2024 (3) TMI 615 - AT - Income Tax

Addition u/s 69A - unsecured loans - as assessee did not furnish loan confirmation, copy of letter and bank statement of the lenders, thus credit worthiness and genuineness of the transaction cannot be proved - HELD THAT - From the perusal of the bank statements, it is seen that both the parties had sufficient credit balance in their bank account before transferring the amount through RTGS to the assessee s account and they have also acknowledged in the confirmation about giving of the loan to the assessee. Once these documents are there on record, it cannot be held that the loan is not genuine or parties did not have the creditworthiness. Accordingly, addition on account of loan is deleted. Disallowance of interest expenditure - HELD THAT - Assessee before us has filed copy of ledger account and bank statement of the assessee and it is seen that these interests are duly reflected in the audited accounts as well as in the bank statements. From the perusal of the balance sheet it is seen that assessee had disclosed financial expenses. For interest on bank OD assessee had filed copy of ledger account of SBI and the interest was paid to the bank on OD account. Similarly, for secured and unsecured loans assessee has filed copy of bank statement and ledger account of interest paid to various parties on the loans taken. Thus, there is a genuine outgoing of interest to the banks as well as to the parties, either for OD account or the loans taken in the earlier years. Nowhere it has been brought on record or it is the case of the AO that that loans taken earlier or during the year is not for business purpose. The reason for disallowance by the ld. AO is that since assessee has not submitted how the capital went negative after the receipt of loans and how the business went into losses after receipt of loans. This cannot be the reason for disallowance of interest without doubting genuineness of the payments itself. If there are loans outstanding in the balance sheet and assessee has paid interest to these parties from his bank account, there is no reason for making any such disallowance, unless the loans in the balance sheet have been found to used for non-business purpose. Accordingly, the disallowance of interest is deleted. Assessee appeal allowed.

Summary

Issues involved:
The issues involved in this case are the addition of unsecured loans under section 69A and the disallowance of interest expenses claimed as business expenditure under section 69C.

Addition of Unsecured Loans under section 69A:
The appellant, an individual conducting business as a proprietor, had taken unsecured loans from two parties. The assessing officer added the total amount of the loans as unexplained money under section 69A due to the lack of loan confirmation, letters, and bank statements from the lenders. The appellant contended that the loans were utilized for business purposes, and despite submitting details of the lenders, the assessing officer rejected the explanation. However, the Tribunal found that the lenders had sufficient credit balance, confirmed the loans, and provided bank statements, thus ruling in favor of the appellant and deleting the addition of the unsecured loans.

Disallowance of Interest Expenses under section 69C:
The assessing officer disallowed the appellant's claim of financial expenses, specifically interest expenses, citing a negative capital balance and lack of evidence on how the capital turned negative after receiving loans. The appellant argued that the loans were used for business purposes, supported by balance sheets and explanations. The Tribunal noted that the interest payments were reflected in the audited accounts and bank statements, indicating genuine transactions for business purposes. As there was no evidence to doubt the genuineness of the payments, the disallowance of interest expenses was deemed unjustified, and the Tribunal ruled in favor of the appellant, deleting the disallowance.

Conclusion:
In conclusion, the Appellate Tribunal ruled in favor of the appellant, allowing the appeal against the addition of unsecured loans under section 69A and the disallowance of interest expenses under section 69C. The Tribunal found the loans to be genuine and utilized for business purposes, and the interest expenses were deemed valid based on the evidence provided.