2019 (8) TMI 704 - AT - Income Tax

Unexplained credit u/s 68 - unsecured loans receipts - HELD THAT - Section 68 of the Act provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its undisclosed income. In the facts of the present case, both the nature source of the loan received was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the lender / loan creditor. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on AO's record. Accordingly all the three conditions as required u/s. 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction was placed before the AO and the onus shifted to AO to disprove the materials placed before him. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified. In the facts and circumstances of the case as discussed above, no addition was warranted under Section 68 of the Act. Therefore, we do not want to interfere in the impugned order of Ld. CIT(A) which is confirmed and consequently the appeal of Revenue is dismissed. Addition of interest on loan granted - Since we have found the loan amount given to the assessee to the tune by M/s. Silver Cross Marketing Pvt. Ltd. as genuine, the interest expenditure booked by the assessee is an allowable expenditure and we note that the interest received from assessee company on the loan has been offered by the lender M/s. Silver Cross Marketing Pvt. Ltd . in its return and offered to tax. Therefore, the addition made by AO disallowing the interest claim also has been rightly deleted by the Ld. CIT(A) which action of the Ld. CIT(A) does not deserve to be interfered with. Therefore we confirm the same. - Decided against revenue.

Issues Involved:
1. Deletion of addition of ?9,00,00,000/- as unexplained credit under Section 68 of the Income Tax Act, 1961.
2. Proof of existence and identity of the creditor.
3. Deletion of disallowance of ?54,66,393/- on account of interest paid on the loan of ?9 crore.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?9,00,00,000/- as Unexplained Credit under Section 68 of the Income Tax Act, 1961:
The Revenue contested the deletion of ?9 crores added as unexplained credit under Section 68 of the Income Tax Act. The Assessing Officer (AO) noted the credit entries of ?7 crores and ?2 crores in the assessee's books, claimed as loans from M/s. Silver Cross Marketing Pvt. Ltd. (SCMPL). The AO issued a notice under Section 131 to verify the creditworthiness of SCMPL, but no one appeared before him. The AO concluded that SCMPL was a paper company and added ?9 crores as unexplained credit. The CIT(A) deleted this addition, and the Revenue appealed.

2. Proof of Existence and Identity of the Creditor:
The AO questioned the existence and identity of SCMPL, as the Principal Officer did not appear before him. However, the assessee provided various documents, including balance sheets, income tax returns, voter ID cards, PAN cards of SCMPL's directors, annual returns, audited accounts, loan confirmations, and bank statements. The CIT(A) found these documents sufficient to establish the identity, creditworthiness, and genuineness of the transactions. The Tribunal upheld this view, noting that the AO did not pursue further inquiries from the AO of SCMPL.

3. Deletion of Disallowance of ?54,66,393/- on Account of Interest Paid on the Loan of ?9 Crore:
The AO disallowed the interest expenditure of ?54,66,393/- related to the ?9 crore loan, treating it as bogus. The CIT(A) deleted this disallowance, and the Tribunal upheld this decision. The Tribunal noted that the interest received by SCMPL from the assessee was offered to tax in SCMPL's return, further supporting the genuineness of the loan transaction.

Judicial Precedents and Legal Reasoning:
The Tribunal referred to several judicial precedents, including the Supreme Court's decision in CIT v. Smt. P. K. Noorjahan, which held that the unsatisfactoriness of the explanation does not automatically result in deeming the amount credited as income. The Tribunal also cited the Gujarat High Court's decision in Dy. CIT v. Rohini Builders, which emphasized that the onus shifts to the Revenue to establish the lack of creditworthiness once the assessee provides the identity and actual receipt of money from the creditor.

The Tribunal concluded that the assessee had discharged its onus by providing sufficient evidence to prove the identity, creditworthiness, and genuineness of SCMPL. The AO's reliance on the non-appearance of the Principal Officer was insufficient to disprove the documents furnished by the assessee. The Tribunal also noted that the AO did not make inquiries from SCMPL's AO, as required by the Calcutta High Court's decision in CIT v. Dataware Private Limited.

Conclusion:
The Tribunal upheld the CIT(A)'s order, confirming the deletion of the addition of ?9 crores as unexplained credit and the disallowance of ?54,66,393/- interest expenditure. The appeal of the Revenue was dismissed.

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