2023 (7) TMI 397 - AT - Income Tax

Tribunal allows appeal, removes unsecured loan addition under Income-tax Act.

The Tribunal partially allowed the assessee's appeal for the assessment year 2012-13, directing the deletion of the addition of an unsecured loan under ... Addition of unsecured loan u/s 68 - interest free unsecured loan received from a close friend in Dubai to fund ongoing project with a condition that amount will be refunded once revenue is generated from the project - AO found that the assessee has not furnished proper details of the lender such as the address as well as return of income of the lender and merely the amount was received through banking channel and filing confirmation letter will not discharge the assessee from his obligation cast u/s 68 - HELD THAT:- The provision of section 68 of the Act fastens the liability on the assessee to make proper and reasonable explanation regarding the nature and sources of sum credited in the books of accounts to the satisfaction of the AO. The assessee is liable to provide proof of the identity of the lenders, establish the genuineness of the transactions and creditworthiness of the parties. These liabilities on the assessee were imposed to justify the credit entries u/s 68 In this case the amount was directly remitted by party from the bank account held NBD Emirates bank which can be verified from copy of bank statement placed on record. As the assessee discharged primary onus with regard to identity, genuineness as well as creditworthiness of creditor. The revenue authority without bringing contrary material in the submission of the assessee has treated the loan from Sri Salim Menon as unexplained cash credit on the reasoning that there being no formal loan agreement, cash flow statement of lender, schedule of repayment and interest and permission of RBI/authority to accept money from NRI. The revenue held the amount credited as unexplained cash credit u/s 68 - we note that, the allegation of the revenue that there is no formal agreement, repayment schedule cannot be the basis for treating the credit of loan as deemed income of the assessee u/s 68 - As such it is the understanding between the assessee and loan parties whether to enter into formal agreement or not and how to & when to make repayment of such loan. Similarly, not filling cash flow statement of loan party does not tantamount the loan party is not genuine or does not have sufficient credit worthiness. Approval from competent authority for accepting fund from NRI - We are of the considered opinion when the identity and credit worthiness of creditor is established, genuineness of transaction is also not in doubt as the party has confirmed and the transaction was carried out through banking channel by way foreign direct remittance. Then, such amount cannot be deemed as unexplained since the assessee has not got the approval from competent authority to accept foreign direct remittance. As such, it may the violation RBI which is independent to Income Tax Act. But the violation of certain other statute cannot be used to draw an inference that the amount received as loan represents unexplained cash credit and deemed income of the assessee under the provisions of section 68 of the Act. Decided in favour of assessee. TDS u/s 194C - Disallowance of land leveling expenses u/s 40(a)(ia) - HELD THAT:- As the assessee failed to provide the details that the payee has included the amount received from the assessee in its income. Thus, the assessee cannot be given the benefit of the proviso to section 40(a)(ia) - we find that Finance (No. 2) Act has made amendment to section 40(a)(ia) of the Act w.e.f. 1-4-2015. Various benches of the Tribunals have held the amendment made by Finance (No 2) Act to be curative in nature. As in the case of M/s. R. H. International [2019 (5) TMI 616 - ITAT DELHI] has held that disallowance u/s. 40(a)(ia) of the Act be restricted to 30% of the expenses paid as against 100% because amended provision is curative in nature and the provisions should be applied retrospectively. We, therefore, hold that the disallowance of expenses on account of non-deduction of TDS be restricted to 30% of the expenses in the given facts and circumstances. Addition being outstanding labor charges payable to one individual - HELD THAT:- disallowance has been made concurrently by both the lower authorities in the absence of supporting documents. Even at the time of hearing before us, the learned AR has not brought any iota of documentary evidence suggesting that the Labour expenses has been incurred for the purpose of the business. Be that as it may, we find that the assessee is engaged in the business of civil construction and development besides trading in lands. Admittedly, the activity of civil construction and development cannot be carried out without the involvement of the labours. Thus, Restrict the addition to tune of 50% to prevent any revenue leakage. Decided partly in favour of assessee. Issues Involved:1. Addition under Section 68 of the Income-tax Act.2. Disallowance under Section 40(a)(ia) of the Income-tax Act.3. Addition of Sundry Creditor.Summary:I. Addition under Section 68 of the Income-tax Act:The primary issue raised by the assessee was the confirmation of the addition of Rs. 2,38,76,229/- as unsecured loan under Section 68 of the Income-tax Act. The assessee received an unsecured loan from Sri Salim Hamid Memon, a resident of Dubai, and provided supporting documents such as a PAN card, confirmation letter, and bank statements. The Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) [CIT(A)] found the evidence insufficient, citing the absence of a formal loan agreement, cash flow statements, and RBI permission for accepting loans from NRIs. The Tribunal held that the assessee had discharged the onus of proving the identity, genuineness, and creditworthiness of the creditor and directed the AO to delete the addition.II. Disallowance under Section 40(a)(ia) of the Income-tax Act:The second issue was the disallowance of Rs. 7,55,750/- for land leveling expenses under Section 40(a)(ia) due to the failure to deduct tax at source. The assessee argued that the recipient was assessed to income tax, and the amount was shown as income. However, the CIT(A) upheld the disallowance, stating that the assessee did not provide sufficient evidence. The Tribunal, while acknowledging the assessee's failure to provide details, restricted the disallowance to 30% of the expenses, considering the amendment to Section 40(a)(ia) as curative in nature.III. Addition of Sundry Creditor:The third issue involved the addition of Rs. 6,20,000/- as outstanding labor charges payable to Shri Gavarsinh Mavi. The AO disallowed the expense due to the lack of supporting documents, and the CIT(A) confirmed the disallowance. The Tribunal, considering the nature of the assessee's business, restricted the disallowance to 50% of the claimed amount to prevent revenue leakage.Appeal for A.Y. 2014-15:The issue for the assessment year 2014-15 was identical to that of 2012-13, involving the addition of Rs. 4,63,76,371/- as unsecured loan under Section 68. The Tribunal applied the same findings as in the 2012-13 case and allowed the appeal.Result:The assessee's appeal for A.Y. 2012-13 was partly allowed, and the appeal for A.Y. 2014-15 was allowed. The Tribunal pronounced the order in the open court on 17th May 2023 at Ahmedabad.