2023 (8) TMI 1065 - AT - Income Tax

Tribunal overturns tax assessments, emphasizes loan repayment evidence

M/s White Willow Vishram Apartment Versus Income Tax Officer, Ward-1 (3) (5), Surat

M/s White Willow Vishram Apartment Versus Income Tax Officer, Ward-1 (3) (5), Surat - TMI Issues Involved:1. Addition on account of unsecured loan of Rs. 1,50,00,000/-2. Addition on account of interest expenditure on loan of Rs. 7,18,581/-3. Miscellaneous grounds of appeal.Summary:1. Addition on account of unsecured loan of Rs. 1,50,00,000/-:The assessee contested the addition of Rs. 1,50,00,000/- made by the Assessing Officer (AO) and sustained by the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the loans were genuine and supported by complete particulars and evidence. The AO had treated the loans as bogus based on the statement of Rajendra Jain, which was later retracted. The Tribunal noted that the assessee had provided loan confirmations, PAN details, bank statements, and income tax returns of the lenders. The AO's rejection of the assessee's evidence was based on the lenders' alleged lack of creditworthiness and their association with Rajendra Jain, who was involved in providing accommodation entries. The Tribunal found that the assessee had repaid the loans in subsequent years, which was not disputed by the Department. Citing judicial precedents, the Tribunal held that the repayment of loans in subsequent years indicated the genuineness of the transactions. Consequently, the addition of Rs. 1,50,00,000/- was deleted.2. Addition on account of interest expenditure on loan of Rs. 7,18,581/-:The interest expenditure of Rs. 7,18,581/- was disallowed by the AO as it was related to the alleged bogus loans. The CIT(A) upheld this disallowance. The Tribunal, however, noted that the interest was paid through banking channels and tax was deducted at source. Since the primary addition of Rs. 1,50,00,000/- was deleted, the related disallowance of interest expenditure was also deleted.3. Miscellaneous:The assessee's appeal included a general ground to add, alter, or vary any grounds of appeal. However, since the primary issues were resolved in favor of the assessee, this ground became academic and was not adjudicated.Conclusion:The Tribunal allowed the appeal of the assessee, deleting both the addition of Rs. 1,50,00,000/- on account of unsecured loans and the disallowance of Rs. 7,18,581/- on account of interest expenditure. The judgment emphasized the importance of providing cross-examination opportunities and the relevance of loan repayment in subsequent years as evidence of genuine transactions.