AO's arbitrary 33% disallowance of unsecured loans overturned for lack of proper inquiry and evidence

ITAT Chandigarh upheld CIT(A)'s decision to delete addition made by AO regarding unsecured loans. AO arbitrarily disallowed 33% of total unsecured loans as unexplained without providing reasons or examining documents establishing genuineness of loans and creditworthiness of lenders. No inquiry was conducted with lenders and no material evidence supported AO's finding that loan transactions were not genuine. ITAT ruled that loan transactions are either genuine or not, with no scope for adhoc partial disallowance. Appeal decided against revenue.

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Issues:
1. Addition of corpus donation as voluntary donation
2. Genuineness of unsecured loan

Analysis:
1. The first issue pertains to the addition of corpus donation as voluntary donation by the Assessing Officer (A.O.). The Assessee showed an addition of Rs. 335,42,110/- in Corpus Fund, which was directly taken to the balance sheet. The A.O. issued notices to some donors but only received one response, which was deemed unacceptable. However, the ld. CIT(A) deleted the addition based on lack of cogent material to support the A.O.'s action. The Assessee's books were audited, and receipts issued clearly indicated the nature of donations as corpus. The A.O. failed to prove any other intent of the donors, and the ultimate utilization of donations was not considered. The ld. CIT(A) rightly observed that the donations were received as corpus and were capital receipts. The A.O. did not conduct proper enquiry and acted on assumptions without concrete evidence, leading to the dismissal of the addition.

2. The second issue involves the genuineness of an unsecured loan amounting to Rs. 42,00,000/-. The A.O. disallowed 33% of the total unsecured loans as unexplained without providing reasons for his action. The ld. CIT(A) noted that there was no material to establish that the loan transactions were not genuine, and no attempt was made by the A.O. to verify the same. The A.O. did not comment on the documents submitted by the Assessee to establish the loans' genuineness and lenders' creditworthiness. The ld. CIT(A) relied on relevant decisions to uphold that a loan transaction is either genuine or not, without room for an ad hoc finding. The Department failed to present any contrary decisions. Consequently, the well-reasoned order of the ld. CIT(A) on this issue was upheld, and the appeal was dismissed.

In conclusion, the Tribunal upheld the ld. CIT(A)'s decisions on both issues, emphasizing the lack of concrete evidence or proper enquiry by the A.O. to support the additions and disallowances made. The Assessee's contentions were supported by documentary evidence, and the Department failed to rebut the same effectively. The judgments cited by the ld. CIT(A) were found relevant and applicable, leading to the dismissal of the appeal.

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