2025 (4) TMI 155 - AT - Income Tax

Unexplained loan addition under Section 69A deleted due to lack of supporting evidence and loan confirmation

Shri Mangeram Sharma Versus ITO, – 14 (1) (2), Mumbai

ITAT Mumbai ruled in favor of the assessee regarding addition under section 69A for unexplained loan. Revenue claimed assessee advanced loan to HUF but ... Addition of the loan amount u/s. 69A - unexplained loan - basis of the information received from the office of DCIT, Central Circle-1 (3), Ahmedabad that the assessee has advanced loan to Shri Bhanuprasad D. Trivedi (HUF), and the same has not been reflected by the assessee in his balance sheet - HELD THAT:- Though on one hand the CIT(A), claimed that the copies of the letter of the assessee and confirmation produced before the DCIT, Central Circle-1(3), Ahmedabad, were verified, however, on the other hand vide letter in response to the assessee’s application under the RTI Act, 2005, it is the replied by the Revenue that no copy of loan confirmation was filed by Shri Bhanuprasad D. Trivedi (HUF). Also evident from the record that despite multiple requests being made by the assessee for seeking the copy of the confirmation filed by Shri Bhanuprasad D. Trivedi (HUF), the Revenue merely rejected the request of the assessee on technical grounds without proving the existence of any such confirmation being filed by Shri Bhanuprasad D. Trivedi (HUF) during its assessment proceedings. Therefore, not only the statement of the assessee recorded under section 131 of the Act was retracted by the assessee vide its letter dated 22/12/2011, but the loan confirmation, which was claimed to have been given by Shri Bhanuprasad D. Trivedi (HUF) during its assessment proceedings, is also not available with the Revenue. Thus, in the present case, it is evident that no material/document is available with the Revenue which could prove that the assessee’s retraction is per se false. Therefore, in the present case, the basis for making the addition u/s 69A of the Act in the hands of the assessee either does not survive or does not exist in the records of the Revenue. Accordingly, we do not find any basis in sustaining the addition made by the AO under section 69A of the Act in the hands of the assessee, and the same is deleted. Also addition on account of interest earned by the assessee from the aforesaid loan transaction has no legs to stand on, and therefore, the same is also deleted. Accordingly, the grounds raised by the assessee in its appeal for the assessment year 2005-06 are allowed. ISSUES PRESENTED and CONSIDEREDThe primary issues considered in this judgment were: Whether the addition of INR 75 lakh as unexplained income under section 69A of the Income Tax Act, 1960, was justified. Whether the addition of notional interest on the alleged loan amount was appropriate for the assessment years 2005-06 and 2006-07.ISSUE-WISE DETAILED ANALYSIS1. Addition of INR 75 lakh as unexplained income under section 69ARelevant legal framework and precedents: Section 69A of the Income Tax Act, 1960, allows for the addition of unexplained money, bullion, jewellery, or other valuable articles found in the possession of the assessee, which the assessee cannot satisfactorily explain.Court's interpretation and reasoning: The Tribunal examined whether the loan of INR 75 lakh, allegedly advanced by the assessee to Shri Bhanuprasad D. Trivedi (HUF), was unexplained income. The Tribunal noted that the assessee retracted his earlier statement admitting the loan, citing confusion and mental disturbance. The Tribunal emphasized the lack of documentary evidence provided by the Revenue to substantiate the existence of the loan.Key evidence and findings: The Tribunal found that the Revenue did not furnish the loan confirmation letter allegedly submitted by Shri Bhanuprasad D. Trivedi (HUF) or any bank statements evidencing the transaction. The Revenue's response to the assessee's RTI applications failed to provide the requested documentation, undermining the credibility of the claim.Application of law to facts: The Tribunal applied section 69A, noting that the absence of concrete evidence from the Revenue meant that the addition of INR 75 lakh as unexplained income could not be sustained.Treatment of competing arguments: The Tribunal considered the Revenue's reliance on the assessee's initial statement and the alleged loan confirmation. However, the Tribunal found these arguments unconvincing due to the lack of supporting evidence.Conclusions: The Tribunal concluded that the addition of INR 75 lakh as unexplained income under section 69A was not justified and deleted the addition.2. Addition of notional interest on the alleged loan amountRelevant legal framework and precedents: The addition of notional interest is typically contingent upon the existence of a principal loan amount.Court's interpretation and reasoning: The Tribunal reasoned that since the principal loan amount was not substantiated, the consequent addition of notional interest lacked a basis.Key evidence and findings: The Tribunal's findings on the principal loan amount directly impacted the decision on notional interest. With the principal amount deemed unsubstantiated, the interest addition was also unfounded.Application of law to facts: The Tribunal applied the principle that without a valid loan, there could be no legitimate basis for calculating or adding notional interest.Treatment of competing arguments: The Tribunal dismissed the Revenue's position on notional interest, given the absence of a validated loan transaction.Conclusions: The Tribunal deleted the addition of notional interest for both assessment years 2005-06 and 2006-07.SIGNIFICANT HOLDINGSThe Tribunal held that: 'In the present case, the basis for making the addition under section 69A of the Act in the hands of the assessee either does not survive or does not exist in the records of the Revenue.' The Tribunal established that without concrete evidence of a loan transaction, both the principal addition and the notional interest could not be sustained. The Tribunal allowed the appeals for both assessment years, deleting the additions made by the Assessing Officer and upheld by the CIT(A).