Unsecured-loan evidence: confirmed creditors, tax returns and bank records establish genuine credits; sufficient own funds defeat interest disallowance.
Verified creditor confirmations, tax returns, bank statements, banking-channel payments and disclosed interest establish the identity, creditworthiness and genuineness of unsecured loans; once this primary burden is met, the source of source cannot be questioned without discrepancies. Interest disallowance does not arise where interest-free funds exceed advances and the advances finance machinery and land adjoining a factory for business purposes. Documentary evidence of director disputes, business disruption, illness and pandemic-related circumstances can establish sufficient cause for delayed filing.
Issues: (i) Whether the delay of 997 days in filing the appeal should be condoned; (ii) Whether the unsecured-loan additions were sustainable where the creditors appeared in response to summons and the loans were supported by confirmations, income-tax returns, and bank records; (iii) Whether interest disallowance under section 36(1)(iii) was justified in respect of advances for machinery and adjoining land.
Issue (i): Whether the delay of 997 days in filing the appeal should be condoned.
Analysis: Serious disputes among the directors, civil and criminal proceedings, the business disruption, the fire affecting the director handling tax matters, his resulting depression, and the intervening COVID-19 period were supported by documentary material. These circumstances constituted sufficient cause for the delayed filing.
Conclusion: The delay was condoned, in favour of the assessee.
Issue (ii): Whether the unsecured-loan additions were sustainable where the creditors appeared in response to summons and the loans were supported by confirmations, income-tax returns, and bank records.
Analysis: The creditors responded to summons, confirmed the advances, and furnished their income-tax returns and bank statements showing payments through banking channels. Information obtained from the bank also verified the transactions, and the creditors had disclosed the interest received. The evidence established the identity, creditworthiness and genuineness of the credits; no discrepancy in the material was identified. The source of source could not be questioned after the primary evidentiary burden had been discharged.
Conclusion: The unsecured-loan additions were deleted, in favour of the assessee.
Issue (iii): Whether interest disallowance under section 36(1)(iii) was justified in respect of advances for machinery and adjoining land.
Analysis: The assessee possessed sufficient interest-free funds exceeding the advances. The advances were also for acquiring machinery and land adjoining the factory for business purposes. Accordingly, the advances could not warrant an interest disallowance.
Conclusion: The interest disallowance was deleted, in favour of the assessee.
Final Conclusion: The additions relating to unsecured loans and interest were unsustainable on the verified evidence and the established business-use of the advances.