal emphasized the need for specific enquiries and corroborative evidence in matters under Section 68, and the importance of discharging the onus of proof by both the assessee and the Revenue.