2021 (11) TMI 625 - AT - Income Tax

Unsecured loan taken - Addition u/s. 68 - HELD THAT - AO as made the addition of unsecured loan obtained by the assessee on the basis of general observation that unsecured loan was nothing but assessee's own fund which were circulated. The finding of the AO was not supported with the relevant material and evidences, AO had also failed to controvert the supporting documents and relevant materials and the copies of bank statement of the lender and the assessee demonstrating that transaction of loan were routed through bank account and same were repaid during the year under consideration. AO has neither made any investigation and verification from the lender nor brought any relevant material on record to prove that the unsecured loan was not genuine. Therefore, we are not inclined with the decision of ld. CIT(A). Accordingly, the appeal of the assessee on this ground is allowed. Disallowance on interest u/s. 36(1)(iii) - AO has compared the payment of interest @ 12%/15% on the unsecured loan obtained by the assessee with the interest amount received by the assessee @ 8% on FDR made with the HDFC bank - HELD THAT - Earning of interest on surplus fund maintained in FDR cannot be compared with the unsecured loan obtained by the assessee because both are of different nature as the interest on fixed deposit is specified by the bank in the form of automatic switched off fixed deposit account whenever surplus fund was available in current year, the same was transferred to fix deposit account otherwise the current account did not fetch any interest. On the other hand, the definite amount of interest paid on unsecured loan used to be on higher side compared to the interest charged on secured loan, therefore, we do not find any justification in the decision of ld. CIT(A) in sustaining the disallowance of interest payment made by the Assessing Officer. Therefore, this ground of appeal of the assessee is also allowed.

Summary

Issues:
1. Addition of ?52 lacs on account of unsecured loan taken from Shri Deelip L. Patel u/s. 68 of the Act
2. Addition of ?4,02,448/- on account of disallowance on interest u/s. 36(1)(iii) of the I.T.

Issue 1: Addition of ?52 lacs on account of unsecured loan taken from Shri Deelip L. Patel u/s. 68 of the Act:
The assessee purchased an immovable property for ?3.20 crores, showing part payment of ?52 lacs from an unsecured loan obtained from Shri Deelip L. Patel. The Assessing Officer added this amount to the total income, alleging it was the assessee's own funds circulated. The CIT(A) upheld the addition. However, during the appellate proceedings, the assessee presented supporting documents like ledger accounts, bank statements, and loan confirmation letters. The Tribunal observed that the Assessing Officer's decision lacked supporting evidence and failed to investigate the transaction adequately. The Tribunal noted that the transaction of the loan was routed through bank accounts and repaid during the relevant year. Consequently, the appeal of the assessee on this ground was allowed.

Issue 2: Addition of ?4,02,448/- on account of disallowance on interest u/s. 36(1)(iii) of the I.T.:
The Assessing Officer disallowed interest expenses of ?4,02,448/- as the assessee paid interest at 12%/15% on an unsecured loan, higher than the interest received on a fixed deposit at 8%. The Tribunal found that the interest on the unsecured loan and the interest on the fixed deposit were of different natures. The assessee explained that funds received from flat sales were temporarily kept in fixed deposits to earn interest. The Tribunal concluded that the interest earned on surplus funds in fixed deposits could not be compared to the interest paid on the unsecured loan. As the interest paid on the unsecured loan was higher due to its nature, the disallowance made by the Assessing Officer was not justified. Consequently, this ground of appeal by the assessee was also allowed.

In conclusion, the Tribunal allowed the appeal of the assessee concerning both issues. The Tribunal dismissed an additional appeal as the assessee did not press it. The order was pronounced on 07-10-2021.