2021 (7) TMI 1070 - AT - Income Tax

Addition u/s 68 - addition of unsecured loans - HELD THAT - A.O without identifying any particular unsecured loan of Mumbai or Kolkata in the group summary has made addition of difference in opening and closing balance of unsecured loans. We find that the methodology adopted by the A.O cannot be accepted, we on perusal of the group summary found that in the opening balance there are 7 unsecured loan creditors of Mumbai and 6 unsecured loan creditors of Kolkata and some of the loan creditors have been squared off during the year. Whereas, in few cases, additional loans have been accepted and the same is reflected as the closing balances in the ledger account of the group summary provided. AO could have made enquiry in respect of any particular unsecured loan creditor and some of the loan creditors have been repaid which was accepted. Considering the overall facts and evidences, we find the submissions of the Ld.AR are realistic and duly supported by the material and the confirmations on record. A.O cannot make the addition of unsecured loans u/s68 of the Act considering only the opening and closing balance of the unsecured loans in group summary. The unsecured loans may increase or decrease and accrued interest is credited and the actual interest payment by the assessee. Further each unsecured loan account has to be independently dealt and if the loan account does not satisfy the three ingredients of identity, creditworthiness and genuineness of the transaction, the provisions of Sec.68 of the Act are applicable. But in the present case, the assessment order clearly indicates that the A.O has only considered the opening and closing balance of the unsecured creditors without referring to any particular loan creditor - Decided in favour of assessee. Disallowance of repairs and maintenance expenses claimed in profit and loss account - AR submitted that these are the repairs and maintenance expenditure incurred by the assessee to maintain the building in good condition and is an allowable claim - HELD THAT - type/ nature of expenditure explained above does not qualify for deduction u/s 24 of the Act and they are necessarily incurred for maintaining the school building in usable and good condition for the safety, health and protection of school children. We are of the substantive opinion that the claim of expenses cannot be denied. Assessee has various business activities including the running of the schools and the A.O has not doubted the genuineness of the expenses. Accordingly, we set aside the order of the CIT(A) on this ground of appeal and direct the Assessing officer to delete the addition and allow the ground of appeal in favour of the assessee.

Summary

Issues Involved:
1. Addition of unsecured loans under Sec. 68 of the Income Tax Act
2. Disallowance of Repairs & Maintenance expenditure

Issue 1: Addition of Unsecured Loans under Sec. 68 of the Income Tax Act:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the addition of unsecured loans under Sec. 68 of the Income Tax Act. The appellant raised various grounds of appeal challenging the addition made by the Assessing Officer (AO). The AO had added the differential amount in the opening and closing balance of unsecured loans, suspecting the genuineness of the transactions. The AO issued notices under Sec. 133(6) to verify the loans, but many notices were returned unserved. The AO applied Sec. 68 and made the addition. However, the Tribunal found that the AO's methodology was flawed as he did not specify any particular unsecured loan. The Tribunal noted that the appellant had submitted group summaries and details of unsecured loans, which were not disputed. The Tribunal concluded that the AO's approach was incorrect, and the addition was deleted.

Issue 2: Disallowance of Repairs & Maintenance Expenditure:
The second issue pertained to the disallowance of Repairs & Maintenance expenditure claimed by the appellant. The AO disallowed the expenditure under Sec. 24 of the Act, stating that the expenses were not eligible for deduction as the appellant derived rental income from the school property. However, the Tribunal noted that the appellant had maintained proper records and audited accounts for the expenses. The Tribunal found that the nature of the expenses, related to maintaining the school building, was genuine and necessary. The Tribunal observed that similar expenses were claimed and accepted in previous years. The Tribunal disagreed with the AO's reasoning and allowed the claim of Repairs & Maintenance expenditure in favor of the appellant.

In conclusion, the Tribunal allowed the appeal filed by the assessee, setting aside the orders of the Commissioner of Income Tax (Appeals) on both issues. The Tribunal directed the Assessing Officer to delete the additions related to unsecured loans and Repairs & Maintenance expenditure, ruling in favor of the appellant.