2020 (3) TMI 714 - AT - Income Tax

Appeal partially allowed: Interest expenses disallowed, unexplained cash credit reversed. Order dated 17-01-2020.

The Tribunal partly allowed the appeal, upholding the disallowance of interest expenses but reversing the addition of Rs. 7.45 crores as unexplained cash ... Disallowance of interest expenses - HELD THAT:- Admittedly, the onus lies on the assessee to justify based on documentary evidence that the interest expenses was incurred on the money borrowed from the bank and other parties for the purpose of the business. But the assessee, in the present case has failed to do so. Assessee claimed to have received interest-free loan from M/s Master developers in the submission made before the learned CIT (A). However, the assessee to establish the genuineness of loan from M/s Master Developers has contended before the learned CIT (A) that it has paid interest on the money borrowed from MD. The relevant submission of the assessee before the learned CIT (A) that A.O. has disallowed the outstanding amount along with interest paid to Master Developers u/s. 41(1) - Thus, from the above it is transpired that the assessee has made contradictory submissions before the learned CIT (A) and has not furnished the required details of the interest expenses to justify that the interest cost was incurred in the course of the business. Thus in the absence of sufficient documentary evidence about the interest expenses on the borrowed fund whether the same was utilized for the purpose of business, we do not find any reason to interfere in the order of the authorities below. Hence the ground of Appeal of the assessee is dismissed. Unexplained cash credit under section 68 - liability on the assessee to provide the identity of the lenders, establish the genuineness of the transactions and creditworthiness of the lenders - HELD THAT:- The provision of section 68 of the Act fastens the liability on the assessee to provide the identity of the lenders, establish the genuineness of the transactions and creditworthiness of the lenders. These liabilities on the assessee were imposed to justify the cash credit entries under section 68 in the case of CIT Vs. Precision finance (p) Ltd [1993 (6) TMI 17 - CALCUTTA HIGH COURT] Admittedly the assessee has discharged its onus by furnishing the necessary details such as a copy of ledgers, confirmation, bank details, etc. in support of identity of the parties. There is also no doubt that the transaction for the loan received from M/s Master Developers was carried out through the banking channel as evident from the submission of the assessee before the ld. CIT-A - we find the assessee has discharged his onus regarding the identity and genuineness of the transactions. Thus, the ledger copies filed by the assessee without signature cannot be the basis of treating the impugned transaction of loan as unexplained cash credit under section 68 of the Act after ignoring the bank statement and confirmation filed by the assessee. Thus there is no doubt that the transaction of the loan was carried out through the banking channel. Therefore there cannot be any doubt about the genuineness of the transactions. Coming to the 3rd condition, i.e. creditworthiness of the parties, regarding this it is also pertinent to note that M/s Master Developers did not file the income tax returns for the assessment years 2008-09 to AY 2010-11 under section 139 (1) of the Act. But M/s Master Developers has filed the returns of income in response to the notice issued under section 148 of the Act, declaring the income which has been elaborated in the preceding paragraph. Indeed the returns were filed by the M/s Master Developers subsequent to the assessment order dated 30-03-2015 declaring the income which has been elaborated in the preceding paragraph. As such the income declared by the M/s Master Developers in its income tax returns were duly accepted by the Revenue. Though, these returns were filed by MD subsequent to the assessment in the hands of the assessee, but these returns in our considered view are crucial for determining the net worth of MD. These returns were filed before the learned CIT (A) and no doubt was raised on these returns. Assessee in respect of source of fund in the hands of the lender i.e. MD has furnished the sufficient documentary pieces of evidence such as bank statement, ledger copy of MD and Shri Rajnibhai Desai in the books of each other including the details of the income of MD which has been elaborated in the preceding paragraph. Therefore in our considered view, the assessee has discharged its onus imposed under section 68 of the Act. The assessee in the present case has duly explained the source of money received in its hands. The assessee is not answerable to justify the source of the source of the money received by it. Assessee has furnished the basic details about the loan taken from MD such as, confirmation, bank statement, source of money received by MD i.e. Rajni bhai Desai but the AO has not made any verification from such parties. As such, the case of the entire group was centralized and all the relevant documents of MD and Rajni bhai Desai were available befor the AO. But the AO has not made any reference to such documents and arrived at the conclusion that the impugned amount represents unexplained cash credit under section 68 of the Act. Assessee before the learned CIT (A) has furnished the copies of the income tax return filed by MD but the learned CIT (A) without considering the same insisted for financial statements of MD. If the assessee has not furnished the details of MD, then the CIT (A) could have easily collected the same from the office of the income tax Department. But he has not done so. Once the assessee has discharged primary onus by proving the identity of lender, genuineness of transaction and capacity to advance the loan then it is the burden of the revenue to prove it otherwise. Creditworthiness of MD cannot be doubted merely on the ground that the assessee failed to furnish the financial statement. As such, MD has declared the income in its income tax return as evident from the preceding paragraph which is running into crores of rupees and there was no defect of whatsoever was pointed out by the authorities below. - Decided in favour of assessee. Issues Involved:1. Validity of proceedings under Section 153A.2. Disallowance of interest expenses amounting to Rs. 24,30,617/-.3. Addition of Rs. 7.45 crores towards unsecured loans from Master Developers as unexplained cash credit under Section 68 of the Act.Issue-wise Detailed Analysis:1. Validity of proceedings under Section 153A:- The first issue raised by the assessee was general in nature and thus dismissed as infructuous.- The second issue regarding the validity of proceedings under Section 153A was not pressed by the learned Counsel for the assessee and hence dismissed as not pressed.2. Disallowance of interest expenses amounting to Rs. 24,30,617/-:- The assessee, engaged in multiple businesses, claimed interest expenses of Rs. 24,30,617/- on secured and unsecured loans.- The AO disallowed the interest expenses due to the absence of evidence showing the borrowed funds were used for business purposes, noting the tax payments and lack of investment in real estate.- The assessee contended that the interest-free loan of Rs. 7.80 crores was used to pay taxes, thus no disallowance should be made.- The CIT(A) upheld the AO’s decision, citing insufficient documentary evidence from the assessee to prove the interest-bearing funds were not used to pay income tax dues.- The Tribunal noted the contradictory submissions by the assessee and lack of sufficient evidence to justify the interest expenses for business purposes, thus upheld the disallowance of Rs. 24,30,617/-.3. Addition of Rs. 7.45 crores towards unsecured loans from Master Developers as unexplained cash credit under Section 68 of the Act:- The assessee received Rs. 7.45 crores as a loan from Master Developers (MD), in which he was a partner, and provided ledger accounts and bank statements as evidence.- The AO observed discrepancies such as MD not filing returns post AY 2002-03 and questioned the genuineness of the ledger accounts, leading to the addition of the loan amount as unexplained cash credit.- The CIT(A) upheld the AO’s decision, noting the lack of corroborative documentary evidence and the convoluted explanation provided by the assessee.- The Tribunal found that the assessee had discharged the primary onus by providing identity, genuineness of the transaction, and creditworthiness of MD through bank statements and confirmations.- The Tribunal held that the absence of signed ledger copies alone cannot justify treating the loan as unexplained cash credit, especially when the transaction was through banking channels and MD had filed income tax returns showing substantial income.- The Tribunal emphasized that once the assessee has provided primary evidence, the burden shifts to the Revenue to disprove it, which was not done in this case.- Consequently, the Tribunal allowed the appeal on this ground, reversing the addition of Rs. 7.45 crores as unexplained cash credit.Conclusion:- The appeal by the assessee was partly allowed, with the Tribunal upholding the disallowance of interest expenses but reversing the addition of Rs. 7.45 crores as unexplained cash credit. The order was pronounced in Open Court on 17-01-2020.