2024 (2) TMI 1197 - AT - Income Tax

Addition u/s 68 - unsecured loan - non verification of identity and creditworthiness of lenders and genuineness of transactions from whom the assessee has shown unsecured loans - HELD THAT - We note that Hon ble Apex Court in the case of CIT vs. Orissa Corporation Pvt. Ltd 1986 (3) TMI 3 - SUPREME COURT held that when assessee furnished their complete address, PAN as well as confirmation and bank details of creditors/lender, the addition should not made in the hands of the assessee. We note that opening balance of the Lenders are not subject to disallowance in the current assessment year under consideration, if the AO wanted to disallow the same, he could disallow in the previous assessment year. During the assessment year under consideration, the assessee took fresh loan and to substantiate the genuineness of fresh loan, the assessee submitted confirmation, bank statement, name, address and PAN number, moreover the transactions were through banking channel. On such fresh loan interest has been paid to the lenders, and TDS on interest has been paid hence genuineness of the fresh loan cannot be doubted. We also note that some of the Lenders have been fully repaid during the year under consideration. Once, the repayment is made and accepted by the department no addition for such loan is to be made in the hands of the assessee. Decided against revenue. Estimation of income - bogus purchases - HELD THAT - Under the Income tax proceedings, the disallowance of entire purchases is not justified when the assessee has furnished the details of purchases and payments made through banking channel. It is settled law under the income tax proceedings that only profit element embedded in such transaction, may be disallowed and not the substantial part of transaction. Keeping in view the nature of business activities of the assessee and profit margin in trading activities, 6% of impugned disallowance would be reasonable and justified to avoid the possibility of revenue leakage. Thus, the Assessing Officer is directed to restrict the addition to the extent of 6% of Rs. 1.01 crore. Decided partly in favour of assessee.

Summary

Issues Involved:
1. Addition under Section 68 of the Income Tax Act.
2. Disallowance of purchases under Section 37(1) of the Income Tax Act.

Summary:

Issue 1: Addition under Section 68 of the Income Tax Act
The appeal by the assessee challenges the addition of Rs. 7.83 crores made by the Assessing Officer (AO) under Section 68 for unsecured loans. The AO doubted the creditworthiness of the lenders and the genuineness of transactions. The assessee argued that the addition included opening balances and interest, and that only Rs. 1.12 crore was received as new loans during the year. The assessee provided detailed confirmations, bank statements, and financial statements to substantiate the identity, creditworthiness, and genuineness of the lenders, including family members. The CIT(A) upheld the AO's addition, stating the assessee failed to prove the creditworthiness and genuineness of the transactions. However, the Tribunal found that the AO's addition was based on incorrect figures and that the assessee had provided sufficient evidence to prove the genuineness of the loans. The Tribunal allowed the assessee's appeal, emphasizing that the opening balances and repaid amounts could not be added in the current year and that the assessee had discharged the onus of proving the loans' genuineness.

Issue 2: Disallowance of Purchases under Section 37(1) of the Income Tax Act
The AO disallowed Rs. 1.01 crore of purchases, treating them as non-genuine because the seller parties did not respond to notices and had not filed returns. The assessee contended that the purchases were genuine, supported by bills, GST details, stock registers, and bank statements. The CIT(A) upheld the AO's disallowance. The Tribunal found that the disallowance of the entire purchase amount was not justified, as the assessee had provided sufficient evidence of the transactions. The Tribunal directed the AO to restrict the disallowance to 6% of the purchase amount, considering the profit margin in trading activities.

Conclusion:
The Tribunal allowed the appeal regarding the addition under Section 68 and partly allowed the appeal regarding the disallowance of purchases, directing a reduced disallowance rate of 6%.