2023 (11) TMI 940 - AT - Income Tax

Addition u/s 68 - bogus unsecured loan - genuineness of identity and creditworthiness of lender questioned - AO while passing the assessment order solely relied on the report of Investigation Wing and the statement of Manohar Lal Nanglia as allegedly controlling lender and other companies - HELD THAT - As in reply to show cause notice, the assessee while filing its reply prayed for supply of material relied by AO including the statement of Manohar Lal Nanglia and report of investigation wing. Admittedly no such material was provided to assessee. There was no such finding of AO that required details were provided to assessee. We find that assessee in response to show cause notice furnished confirmation of lender s PAN, bank statement, ITR with computation of income and audited report with relevant schedules.AO has not made any adverse comment on such evidence and no investigation of fact was carried out by the AO. As before Ld.CIT(A), the assessee in addition to objections raised before Assessing Officer, specifically stated that assessee has made the repayment of loan in subsequent year and furnished his bank statement and ledger account of lender. The Ld.CIT(A) instead of getting the fact verified either by himself or from AO confirmed the addition without giving any finding of such submission made by assessee. We find that no adverse view, if taken by department in subsequent year on repayment of loan, is brought to our notice, therefore following the ratio of decision of Ayachi Chandrashekhar Narsangji 2013 (12) TMI 372 - GUJARAT HIGH COURT that once the repayment was made in subsequent year no addition u/s 68 be made, against the assessee. Once, we have accepted the contention of ld AR for the assessee about repayment of loan, therefore all other submissions against this addition have become academic - Decided in favour of assessee.

Summary

Issues Involved:

1. Validity of assessment reopening under section 143(3) by issuing notice under section 143(2).
2. Addition of Rs. 25,00,000/- as bogus unsecured loan under section 68.
3. Addition of Rs. 50,000/- as commission expenses under section 69C.
4. Disallowance of Rs. 57,000/- as interest paid on alleged bogus unsecured loan.

Summary:

Issue 1: Validity of Assessment Reopening

The assessee contended that the CIT(A) erred in confirming the action of the Assessing Officer (AO) in reopening the assessment under section 143(3) by issuing a notice under section 143(2) of the Income Tax Act, 1961. However, during the hearing, the assessee's representative stated that this ground was not being pressed. Consequently, this ground was dismissed as 'not pressed.'

Issue 2: Addition of Rs. 25,00,000/- as Bogus Unsecured Loan

The AO added Rs. 25,00,000/- as an unexplained credit under section 68, citing that the lender, M/s Pratham Infra Project Pvt. Ltd., was a shell company, and no response was received to the notice issued under section 133(6). The assessee provided details such as PAN, confirmation, bank statement, ITR, and audit report of the lender, and argued that the loan was genuine and repaid in subsequent years. The CIT(A) upheld the AO's decision, relying on the statement of Manohar Lal Nanglia, who allegedly controlled the lender company and admitted to providing accommodation entries.

The Tribunal found that the AO did not provide the complete statement of Manohar Lal Nanglia or the investigation report to the assessee, violating the principles of natural justice. The Tribunal also noted that the loan was repaid in the subsequent financial year, and following the jurisdictional High Court's decision in Ayachi Chandrashekhar Narsangji, held that no addition under section 68 should be made if the loan is repaid. Thus, the addition of Rs. 25,00,000/- was deleted.

Issue 3: Addition of Rs. 50,000/- as Commission Expenses

The AO added Rs. 50,000/- as commission expenses for arranging accommodation entries under section 69C. Since the Tribunal deleted the addition of the unsecured loan, the addition of commission expenses, being consequential in nature, was also deleted.

Issue 4: Disallowance of Rs. 57,000/- as Interest Paid on Alleged Bogus Unsecured Loan

The AO disallowed Rs. 57,000/- as interest expenses on the alleged bogus unsecured loan. Following the deletion of the loan addition, the disallowance of interest expenses was also deleted by the Tribunal.

Conclusion:

The appeal was partly allowed, with the Tribunal deleting the additions of Rs. 25,00,000/- as bogus unsecured loan, Rs. 50,000/- as commission expenses, and Rs. 57,000/- as interest expenses. The ground regarding the validity of assessment reopening was dismissed as 'not pressed.'