2025 (6) TMI 1457 - AT - Income Tax

Addition on account of unsecured loan - increase in the unsecured loan balance - HELD THAT - As explained by the assessee the interest credit during the year was Rs. 61, 14, 262/- on which TDS of Rs. 6, 11, 425/- was made. Further the assessee had made re-payment of loan of Rs. 2, 60, 435/-. TDS amount and re-payment amount adjusted with the interest credit of Rs. 61, 41, 262/- explained the difference of Rs. 52, 42, 402/- as noted by the AO. It appears that the AO has only considered the fresh loan of Rs. 2.31 crores received during the year. The interest credit the TDS on the interest and part re-payment as explained by the assessee was not at all considered by the AO. When we take into account the interest credit reduced by TDS and the repayment we do not find any difference in increase in unsecured loan balance. Therefore the addition as made by the AO on account of difference in unsecured loan balance was not correct. Accordingly the addition made by the AO is deleted. Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

(a) Whether the reopening of the assessment under Section 147 of the Income Tax Act, 1961, was justified in the absence of any fresh information, given that the required information was already furnished and verified during the original limited scrutiny assessment.

(b) Whether the addition of Rs. 52,42,402/- on account of unexplained unsecured loans was justified, despite the acceptance of the genuineness of the unsecured loans by the Assessing Officer (AO), particularly when the addition related to interest credited on such loans during the year but not separately accounted for by the AO.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Legality of reopening the assessment under Section 147 without fresh information

Relevant legal framework and precedents: Section 147 of the Income Tax Act permits reopening of an assessment if the Assessing Officer has reason to believe that income has escaped assessment. However, reopening must be based on tangible material or fresh information that was not available at the time of original assessment. The principle is well-established that mere change of opinion or absence of fresh information does not justify reopening.

Court's interpretation and reasoning: The assessee challenged the reopening on the ground that no fresh information was available and that the necessary details were already furnished and verified during the original limited scrutiny assessment. However, the counsel for the assessee did not press this ground before the Tribunal, leading to its dismissal as such.

Application of law to facts: Since the ground was not pressed, the Tribunal did not delve into the merits of the reopening but dismissed it for non-pursuance. Thus, this issue did not receive substantive adjudication.

Issue (b): Justification of addition of Rs. 52,42,402/- on account of unexplained unsecured loan balance

Relevant legal framework and precedents: Under the Income Tax Act, unexplained credits, including loans, may be added to income if the assessee fails to satisfactorily explain their nature and source. However, where the assessee provides documentary evidence, confirmations, and explanations for the loan transactions, including interest accrual and repayments, such additions are not warranted.

Court's interpretation and reasoning: The AO made an addition of Rs. 52,42,402/- by treating the difference between the increase in unsecured loan balance (Rs. 2,83,42,402/-) and fresh unsecured loans received (Rs. 2,31,00,000/-) as unexplained income. The AO did not consider the interest credited during the year amounting to Rs. 61,14,262/-, the TDS deducted on interest of Rs. 6,11,425/-, and repayments of Rs. 2,60,435/- which collectively explained the difference.

The assessee had submitted detailed break-ups and documentary evidence, including confirmations from 40 parties, bank statements, and previous years' returns to substantiate the genuineness of the loans and interest credited. The Tribunal noted that the AO only considered the fresh loans received but failed to account for the accrued interest credited and repayments made during the year.

Key evidence and findings: The assessee's letter dated 11/03/2022 provided a detailed reconciliation of the unsecured loan balance increase, showing:

• Fresh unsecured loans received: Rs. 2,31,00,000/-
• Interest credited during the year: Rs. 61,14,262/-
• TDS on interest: Rs. 6,11,425/-
• Repayments made: Rs. 2,60,435/-

These figures reconciled the total increase in unsecured loans to Rs. 2,83,42,402/-, negating any unexplained difference.

Application of law to facts: Since the addition was premised on an unexplained difference which was in fact explained by the assessee through credible documentary evidence and reconciliations, the addition was not justified under the legal principles governing unexplained credits.

Treatment of competing arguments: The Revenue relied on the AO's order and maintained the addition was proper. The Tribunal, however, found the AO's approach flawed for ignoring the interest credited and repayments, which were supported by evidence. The assessee's explanation was accepted as reasonable and substantiated.

Conclusions: The Tribunal concluded that the addition of Rs. 52,42,402/- was not warranted and deleted the addition accordingly.

3. SIGNIFICANT HOLDINGS

"When we take into account the interest credit reduced by TDS and the repayment, we do not find any difference in increase in unsecured loan balance of Rs. 2,83,42,402/-. Therefore, the addition of Rs. 52,42,402/- as made by the AO on account of difference in unsecured loan balance was not correct."

The Tribunal established the principle that an addition on account of unexplained unsecured loans cannot be sustained if the assessee satisfactorily explains the increase in loan balance by including accrued interest, TDS deductions, and repayments, supported by documentary evidence and confirmations.

On the issue of reopening under Section 147 without fresh information, the Tribunal dismissed the ground as not pressed, implying that reopening requires fresh tangible information beyond what was available at original assessment.

Final determinations:

• The ground challenging reopening under Section 147 was dismissed as not pressed.
• The addition of Rs. 52,42,402/- on account of unexplained unsecured loan balance was deleted as the difference was adequately explained by the assessee.
• The appeal was allowed in favor of the assessee on the substantive issue of addition.