2022 (8) TMI 434 - AT - Income Tax

ITAT Overturns Disallowances, Grants Relief to Assessee

The ITAT allowed the appeal, overturning disallowances made by lower authorities. It found discrepancies in cash deposits, misinterpretation of a cheque ... Disallowance of interest u/s. 36(l)(iii) in respect of interest free loan/ advance to sister concern - HELD THAT:- seen from record, the assessee paid interest free loan to M/s. S.S. Enterprise, out of the interest free funds available with the assessee, who has made a profi during the assessment year 2015-16. It is not the case of the assessee that “borrowed funds” were given interest free loans and advances to the sister concern. Therefore the ratio of the Hon’ble Apex Court judgment in the case of S.A. Builders is not applicable to the present facts of the case. Also see PARESH LALCHAND SHAH (PROP : JYOTI STEEL CORPORATION) [2013 (4) TMI 767 - ITAT AHMEDABAD] Thus we hold that the addition made u/s. 36(1)(iii) r.w.s. 40A(2)(b) by the lower authorities are hereby deleted and the grounds of appeal raised by the assessee are hereby allowed. Addition u/s 68 - unexplained cash credit - HELD THAT:- AO in his assessment order stated no return of income filed by Ms. Rashmi Saraf and no PAN available and therefore made the addition u/s. 68 of the Act. Whereas the Ld. CIT(A) on going through the bank statement of Ms. Rashmi Saraf held that cash deposit in her bank account but actually it is a cheque deposit made by the lender. Thus factually the Ld. CIT(A) is not correct in confirming the addition of the advances. We further notice that the assessee has made TDS in the case of Ms. Rashmi Saraf and the loan is also repaid by way of cheque by the assessee through her bank account on 19.09.2015 by way of RTGS. Thus, the assessee has proved the identity, creditworthiness and genuineness of the above loan transactions with proper evidences. Therefore, the above addition of Rs. 10,00,000/- as cash credit is hereby deleted and the grounds raised by the assessee are hereby allowed. Issues involved:1. Disallowance of interest u/s. 36(l)(iii) of the act in respect of interest-free loan/advance to sister concern.2. Addition u/s. 68 of the act in respect of loan from Ms. Rashmi Saraf.3. Misreading of cheque deposit as cash deposit leading to incorrect addition.4. Disallowance of interest paid to Ms. Rashmi Saraf.Analysis:1. The appeal was against the order passed by the Commissioner of Income Tax (Appeals)-6, Ahmedabad, regarding disallowance of interest under section 36(1)(iii) of the Income Tax Act, 1961. The Assessing Officer added a sum for interest-free loan given to a specified person. The CIT(A) upheld the disallowance citing the judgment of the Supreme Court in CIT vs. S.A. Builders. However, the ITAT found that the facts of the case did not align with the principles of the cited case. The ITAT referred to a Co-ordinate Bench judgment and directed the Assessing Officer to delete the disallowance of interest expenses.2. The second issue pertained to the addition under section 68 of the Act concerning a loan from Ms. Rashmi Saraf. The CIT(A) confirmed the addition as unexplained cash credit due to discrepancies in cash deposits. The ITAT, after examining the evidence presented by the assessee, found that the CIT(A) misinterpreted the deposit as cash instead of a cheque deposit. The ITAT concluded that the assessee had proven the genuineness of the loan transactions, leading to the deletion of the addition of Rs. 10,00,000.3. The misreading of the cheque deposit as cash deposit by the CIT(A) resulted in an incorrect addition. The ITAT rectified this error based on the evidence provided by the assessee, including bank statements and repayment details, leading to the deletion of the addition.4. Lastly, the disallowance of interest paid to Ms. Rashmi Saraf was also challenged in the appeal. The ITAT reviewed the TDS details and repayment evidence, concluding that the disallowance was not justified. The ITAT allowed the grounds raised by the assessee, leading to the deletion of the disallowance.In conclusion, the ITAT allowed the appeal filed by the Assessee, overturning the disallowances made by the lower authorities. The ITAT's detailed analysis and reliance on legal precedents led to the deletion of the additions, providing relief to the assessee.