2019 (2) TMI 101 - AT - Income Tax

Addition u/s 68 of unsecured loan taken by the assessee company - credibility of the corporate entity from whom loan has been taken - Held that - A.O. has not brought on record any cogent, adverse material to rebut the credibility of the corporate entity from whom loan has been taken. As already pointed out by us as above, that these corporate entities were found by the A.O. to have acquired funds by borrowals and acceptance of share capital and share premium. This by itself cannot lead to presumption that these sources are bogus without any enquiry. DR s request that this issue be again remitted to the file of the A.O. to make further necessary enquiries cannot be entertained. The decision of FIDELITY BUSINESS SERVICES INDIA (P.) LTD. VERSUS ASSISTANT COMMISSIONER OF INCOME-TAX 2018 (7) TMI 1738 - KARNATAKA HIGH COURT was on a different set of facts, wherein, the Hon ble Karnataka High Court on the facts and circumstances of the case had upheld the certain direction of the ITAT. In the present case, as pointed out hereinabove, in our considered opinion, the assessee has discharged its onus. A.O. has not brought on required cogent material to rebut the documentary evidence submitted by the assessee nor he made any enquiry. As noted above, the assessee has given all the necessary evidence including the confirmation letters, bank statement, financial statements of the corporate entities. Hence, in our considered opinion, the identity, creditworthiness, genuineness of the transaction has been proved by the assessee and the onus cast upon the assessee has been discharged. In the background of the aforesaid discussion and precedent, we find that the ld. CIT(A) has passed a well reasoned order supported by appropriate case laws duly rebutting all the findings of the A.O. Hence we uphold the order of the ld. CIT(A). Since we have upheld the order of the ld. CIT(A) as regards the deletion of the addition on account of unsecured loan, the disallowance of interest on that account has been rightly deleted by the ld. CIT(A). We uphold the same also. Disallowance u/s 14A - Held that - We find that the said issue is duly covered in favour of the assessee by the decision of Cheminvest Ltd vs CIT 2015 (9) TMI 238 - DELHI HIGH COURT and the decision in the case of Principal CIT vs. Ballarpur Industries Ltd. 2016 (10) TMI 1039 - BOMBAY HIGH COURT . In these cases, it was expounded that when no exempt income has been earned, no disallowance u/s.14A is permissible. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition u/s 68 of the Income Tax Act for unsecured loans.
2. Deletion of addition of interest expenses on these loans.
3. Deletion of addition on account of Rule 14A.

Detailed Analysis:

1. Deletion of Addition u/s 68 of the Income Tax Act for Unsecured Loans:
The first issue pertains to the deletion of addition u/s 68 for unsecured loans taken by the assessee company for various assessment years. The Assessing Officer (A.O.) had added these loans as unexplained cash credits based on a survey action and statements from third parties, including Pravin Kumar Jain and Rakesh Doshi, who were alleged to be involved in providing bogus accommodation entries. The A.O. concluded that the loans were not genuine, relying on statements and the financial status of the companies providing the loans.

However, the Commissioner of Income Tax (Appeals) [CIT(A)] found that the A.O. had not provided the assessee with an opportunity to cross-examine these third parties, which constituted a violation of the principles of natural justice. The CIT(A) noted that the assessee had submitted sufficient documentary evidence, including loan confirmations, income tax returns, audited accounts, and bank statements, to establish the identity, genuineness, and creditworthiness of the creditors. The CIT(A) held that the A.O. had not brought any credible evidence to disprove these submissions and thus deleted the addition of ?7,75,00,000/- for A.Y. 2013-14 and similar additions for other years.

2. Deletion of Addition of Interest Expenses on These Loans:
The second issue concerns the deletion of interest expenses on the unsecured loans. Since the CIT(A) had deleted the addition of the unsecured loans, the disallowance of interest expenses on these loans was also deleted. The CIT(A) reasoned that the interest paid on these loans was genuine, supported by TDS deductions and repayments made through banking channels.

3. Deletion of Addition on Account of Rule 14A:
The third issue relates to the deletion of addition on account of Rule 14A, which pertains to disallowance of expenditure incurred in relation to income not includible in total income. The A.O. had made a disallowance of ?1,54,143/- u/s 14A. However, the CIT(A) deleted this addition, citing the decision of the Hon’ble Delhi High Court in Cheminvest Ltd vs CIT [2015] 378 ITR 33 (Del), which held that no disallowance u/s 14A is permissible when no exempt income is shown.

Conclusion:
The Income Tax Appellate Tribunal (ITAT) upheld the order of the CIT(A) on all counts. The ITAT agreed that the A.O. had violated principles of natural justice by not allowing cross-examination of third parties whose statements were used against the assessee. The ITAT also found that the assessee had provided sufficient documentary evidence to prove the genuineness of the unsecured loans and related interest expenses. Moreover, the ITAT supported the CIT(A)'s decision to delete the disallowance u/s 14A, as no exempt income was earned by the assessee. Consequently, the appeals by the Revenue were dismissed.