Revenue's Appeals Dismissed: Additions under Income-tax Act Section 68 Deleted

The appeals by the Revenue were dismissed, upholding the decisions of the Commissioner (Appeals) to delete the additions made under section 68 of the Income-tax Act, 1961, regarding unsecured loans and to disallow interest expenditure. The additions were found not to be based on any incriminating material discovered during the search and seizure operation.

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Issues Involved:

1. Deletion of addition made under section 68 of the Income-tax Act, 1961.
2. Disallowance of interest expenditure on such addition.
3. Whether the additions were based on any incriminating material found as a result of search and seizure operation.

Issue 1: Deletion of Addition under Section 68

The dispute in ITA No. 3963/Del/2019 pertains to the deletion of an addition made under section 68 of the Income-tax Act, 1961, concerning an unsecured loan of Rs. 10 crores received by the assessee from M/s. Shashi Foods India Pvt. Ltd. The Assessing Officer (AO) treated this loan as unexplained cash credit due to doubts about the creditor's creditworthiness and the genuineness of the transaction, based on findings from a search and seizure operation. The AO noted that the creditor had availed bogus purchase bills, casting doubt on the source of funds. However, the Commissioner of Income-tax (Appeals) found that the creditor confirmed the loan transaction during both the search and assessment proceedings, provided the source of funds, and conducted the transaction through banking channels. The Commissioner (Appeals) concluded that the assessee had discharged its liability to prove the identity and creditworthiness of the creditor and the genuineness of the transaction, thereby deleting the addition.

Issue 2: Disallowance of Interest Expenditure

The AO also disallowed the interest paid on the unsecured loan, which was subsequently deleted by the Commissioner (Appeals) for the same reasons mentioned above. The Commissioner (Appeals) held that once the loan was established as genuine, the interest paid on such loan could not be disallowed.

Issue 3: Incriminating Material

In ITA No. 3962/Del/2019, the assessee had availed unsecured loans from two entities, and the AO treated these loans as non-genuine based on similar reasoning as the previous case. However, the Commissioner (Appeals) found that the additions were not based on any incriminating material found during the search and seizure operation. Relying on the decision of the Hon'ble Delhi High Court in CIT vs. Kabul Chawla, the Commissioner (Appeals) deleted the additions. The Tribunal upheld this decision, noting that the AO did not reference any seized/incriminating material while making the additions.

Conclusion:

Both appeals by the Revenue were dismissed, upholding the decisions of the Commissioner (Appeals) to delete the additions made under section 68 and the disallowance of interest expenditure, as well as the finding that the additions were not based on any incriminating material found during the search and seizure operation.

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