2018 (12) TMI 1129 - AT - Income Tax

Addition of unsecured loan and being the interest thereon - Held that - In this case the loan creditor has even shown the source of the loan disbursed to the assessee (from funds it received from M/s. Godavari Exim Pvt. Ltd. as discussed) and we note that the AO has not made any exercise to discredit the loan creditor in any manner other than making certain general observations of the accommodation entry providers which cannot be the legal basis for disbelieving the loan the assessee received from M/s. Pasupati Tradelink Pvt. Ltd. and which amount the assessee has repaid as is evident from the correspondence between the assessee and the AO of the lender company as discussed above. The assessee has discharged the onus by placing all the documents before the AO/Ld. CIT(A) as discussed above. CIT(A) erred in not giving credence to the aforesaid documents filed before him without any adverse material to substantiate his stand. Hence we are inclined to delete the addition of 40 lakhs which the assessee has taken as loan as well as the interest which the assessee has given to the lender of 4, 22, 531/-. The additional disallowance u/s. 37(1)is also deleted. - decided in favour of assessee.

Summary

Issues involved:
- Addition of unsecured loan and interest by the Assessing Officer
- Dismissal of appeal by the Commissioner of Income Tax (Appeals)
- Assessment of the genuineness of the unsecured loan taken by the assessee
- Double addition of interest element by the Assessing Officer
- Burden of proof on the assessee regarding the unsecured loan

Analysis:
The judgment revolves around the addition of an unsecured loan and interest by the Assessing Officer (AO) and the subsequent dismissal of the appeal by the Commissioner of Income Tax (Appeals) (CIT(A)). The AO noted that the assessee claimed to have received an unsecured loan of ?40,00,000 and interest of ?4,22,531 related to the loan. The AO raised concerns about the genuineness of the loan, suspecting it to be a case of routing own money through shell companies. The CIT(A) upheld the AO's decision, leading to the appeal before the Appellate Tribunal.

The Appellate Tribunal analyzed the case thoroughly. The assessee contended that the actual unsecured loan amount was ?40,00,000, not ?44,22,531 as noted by the AO. The Tribunal found the double addition of the interest element unjustified, indicating a pre-determined bias by the AO. The assessee provided extensive evidence, including loan confirmations, bank statements, and audited financials, proving the genuineness of the loan. The Tribunal highlighted the repayment of the loan by the assessee, supported by correspondence with the lender company's AO.

The Tribunal emphasized the assessee's fulfillment of the burden of proof regarding the loan's identity, creditworthiness, and genuineness. Citing legal precedents, the Tribunal noted that the AO failed to discredit the loan creditor adequately. The Tribunal referenced previous High Court judgments to support its decision to delete the addition of ?40,00,000 as a loan and the interest amount of ?4,22,531. Ultimately, the Tribunal allowed the assessee's appeal, providing relief of ?44,22,531 and ?4,22,531 under section 37(1) of the Income-tax Act.

In conclusion, the judgment highlights the importance of substantiating transactions and discharging the burden of proof in tax matters. It underscores the need for assessing officers to conduct thorough investigations and provide concrete evidence before making additions to an assessee's income. The decision showcases the significance of legal precedents in interpreting and applying tax laws to ensure fair treatment for taxpayers.