2023 (4) TMI 576 - AT - Income Tax

Addition u/s 68 - amount introduced under the head unsecured loan from various parties - CIT- A deleted the addition - HELD THAT - As seen from the assessment order and the appellate order that the assessee has given confirmation details namely ledger account, contra account, ITR details and creditors compliance u/s. 131 issued by the A.O. Still not satisfied with the information submitted, only on the ground that the Returned income of the creditors are not commensurate to the loans disbursed by them. Therefore the A.O. made the addition u/s. 68 - A.O. also has not given due credit to the TDS made by the assessee on the interest payment as well as the repayment of the above loans by the assessee during the assessment year 2016-17. It is well settled principle of law in the case of CIT vs. Ranchhod Jivabhai Nakhava 2012 (5) TMI 186 - GUJARAT HIGH COURT that where lenders of assessee are income-tax assessees whose PAN have been disclosed, Assessing Officer cannot ask assessee to further prove genuineness of transactions without first verifying such fact from income-tax returns of the lenders. Also when the loan is repaid by the assessee in the subsequent assessment years, the Hon ble Jurisdictional High Court in the case of CIT vs. Ayachi Chandrashekhar Narsangiji 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. Appeal of assessee allowed.

Summary

Issues Involved:
1. Addition of unsecured loans under Section 68 of the Income Tax Act.
2. Disallowance of interest expenses related to the unsecured loans.

Summary:

Issue 1: Addition of Unsecured Loans under Section 68
The Assessing Officer (A.O.) added Rs. 2.25 crores as unexplained cash credits under Section 68 of the Income Tax Act, citing that the creditworthiness of the creditors was not commensurate with their income tax returns. The assessee provided detailed documentation, including ledger accounts, income tax returns, and bank statements, and argued that the loans were repaid in the subsequent year with appropriate TDS deductions. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, noting that the assessee had successfully rebutted the points raised by the A.O. and provided sufficient evidence to prove the genuineness of the transactions. The CIT(A) relied on various case laws, including *Rohini Builders vs. CIT* and *CIT vs. Ranchhod Jivabhai Nakhava*, to support the deletion of the addition.

Issue 2: Disallowance of Interest Expenses
The A.O. disallowed interest expenses amounting to Rs. 3,10,356/- paid to the creditors, considering them not genuine. The CIT(A) allowed the interest claim, stating that the assessee had deducted TDS on the interest payments and provided all necessary documentation. The CIT(A) concluded that since the principal amount was deleted under Section 68, the related interest expenses should also be allowed.

Tribunal's Decision:
The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, emphasizing that the A.O. should have verified the income tax returns of the creditors before making the addition. The Tribunal cited the jurisdictional High Court's rulings in *CIT vs. Ranchhod Jivabhai Nakhava* and *CIT vs. Ayachi Chandrashekhar Narsangji*, which support the assessee's position. The Tribunal found no merit in the Revenue's appeal and dismissed it, confirming the deletion of the addition under Section 68 and the allowance of the interest expenses.

Conclusion:
The appeal filed by the Revenue was dismissed, and the order passed by the CIT(A) was confirmed, deleting the addition of Rs. 2.25 crores under Section 68 and allowing the interest expenses of Rs. 3,10,356/-.