Unsecured loans of Rs 3.95 crore allowed despite lenders' non-appearance with proper documentation under section 68

The ITAT Kolkata upheld the deletion of additions under section 68 regarding unsecured loans of Rs. 3,95,00,000 from eight parties. Despite lenders' non-appearance for summons, the assessee provided comprehensive documentation including PANs, bank statements, loan confirmations, and financial details. The lenders responded to section 133(6) notices confirming transactions. The tribunal held that non-appearance alone doesn't establish non-genuineness, citing Supreme Court precedents. Interest payments on loans were also allowed as deductible. The cessation of liability addition under section 41(1) was deleted since mere removal from MCA records doesn't absolve repayment liability. Revenue's appeal was dismissed.

---

---

Issues Involved:
1. Deletion of addition of Rs. 3,95,00,000/- under section 68 of the Income Tax Act for A.Y. 2016-17.
2. Deletion of addition of Rs. 35,90,876/- under section 41(1) of the Income Tax Act for A.Y. 2017-18.
3. Deletion of addition of Rs. 48,14,701/- by rejecting interest paid on unsecured loans for A.Y. 2017-18.

Summary:

Issue 1: Deletion of addition of Rs. 3,95,00,000/- under section 68 for A.Y. 2016-17

The Tribunal examined the deletion of the addition of Rs. 3,95,00,000/- made by the Assessing Officer (AO) under section 68 of the Income Tax Act, 1961. The AO had added the unsecured loans taken by the assessee from nine different entities, questioning the identity, genuineness, and creditworthiness of the loan creditors. Despite the AO issuing notices and summons under sections 133(6) and 131, the creditors failed to appear for personal examination. The assessee, however, provided necessary documents such as income tax returns, loan confirmations, and bank statements to substantiate the transactions. The CIT(A) allowed the appeal, citing judicial precedents that non-appearance of loan creditors does not automatically render the transactions non-genuine. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee had discharged its burden of proof, and the AO did not provide any adverse findings against the submitted documents.

Issue 2: Deletion of addition of Rs. 35,90,876/- under section 41(1) for A.Y. 2017-18

The AO observed that a loan from M/S Knavsukh Trading Pvt. Ltd. was non-existent as the company had been struck off by the MCA, and thus, the liability had ceased under section 41(1). However, the addition was made under section 68. The CIT(A) found that the loan was from a previous year and not raised during the current year, making section 68 inapplicable. The CIT(A) also held that the mere striking off of the lender's name does not imply cessation of liability. The Tribunal upheld the CIT(A)'s decision, agreeing that section 41(1) was not applicable in this case.

Issue 3: Deletion of addition of Rs. 48,14,701/- by rejecting interest paid on unsecured loans for A.Y. 2017-18

The AO rejected the interest paid on unsecured loans of Rs. 3,95,00,000/- raised in A.Y. 2016-17. Since the Tribunal had already upheld the genuineness of these loans, it consequentially allowed the interest paid on them. The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision to allow the interest deduction.

Conclusion:

The Tribunal dismissed both appeals of the Revenue, upholding the CIT(A)'s decisions on all issues. The order was pronounced on 5th December 2023.

---