2020 (11) TMI 645 - AT - Income Tax

Unexplained cash credit u/s 68 - Director-promoter of the lending companies have already confessed during the survey action that the lending companies controlled by them are bogus companies engaged in providing accommodation entries - HELD THAT - Similar issue has been decided by our co-ordinate bench in own case 2019 (2) TMI 101 - ITAT MUMBAI wherein similar additions were deleted by the Tribunal by treating the loans taken as genuine on the ground that the assessee has discharged the onus cast upon him as he has filed all the documents proving identity , creditworthiness of the parties and genuineness of the transactions and therefore the addition can not be made u/s 68 - Decided in favour of assessee. Interest expenditure paid on unsecured loans - HELD THAT - Since we have dismissed the grounds raised by the revenue challenging the deletion of unsecured loans by holding that the addition made by the AO is not correct by following the order of the Coordinate bench in assessee own case in earlier years. Therefore the ground on disallowance of interest on these loans can not be disallowed. Accordingly the ground no. 3 is dismissed by upholding the order of ld. CIT(A).

Summary

Issues involved:
1. Deletion of addition of unexplained cash credit under section 68 of the Income Tax Act.
2. Disallowance of interest expense on unsecured loans raised from related companies.

Issue 1: Deletion of addition of unexplained cash credit under section 68 of the Income Tax Act:
The Revenue challenged the deletion of an addition of ?4,50,40,000 made by the Assessing Officer as unexplained cash credit under section 68 of the Act. The loans were taken from companies related to certain individuals who were alleged to be involved in providing accommodation entries. The CIT(A) deleted the addition based on the assessee's submission of various documents proving the genuineness of the transactions. The CIT(A) noted that the loans were evidenced by bank statements and other documents, and there were no cash deposits or withdrawals in the bank statements. The CIT(A) also highlighted the lack of cross-examination of the individuals whose statements were relied upon by the Assessing Officer. The Tribunal upheld the CIT(A)'s decision based on precedent and the assessee's fulfillment of the onus to prove the genuineness of the transactions.

Issue 2: Disallowance of interest expense on unsecured loans raised from related companies:
The Revenue contested the deletion of interest expenditure of ?1,18,31,274 paid on unsecured loans raised from companies related to certain individuals. The Assessing Officer disallowed the interest on the ground that the loans were considered bogus. However, following the decision on the deletion of the unexplained cash credit addition, the Tribunal dismissed the Revenue's challenge on the interest expense disallowance. The Tribunal found the issue to be consequential to the earlier decision and upheld the CIT(A)'s order.

In conclusion, the Tribunal dismissed the appeals by the Revenue, upholding the CIT(A)'s orders regarding the deletion of the addition of unexplained cash credit and the disallowance of interest expense on unsecured loans. The Tribunal based its decision on the assessee's fulfillment of the onus to prove the genuineness of the transactions and the lack of adverse material to rebut the credibility of the transactions.