2022 (10) TMI 1100 - AT - Income Tax

Tribunal decision on unsecured loans and business expenses upheld. Revenue appeal dismissed.

The Tribunal upheld the CIT(A)'s decision in deleting the addition of Rs. 5,90,90,000/- related to unexplained unsecured loans, and sustained the addition ... Addition u/s 68 - unexplained unsecured loan assessee company failed to establish the creditworthiness of all lenders and identity of five lenders therefore genuineness of transaction remained unexplained - CIT-A deleted the addition - HELD THAT:- As on the basis of documents and details filed in respect of all nine (9) depositors, the assessing officer has accepted only one depositor as explained even though she was not produced before assessing officer. Hence we note that approach of AO is arbitrary. We note that assessee furnished the copy of respective returns of income with final accounts of Lenders wherein transactions have been duly found reflected. Lenders have been regularly assessed to tax. In the case of all the lender; assessment u/s. 143(3) for AY.2012-13 have been completed in Surat I.T department. Thus, creditworthiness has been duly examined by the department under scrutiny. Copies of relevant assessment orders have been filed before ld CIT(A). Hon'ble Gauhati High Court in the case of Jalan Timber [1996 (8) TMI 83 - GAUHATI HIGH COURT] has held that if assessee and creditors both have shown amount in their income tax return, no addition u/s 68 can be made if the returns of creditors have been accepted by Income Tax Officer - the case of creditor has been accepted by the department. Therefore, we note that all three parameters as laid down u/s 68 of the Act, i.e. (i) Identity of the depositors; (ii) Genuineness of the transactions; and (iii) Creditworthiness of the depositors, have been fulfilled by the assessee in respect of all the seven (7) depositors except in the case of Smt. Rekhdben Bodra, Prop. Gurukrupa Enterprise to the extent deposited by cash (in her Bank A/c) which remained unexplained and therefore, the assessing officer is not justified in treating the entire amount of loans received by the assessee as unexplained cash credits u/s 68 of the Act, therefore, ld CIT(A) deleted the addition of Rs.5,90,90,000/- and sustained the addition of Rs.4,10,000/-.That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed. CIT(A) restricting the disallowance on account of business expenses - HELD THAT:- CIT(A) noted that looking to nature of expenses incurred by CASH, the involvement of non-business purpose & personal purpose cannot be denied and also because expenses are not supported by vouchers/bills - CIT(A) took a view that it reasonable & fair to both parties to sustain disallowance @ 5% of such expenses i.e. Rs.49,810 + Rs.16,20,411 = Rs.16,70,221/- which works out to Rs.83,511/-. CIT(A) also noted that ‘ROC’ fee incurred for increase in Authorized Capital was of the capital field and hence deserve to be disallowed. Therefore, total disallowance worked out by ld CIT(A) was to the tune of Rs.2,85,011/- (Rs.2,01,500 + Rs.83,511). We do not find any infirmity in the conclusion reached by the ld CIT(A), hence we approve and confirm the findings of ld CIT(A). Issues Involved:1. Addition on account of unexplained unsecured loan amounting to Rs. 5,90,90,000/-.2. Disallowance of business expenses amounting to Rs. 83,511/- out of total disallowance of Rs. 37,89,020/-.Issue-wise Detailed Analysis:1. Addition on Account of Unexplained Unsecured Loan:Facts and Proceedings:During the assessment proceedings, the Assessing Officer (AO) examined the details filed by the assessee and observed that the assessee had obtained unsecured loans from several persons. The AO issued a show cause notice to the assessee to explain the identity, creditworthiness, and genuineness of the transactions. The assessee provided documents such as confirmation, PAN, bank statements, and audited financial statements. However, the AO rejected these documents, citing that the depositors had insufficient income, and the transactions were contrary to normal human behavior. Consequently, the AO treated loans amounting to Rs. 5,95,00,000/- as unexplained.CIT(A) Findings:The assessee appealed before the Commissioner of Income Tax (Appeals) [CIT(A)], who examined the additional evidence provided by the assessee, including proof of source, repayment of loans, and assessment orders of the depositors. The CIT(A) forwarded these evidences to the AO for a remand report. After reviewing the remand report and the assessee's rebuttal, the CIT(A) concluded that the assessee had satisfactorily discharged its primary onus of proving the identity, creditworthiness, and genuineness of the transactions. The CIT(A) deleted the addition made by the AO.Tribunal's Analysis:The Tribunal noted that the AO made the addition solely because the depositors were not physically produced before him and raised doubts about their creditworthiness and the source of funds. During appellate proceedings, the assessee provided additional evidence, including assessment orders of the depositors, bank statements, and confirmations of transactions. The CIT(A) observed that the AO's concerns about the depositors' creditworthiness were unfounded as the loans were reflected in their balance sheets and bank statements, and the repayments were made through sales of goods.The Tribunal upheld the CIT(A)'s decision, noting that the assessee had discharged the primary onus by providing sufficient evidence to prove the identity, genuineness, and creditworthiness of the depositors. The Tribunal also referenced several judicial precedents supporting the assessee's case, including decisions from the Supreme Court and various High Courts.Conclusion:The Tribunal upheld the CIT(A)'s order in deleting the addition of Rs. 5,90,90,000/- and sustained the addition of Rs. 4,10,000/- related to cash deposits in one case. The ground raised by the Revenue was dismissed.2. Disallowance of Business Expenses:Facts and Proceedings:The AO disallowed 5% of the assessee's expenses, amounting to Rs. 37,89,021/-, on an ad-hoc basis, citing that the assessee failed to establish with supporting evidence that the expenditure was exclusively for business purposes. The AO noted that the salary register did not contain addresses of employees and payments were made in cash.CIT(A) Findings:The CIT(A) examined the assessee's arguments and observed that the AO made an ad-hoc disallowance based on conjectures and surmises. The CIT(A) noted that there is no legal requirement for the assessee to maintain a complete record of employees' addresses or to make payments through bank accounts. The CIT(A) found that the expenses were incurred for business purposes and deleted the ad-hoc disallowance, except for certain expenses where supporting evidence was not provided.Tribunal's Analysis:The Tribunal noted that the CIT(A) had carefully considered the nature of the expenses and the assessee's business requirements. The CIT(A) sustained a disallowance of Rs. 83,511/- for expenses incurred in cash without supporting evidence and disallowed Rs. 2,01,500/- for ROC fees as capital expenditure. The Tribunal found no infirmity in the CIT(A)'s conclusion and upheld the findings.Conclusion:The Tribunal dismissed the ground raised by the Revenue and upheld the CIT(A)'s order in restricting the disallowance to Rs. 83,511/- out of the total disallowance of Rs. 37,89,020/-.Combined Result:The appeal filed by the Revenue was dismissed in its entirety. The order was pronounced in the open court on 29/09/2022.