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2021 (5) TMI 343 - AT - Income TaxAddition u/s 68 on account of unsecured loans received - disallowance of interest paid on such unsecured loans - HELD THAT - AO had observed that the notice issued u/s 133(6) of the Act was returned unserved by the postal authorities in respect of two lenders. But it is not in dispute that the said fact was fully confronted by the AO before the authorized representative of the assessee company which fact is mentioned in the assessment order itself. Assessee company in order to comply with the due process of law had filed all the details that were called for by the ld AO in respect of all the lenders by duly answering all the requisite questions thereon. No fault could be attributed on the part of the assessee. It is not in dispute that the assessee had repaid all the loans to the aforesaid 4 lenders in Feb 2016 relevant to Asst Year 2016-17 and that admittedly the enquiries were carried out by the AO in Asst Year 2017-18. The assessee cannot be expected to have all the latest address of all the lenders with whom the transactions have already been completed by the assessee. It is not the case of the revenue that the assessee has continuous transactions with those lenders even after Asst Year 2016-17. Hence merely because the ld AO was not able to serve the notice u/s 133(6) of the Act on those lenders at the last available address with given by the assessee no fault could be attributed on the assessee for the same. It is not in dispute that all the transactions have been routed through regular banking channels. It is not in dispute that the said inter corporate deposits did carry interest and assessee had duly paid the same after deduction of due tax at source at the applicable rates thereon. It is not in dispute that the loans were fully repaid by the assessee company to all the lenders in Feb 2016. We find that the ld AO himself had admitted in his assessment order that all the 4 lender companies had disclosed huge turnover in their profit and loss account. Hence the creditworthiness of the lenders is proved beyond doubt in the instant case. We find that all the 4 lender companies have duly filed their income tax returns for the relevant assessment year. We find that the assessee had furnished their PAN income tax return acknowledgements copy of ROC returns etc to prove their identity beyond doubt in the instant case. Receipt of loans from 4 lender companies payment of interest thereon and repayment of loans were made through regular banking channels by account payee cheques which is evident from the bank statements enclosed in the paper book filed before us which are already forming part of records. We also find that the lender companies had also duly disclosed the fact of advancing inter corporate deposits in their balance sheets and had also duly confirmed the loan transactions with the assessee company by signing the ledger copy of confirmation which is also enclosed in paper book filed before us. The replies to notice u/s 133(6) of the Act duly confirming the loan transactions were also duly submitted before the ld AO which is also acknowledged by the ld AO in his assessment order. Hence the genuineness of transactions had been duly proved by the assessee beyond doubt in the instant case. Addition was liable to be deleted. We find that the case of the assessee before us is even better in as much as the parties had directly responded to the summons issued u/s 131 of the Act before the ld AO by furnishing the requisite details. In the instant case admittedly the assessee had duly repaid the loans to 4 lender companies. If the loans received by assessee are its own income then there is no need to make repayment of the same to lender companies. This clinching factual evidence had apparently missed the attention of the ld AO while framing the assessment. Hence it could be safely concluded that the assessee had duly discharged its onus by proving the three necessary ingredients of section 68 of the Act ie. Identity of the lenders creditworthiness of the lenders and genuineness of transactions in the instant case. Hence in view of the aforesaid observations and respectfully following the judicial precedent relied upon hereinabove we hold that the addition made by the ld AO had been rightly deleted by the ld CIT-A u/s 68 of the Act. Since the loan amount has been held by us as genuine the corresponding interest payment made thereon after subjecting the same to TDS compliances deserves to be allowed. It is not the case of the revenue that the inter corporate deposits received by the assessee from aforesaid 4 companies were not utilized for the purpose of business of the assessee company. Hence the interest paid on such borrowings are allowed as deduction. Appeal of the revenue is dismissed.
Issues Involved:
1. Justification of deletion of addition made under Section 68 of the Income Tax Act on account of unsecured loans. 2. Justification of deletion of disallowance of interest paid on such unsecured loans. Issue-wise Detailed Analysis: 1. Justification of Deletion of Addition under Section 68: The core issue was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the addition of Rs. 1,90,00,000 made under Section 68 of the Income Tax Act, 1961, on account of unsecured loans received by the assessee. The Assessing Officer (AO) had questioned the genuineness of the loans received from four entities based on the following observations: - The companies appeared to be paper entities with no genuine business activities. - The notices sent under Section 133(6) to two of the lenders were returned unserved. - The AO also issued a commission under Section 131(1)(d) to the Joint Director of Income Tax (Investigation), Kolkata, who reported that the companies did not exist at the provided addresses. The assessee, a private limited company engaged in trading agricultural commodities, had filed various documents to substantiate the genuineness of the loans, including loan confirmations, bank statements, income tax returns, and financial statements of the lenders. Despite this, the AO concluded that the transactions were not genuine and added the loan amounts as unexplained cash credits under Section 68. The CIT(A), however, found that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the transactions. The CIT(A) noted that: - The loans were received and repaid through banking channels. - Interest was paid and subjected to TDS. - The lenders had sufficient financial capacity to provide the loans. - The AO's reliance on the DDIT's report was not sufficient to negate the documentary evidence provided by the assessee. The CIT(A) emphasized that the AO failed to provide compelling evidence to contradict the assessee's claims and that the AO's conclusions were based on mere suspicion. The CIT(A) directed the AO to withdraw the addition. 2. Justification of Deletion of Disallowance of Interest Paid: The interconnected issue was whether the CIT(A) was justified in deleting the disallowance of Rs. 13,08,903 as interest paid on the unsecured loans. Since the CIT(A) found the loans to be genuine, the corresponding interest payment, which was subjected to TDS, was also allowed as a deduction. The CIT(A) noted that: - The interest payments were made through banking channels. - The interest was paid on loans that were utilized for the business purposes of the assessee. - The AO did not provide any evidence to suggest that the loans were not used for business purposes. Conclusion: The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, concluding that the assessee had successfully discharged its onus of proving the identity, creditworthiness, and genuineness of the transactions. The ITAT dismissed the revenue's appeal, affirming that the addition under Section 68 and the disallowance of interest were rightly deleted by the CIT(A). Order: The appeal of the revenue was dismissed, and the order was pronounced on 20/04/2021.
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