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TMI Blog2025 (5) TMI 277X X X X Extracts X X X X X X X X Extracts X X X X ..... 2024. In the impugned orders, the Ld. CIT(A) confirmed the disallowance of interest on unsecured loans to the extent of Rs. 36,69,000/ - for A.Y. 2017-18 and Rs. 38,94,295/ - for A.Y. 2018-19, as originally disallowed by the Assessing Officer. Since the issues involved in both appeals are common and interlinked, arising from the same factual and legal matrix, both appeals were heard together and are being disposed of by way of this consolidated order. Facts of the case: 2. The assessee is a partnership-firm engaged in the business of construction and development. During the respective assessment years, the Assessing Officer disallowed interest expenditure on unsecured loans on the ground that the loans were either unexplained or not genui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition of Rs. 14.69 Cr deleted 2. Interest disallowance Rs. 36,69,000/ - sustained 2. Section 269SS addition of Rs. 33.90 Cr deleted 3. Bogus purchase addition deleted 3. Interest disallowance of Rs. 38,94,295/ - sustained Key reasons for AO's disallowance Failure to prove genuineness/ creditworthiness of loan creditors; no confirmation from 12 parties Continued failure to prove genuineness of loans from prior year; interest disallowed based on earlier findings Key findings of CIT(A) Genuineness of principal loans not established despite deletion of u/s 68 addition; interest disallowance upheld Principal not added u/s 68 in current year, but interest disallowed for lack of evidence proving loan genuineness 4. Aggrieved by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iance on the following judicial precedents: * Vidya Education Investments (P.) Ltd. [2021] 129 taxmann.com 5 (Delhi - Trib.). * United Foods (P.) Ltd. [2023] 148 taxmann.com 452 (Delhi - Trib.). * Ojas Tarmake (P.) Ltd. [2023] 156 taxmann.com 75 (Gujarat). * Hareshbhai Sakariya [2023] 148 taxmann.com 115 (Surat-Trib.). These decisions were cited to support the proposition that interest cannot be disallowed in the absence of a sustainable addition of principal under section 68, and that the AO had not brought on record any contrary evidence except non-compliance with notices issued under section 133(6) of the Act. 5.2. The Ld. Departmental Representative (DR) supported the findings recorded by the Assessing Officer as well as the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the loans did not pertain to the year under consideration, the interest claimed on such loans was disallowed and the disallowance was confirmed in both assessment years on the ground that the assessee failed to substantiate the genuineness and creditworthiness of the loan transactions. 6.1. It is settled law that the deletion of an addition under section 68 of the Act on technical grounds-namely, that the credit pertains to an earlier year and is carried forward as opening balance-does not automatically confer legitimacy upon the transaction. It is important to note that the Ld. CIT(A) has specifically recorded that the loan amounts reflected in the opening balances pertain to earlier years which were not subject to scrutiny assessment, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee fails to establish the genuineness of the underlying loan, the interest payable or paid thereon cannot be allowed. Mere routing of interest through banking channels or deducting TDS is not conclusive proof of allowability. 6.4. Further, the assessee's failure to bring on record evidence of repayment of the loans, even years after their receipt, reinforces the Revenue's contention that the alleged loans lack commercial substance. A genuine business liability is typically reflected in either repayment schedules, confirmations, or servicing of debt - none of which have been demonstrated in the present case. The assessee has relied on various decisions to argue that non-compliance with notices under section 133(6) or 131 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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