2022 (6) TMI 1240 - AT - Income Tax

Unexplained cash credit u/s 68 - assessee submitted confirmation from the creditor, bank statement, audited balance sheet of Sandesh Procon LP and the loan agreement with Sandesh Procon LLP in support of genuineness of the transaction - CIT-A deleted the addition - HELD THAT - As assessee was able to produce the confirmation from the creditors in support of genuineness of the transaction, loan agreement with M/s Sandesh Procon LLP, bank statement and audited balance sheet of M/s Sandesh Procon LLP evidencing the above transaction were also placed on record to prove the genuineness of transaction. Further, the fact that the loan was repaid back with interest, on which TDS was duly deducted also lends support to the genuineness of transaction. In the case of Ayachi Chandrashekhar Narsangji 2013 (12) TMI 372 - GUJARAT HIGH COURT held that where department had accepted repayment of loan in subsequent year, no addition was to be made in current year on account of cash credit. In view of the above facts and the judicial precedents by the jurisdictional High Court, we are of the considered view that Ld. CIT(Appeals) has not erred in facts and in law in deleting the additions made by the Ld. Assessing Officer u/s 68 - Decided in favour of assessee. Disallowance u/s 14A r.w.r. 8D - sufficiency of own funds - HELD THAT - As no infirmity in the order of the Ld. CIT(Appeals) when he held that if the assessee had sufficient funds for making investments in shares and interest free bonds and it had not used borrowed funds for such purpose, no disallowance can be made under section 14A of the Act and also that AO is required to take the average of investment from where non-taxable income has been earned in order to make disallowance under Rule 8D(2)(iii). In view of the above, we are of the considered view that Ld. CIT(Appeals) has not erred in facts and law in giving part relief to the assessee in respect of disallowance made by the Ld. Assessing Officer under section 14A of the Act. - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition of Rs. 5,29,28,517/- made under section 68 of the Income Tax Act.
2. Deletion of addition of Rs. 8,34,886/- made on account of disallowance under section 14A read with Rule 8D(2)(ii) of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Deletion of Addition under Section 68 of the Income Tax Act:
The Assessing Officer (AO) noted that the assessee received Rs. 5,29,28,587/- from Sandesh Procon LLP but failed to provide sufficient evidence to prove the identity, creditworthiness, and genuineness of the creditor. Consequently, the AO treated this amount as unexplained credit under section 68.

Upon appeal, the assessee submitted various documents including a formal confirmation from Sandesh Procon LLP, bank statements, audited balance sheets, and a loan agreement. The Commissioner of Income Tax (Appeals) [CIT(A)] found these documents sufficient to prove the identity, creditworthiness, and genuineness of the loan transaction. The CIT(A) also noted that the loan was repaid along with interest, on which TDS was deducted, further supporting the genuineness of the transaction. Therefore, the CIT(A) deleted the addition made by the AO.

The Tribunal upheld the CIT(A)'s decision, referencing the case of Shree Samruddhi Overseas Trading Co. v. DCIT, which emphasized that repayment of a loan supports the genuineness of the transaction. The Tribunal also cited Ayachi Chandrashekhar Narsangji, where the Gujarat High Court held that no addition should be made if the loan is repaid in subsequent years. Thus, the Tribunal dismissed the Revenue's appeal on this ground.

2. Deletion of Addition under Section 14A read with Rule 8D(2)(ii) of the Income Tax Act:
The AO disallowed Rs. 35,17,822/- under section 14A, arguing that the assessee did not allocate any expenditure towards earning exempt income from investments in shares. The AO computed disallowances under Rule 8D(2)(ii) and (iii).

The CIT(A) provided partial relief. It deleted the disallowance of Rs. 18,23,172/- under Rule 8D(2)(ii), noting that the assessee had sufficient interest-free funds and net interest income, in line with the Gujarat High Court decision in Nirma Credit and Capital Private Limited. However, for administrative expenses under Rule 8D(2)(iii), the CIT(A) directed the AO to re-compute disallowances based on the average investment from which non-taxable income was earned.

The Tribunal found no infirmity in the CIT(A)'s order. It observed that the assessee had substantial interest-free funds and net interest income, making the disallowance under Rule 8D(2)(ii) unjustified. The Tribunal also agreed with the CIT(A)'s direction to re-compute the disallowance of administrative expenses, citing relevant judicial precedents including ACB India Ltd. vs. CIT and ACIT vs. Vireet Investments (P) Ltd. Therefore, the Tribunal dismissed the Revenue's appeal on this ground as well.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the additions under sections 68 and 14A of the Income Tax Act. The Tribunal found that the assessee had sufficiently demonstrated the genuineness of the loan transaction and the availability of interest-free funds for investments. The Tribunal's decision was based on a thorough examination of the evidence and relevant judicial precedents.