2024 (1) TMI 267 - AT - Income Tax

Addition u/s 68 - unsecured loan treated as unexplained cash credit - CIT(A) deleted addition - HELD THAT - CIT(A) has noted that on perusal of the audited balance sheet of the assessee company, it was found that the said unsecured loans have been reported under short-term capital borrowings in item no.7 of the said balance sheet. That the director of the assessee company was duly confronted about the loan transaction, but nothing adverse could be extracted from him by the Assessing Officer. CIT(A) has also noted that during the appellate proceedings, the assessee had produced evidences of repayment of the loan amounts, whereupon, the remand report was called upon from the AO and the AO in the remand report duly confirmed the repayment of the loan amount through banking channel. CIT(A) has also discussed the financials of the creditors to hold that the creditors had sufficient net worth to give loans to the assessee company. It has also been noticed by the CIT(A) that apart from the aforesaid three borrowers, the assessee has also taken loans from other parties which has not been doubted by the AO. CIT(A) thereafter held that the sole basis of the Assessing Officer to make addition was on the basis of an earlier recorded statement of Shri Devesh Upadhyaya, which was neither recorded in the presence of the assessee nor the assessee was every confronted about the same. Even no incriminating material was found during the course of search action. Even all the creditors have duly confirmed the transactions and also established the source of the credits and the loan being also repaid in a short span of time. CIT(A), therefore, has rightly held that the addition made by the AO was not justified. No reason to interfere with the order of the ld. CIT(A) and there is no merit in the appeal of the revenue and the same is accordingly dismissed. Appeal of the revenue stands dismissed.

Summary

Issues Involved:
1. Deletion of addition made under Section 68 on account of unsecured loans.
2. Deletion of addition of interest on such unsecured loans.
3. Acceptance of case law cited by CIT(A) in the order under Section 250.

Summary:

Issue 1: Deletion of Addition Made Under Section 68 on Account of Unsecured Loans
The revenue challenged the deletion of an addition of Rs. 3,00,00,000/- made by the Assessing Officer (AO) treating unsecured loans as unexplained income. The AO based this addition on a statement from an alleged entry operator, Shri Devesh Upadhyaya, who admitted to providing accommodation entries. Despite the assessee furnishing documents to prove the identity, creditworthiness, and genuineness of the creditors, the AO was not satisfied. The CIT(A) deleted the addition, noting that the AO did not provide specific reasons for rejecting the evidence provided by the assessee. The CIT(A) emphasized the importance of cross-examination and the lack of incriminating material found during the search. The CIT(A) also highlighted that the loans were repaid through banking channels and were reflected in the assessee's books of accounts before the search.

Issue 2: Deletion of Addition of Interest on Unsecured Loans
The AO disallowed interest expenses of Rs. 4,50,000/- related to the unsecured loans, treating them as bogus. The CIT(A) deleted this disallowance, noting that the interest was paid through banking channels and was supported by the lender's financials. The CIT(A) found that the AO had not provided sufficient grounds to doubt the genuineness of the interest payments.

Issue 3: Acceptance of Case Law Cited by CIT(A)
The revenue contended that the CIT(A) erred in citing case law that did not apply to the facts of the case. However, the CIT(A) relied on relevant judicial precedents, including the decision of the Hon'ble Apex Court in Dhakeswari Cotton Mills Ltd. v. CIT, which emphasized that assessments should not be based on pure guesswork without evidence. The CIT(A) also referred to the decision of the Hon'ble Calcutta High Court in Principal Commissioner of Income-tax v. Sreeleathers, which supported the assessee's position regarding the burden of proof and the need for the AO to provide specific reasons for rejecting the assessee's evidence.

Conclusion:
The appeal by the revenue was dismissed, with the tribunal upholding the CIT(A)'s decision to delete the additions made by the AO under Section 68 and the related interest disallowance. The tribunal found that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the loan transactions and that the AO had not provided adequate reasons to reject this evidence.