2020 (5) TMI 573 - AT - Income Tax

Addition u/s 36(1)(iii) - Less interest charged from the partners - A.O. disallowed the difference of the interest actually charged i.e. @12% and the interest that should have been charged i.e @15% - HELD THAT - Assessee has paid interest on unsecured loans during the impugned year at an average rate of 10% which is demonstrated from the facts and figures of unsecured loan and interest paid thereon reflected in the financial statements of the assessee which are duly audited. The revenue has been unable to controvert before us. Since the basic premise with the revenue for making disallowance in the present case U/s 36(1)(iii) was that the assessee had charged less interest on the advances made to its partners and others as opposed to that paid on borrowings made by it, the same does not survive since the assessee has demonstrated that it had actually paid less interest on borrowings and charged more from the partners and others. In view of the above, the disallowance made U/s 36(1)(iii). Addition u/s 68 - treating loans received as ingenuine and unexplained - bank statements submitted of these parties showing transactions were either unreadable or incomplete or were not submitted at all - HELD THAT - Since the assessee has demonstrated before us that the bank statements of all the loan givers was filed to the revenue authorities and is therefore, available, we consider it fit to restore the issue back to the A.O. to consider the bank statements of all the loan depositors alongwith other evidences filed and adjudicate the issue afresh thereafter in accordance with law. Accordingly, ground of the appeal are allowed for statistical purposes only.

Summary

Issues:
1. Disallowance of interest expenses under Section 36(1)(iii) of the Income Tax Act, 1961.
2. Addition made under Section 68 of the Income Tax Act regarding unexplained loans.

Issue 1: Disallowance of Interest Expenses
The appellant contested the addition of ?53,57,352 under Section 36(1)(iii) of the Act, arguing that the Commissioner of Income Tax (Appeals) erred in confirming the disallowance. The appellant's counsel highlighted that the average interest rate on unsecured loans was 10%, not 15% as assumed by the Assessing Officer. The appellant demonstrated through audited financial statements that interest was paid at a lower rate than charged on partner balances and advances. The Tribunal agreed with the appellant, noting that the disallowance was unwarranted as the appellant had paid less interest on borrowings and charged more from partners. Consequently, the disallowance of ?53,57,352 and ?1,24,954 was directed to be deleted.

Issue 2: Addition of Unexplained Loans
The appellant challenged the addition of ?1,00,83,240 under Section 68 of the Act concerning unsecured loans. The Assessing Officer treated loans from various entities as ingenuine due to incomplete or missing documentation. The appellant provided bank statements, ITRs, and confirmations to prove the genuineness of the loans. Despite this, the authorities upheld the addition, citing incomplete or unreadable bank statements. The Tribunal found that the bank statements were submitted to the revenue authorities, prompting a remand to the Assessing Officer for a fresh review. The Tribunal allowed the appeal for statistical purposes, directing a reevaluation of the evidence submitted by the appellant.

In conclusion, the Tribunal ruled in favor of the appellant regarding the disallowance of interest expenses and ordered a reevaluation of the addition related to unexplained loans. The appeal was allowed in part for statistical purposes, emphasizing the importance of substantiating transactions through proper documentation and evidentiary support.