2021 (10) TMI 565 - AT - Income Tax

Addition u/s 68 in respect of loan received by the assessee from four persons - Addition being unsecured loan creditors under section 41(1) as repayment of loan - assessee could not produce PAN on confirmation - HELD THAT - Loan taken from Ms.Shamala since the additional evidence is admitted as regards the addition made for loan taken from Smt.Shalama amounting to Rs. 1, 50, 000 I restore the issue to the files of the A.O. The A.O. shall consider whether the loan taken for Rs. 1, 50, 000 has been repaid. The assessee has also produced the confirmation wherein it is clearly stated that the loan of Rs. 1, 50, 000 was received by cheque and amount was repaid vide cheque along with interest of Rs. 34, 000 totaling to Rs. 1, 84, 000 on 14.03.2014. If these facts narrated in the confirmation are true the addition of Rs. 1, 50, 000 is to be deleted by the A.O. It is ordered accordingly. Loan taken from Mr.Ramrathana - As assessee claims the loan received from Mr.Ramrathana has been repaid subsequently on 10.04.2014 vide cheque No.5593. However the assessee has not submitted any evidence even before the Tribunal as regards the PAN and the mode of repayment of the loan. Hence confirm the addition Assessee has contended that the amount of loan taken from both Sri.Manu K.P. and Smt.Roopa Manu has been paid in the subsequent year thus that the matter needs to be examined afresh by the A.O. The A.O. is directed to delete the addition u/s 68 of the I.T.Act in respect of loans received from Sri Manu K.P. and Smt.Roopa Manu if the assessee is able to prove that loan amount has been repaid (claim of the assessee it has been repaid in the year 2014). CIT(A) has enhanced the addition to Rs. 14, 75, 000 instead of Rs. 14, 00, 000 made by the A.O. It is not clear whether the CIT(A) has served enhancement notice to the assessee. Without serving enhancement notice it is settled position of law that no enhancement can be made by the CIT(A). Therefore I direct the A.O. after examining the issues that are restored to him the total addition cannot exceed more than Rs. 14, 00, 000. (since I have confirmed an addition of Rs. 1, 25, 000 the A.O. shall limit the addition if at all required to Rs. 12, 75, 000). Appeal filed by the assessee is partly allowed for statistical purposes.

Summary

Issues:
Appeal against CIT(A)'s order upholding addition of unsecured loan creditors under section 41(1) of the Income Tax Act, 1961 without issuing notice of enhancement, failure to satisfy conditions under section 68, and sustainability of additions made.

Detailed Analysis:

Issue 1: Addition under Section 41(1) of the IT Act
The assessee's unsecured loans were scrutinized by the Assessing Officer, who added back Rs. 14,00,000 under section 41(1) due to lack of PAN confirmation. The CIT(A) reexamined the case and increased the addition to Rs. 14,75,000 under section 68, citing failure to meet conditions of section 68. The Tribunal reviewed the case, admitting additional evidence and directing the AO to verify repayment details for loans from Ms. Shamala and Mr. Ramrathana. The Tribunal confirmed the addition of Rs. 1,25,000 for Mr. Ramrathana's loan but ordered deletion of Rs. 1,50,000 for Ms. Shamala's loan, based on new evidence.

Issue 2: Addition under Section 68 of the IT Act
The CIT(A) enhanced the addition to Rs. 14,75,000 under section 68 for unexplained credits. The Tribunal examined each loan separately. For loans from Mr. Manu K.P. and Smt. Roopa Manu, the Tribunal directed the AO to delete the addition if the loans were repaid, following precedents and the claim that the loans were received prior to the relevant assessment year. The Tribunal emphasized the need for proper verification before making additions under section 68.

Issue 3: Notice of Enhancement
The Tribunal noted that the CIT(A) enhanced the addition without serving an enhancement notice to the assessee, which is legally impermissible. Therefore, the Tribunal directed the AO to limit the total addition to Rs. 14,00,000, ensuring compliance with procedural requirements. The Tribunal clarified the total addition should not exceed Rs. 14,00,000, even though it confirmed an additional Rs. 1,25,000, resulting in a final limit of Rs. 12,75,000.

In conclusion, the appeal was partly allowed for statistical purposes, with the Tribunal providing detailed instructions for the AO to follow regarding the additions made under sections 41(1) and 68 of the IT Act, emphasizing the importance of proper verification and procedural compliance.