2021 (6) TMI 400 - AT - Income Tax

Addition u/s 68 - loans received by the assessee - addition based on statement of third party - disallowance of interest on aforesaid unsecured loans - HELD THAT - From the perusal of the assessment order, we find that the ld AO had given more emphasis in the entire assessment order to discuss the modus operandi adopted by Shri Praveen Kumar Jain and his group which had been unearthed during the search action carried out on him on 1.10.2013. We find that the assessee had submitted before the ld AO that nowhere in the statements of Shri Praveen Kumar Jain or his accomplices, the name of the assessee LLP had been mentioned. This fact has not been controverted by the ld DR before us. Hence we hold that the entire addition made by the ld AO and confirmed by the ld CITA, merely based on the statement of Shri Praveen Kumar Jain (third party) (which also stood subsequently retracted by him by way of an independent affidavit), deserve to be deleted on this count itself. No other corroborative evidence was brought on record by the revenue to even remotely suggest that the loan transactions carried out by the assessee with the aforesaid 5 loan creditors to be ingenuine. As assessee had duly discharged its onus by submitting all the relevant details (as listed supra) that are available with it before the ld AO. All these documents clearly prove the identity of the loan creditors, creditworthiness of the loan creditors and genuineness of transactions. We find that the ld AO had not even bothered to issue notice u/s 133(6) of the Act to the loan creditors to verify the veracity of the documents submitted by the assessee. In other words, the ld AO simply remained silent after receiving all the documentary evidences from the assessee. assessee had duly discharged its onus by submitting all the relevant details (as listed supra) that are available with it before the ld AO. All these documents clearly prove the identity of the loan creditors, creditworthiness of the loan creditors and genuineness of transactions. We find that the ld AO had not even bothered to issue notice u/s 133(6) of the Act to the loan creditors to verify the veracity of the documents submitted by the assessee. In other words, the ld AO simply remained silent after receiving all the documentary evidences from the assessee. Thus we direct the ld AO to treat the loans received from aforesaid 5 parties as genuine and delete the addition made u/s 68 of the Act. Correspondingly, the interest paid on such loans also should be allowed as deduction

Summary

Issues:
Challenging addition made under section 68 of the Income Tax Act for loans received, Disallowance of interest on unsecured loans.

Analysis:
The appeal involved challenging the addition made under section 68 of the Income Tax Act for loans received by the assessee, along with the disallowance of interest on unsecured loans. The assessee, engaged in the business of builders and developers, had filed its return for the assessment year 2013-14, declaring a total loss. The assessing officer observed that the assessee had taken unsecured loans from various parties, including those associated with providing accommodation entries. The assessing officer alleged that the loans were bogus and issued a show cause notice to the assessee regarding the same.

During the assessment proceedings, the assessee provided documentary evidence to establish the genuineness of the loans, including confirmation letters, financial statements, and bank statements from the loan creditors. The assessee argued that the loans were taken for genuine business purposes and not as accommodation entries. The assessing officer, however, disregarded the evidence and treated the loans as unexplained cash credits under section 68 of the Act, subsequently disallowing the interest paid on these loans.

The tribunal noted that the assessing officer primarily relied on the statement of a third party, which was later retracted, to make the additions. The tribunal found that the assessing officer did not conduct further inquiries or issue notices to the loan creditors to verify the documents submitted by the assessee. The tribunal held that the assessee had discharged its onus by submitting relevant details and that no adverse inference could be drawn without proper verification.

Additionally, the tribunal highlighted judicial precedents where similar loan parties were accepted as genuine, directing the assessing officer to treat the loans as genuine and delete the addition made under section 68 of the Act. The tribunal also allowed the interest paid on the loans as a deduction under section 36(1)(iii) of the Act, as the funds were utilized for business purposes and the loans were duly repaid.

Therefore, the tribunal partly allowed the appeal of the assessee, directing the assessing officer to treat the loans as genuine and allowing the interest paid on such loans as a deduction.