2021 (1) TMI 998 - AT - Income Tax

Addition u/s 68 - unsecured loan - HELD THAT - We consider it just and proper to send back this issue to the file of the AO for giving one more opportunity to the assessee to prove the genuineness of the relevant loans. As rightly submitted by assessee in this regard, the total loan represented opening balance to the extent of ₹ 10,66,42,149/- and the same, therefore, cannot be added to the total income of the assessee in the year under consideration as unexplained cash credit u/s 68. As regards the balance loan amount AO is directed to give one more opportunity to the assessee to explain the same by establishing the identity and capacity of the concerned loan creditors as well as the genuineness of the relevant loan transactions by adducing the necessary supporting evidence. AO is directed to decide this issue afresh to the extent of loan after necessary verification. Ground No. 1 to 3 of the revenue s appeal are thus treated as partly allowed while ground no. 1 of the assessee s cross-objection is treated as allowed for statistical purpose Disallowance of finance cost incurred by the assessee society - as observed that the finance cost claimed by the assessee under Capital-Work-in- Progress was disallowed by the authorities below on the ground that the assessee society was not registered u/s 12AA - HELD THAT - As claimed by the assessee society by way of raising additional ground in its cross-objection which is admitted by us, it has been granted registration u/s 12AA of the Act w.e.f. A.Y. 2012-13 by CIT(Exemptions), Kolkata vide 2020 (8) TMI 49 - ITAT KOLKATA and, therefore, the finance cost in question paid on the loans utilised by assessee society for the charitable purpose cannot be disallowed being application of income. The AO is accordingly directed to verify this claim of the assessee and allow appropriate relief to the assessee on this issue. Disallowance u/s 40A(3) - HELD THAT - Issue covered in favour of the assessee by the various decisions of the Tribunal including the decision of Hyderabad Bench of this Tribunal in the case of Sree Education Society 2016 (4) TMI 84 - ITAT HYDERABAD wherein it was held that no disallowance u/s 40A(3) can be made while determining the income u/s 11 of the Act of the assessee which is registered u/s 12AA of the Act. Respectfully following the said decision of this Tribunal, we delete the disallowance made by the AO u/s 40A(3) of the Act and confirmed by the Ld. CIT(A) in the case of the present assessee society which is now duly registered u/s 12AA.

Summary

Issues:
1. Addition of unsecured loan by the AO
2. Disallowance of finance cost incurred by the society
3. Disallowance u/s 40A(3) of the Act

Issue 1: Addition of Unsecured Loan by the AO

The appellant challenged the addition of an unsecured loan of ?14,76,47,829 made by the AO, which was partially sustained by the Ld. CIT(A) at ?1,45,01,400. The AO added the entire amount as unexplained income due to the failure of the assessee to establish the genuineness of the loan. The Ld. CIT(A) restricted the addition after verifying only a portion of the loan. The Tribunal observed that the primary onus to prove the loans' genuineness was on the assessee, noting a lack of proper opportunity for explanation. The Tribunal directed the AO to give the assessee another chance to prove the genuineness of the remaining loan amount, emphasizing the need for supporting evidence. The appeal was partly allowed, and the cross-objection was allowed for statistical purposes.

Issue 2: Disallowance of Finance Cost Incurred by the Society

The AO disallowed ?4,39,84,532 of finance cost incurred by the society on the basis of non-registration under section 12AA of the Act. The assessee revealed that it obtained registration subsequently, and the finance cost was for charitable purposes, thus should not be disallowed. The Tribunal directed the AO to verify this claim and grant appropriate relief. The ground raised by the assessee was treated as allowed for statistical purposes.

Issue 3: Disallowance u/s 40A(3) of the Act

The issue of disallowance of ?3,53,989 under section 40A(3) of the Act was addressed. The Tribunal referred to previous decisions favoring the assessee, stating that no disallowance can be made under this section for an entity registered under section 12AA of the Act. Consequently, the disallowance made by the AO and confirmed by the Ld. CIT(A) was deleted. The ground raised by the assessee was allowed.

In conclusion, the appeal of the revenue was partly allowed for statistical purposes, while the cross-objection of the assessee was treated as allowed in accordance with the detailed analysis and decisions provided for each issue.