2025 (8) TMI 960 - AT - Income Tax

Appeal dismissed: Section 68 additions and Section 37 interest upheld; Section 43CA remitted to AO for fresh decision

Riddhi Siddhi Estate Creator LLP Versus The ACIT, 10 Central Circle-1 (4), Ahmedabad, The DCIT, Central Circle-1 (4) Versus Riddhi Siddhi Estate Creator LLP, Ahmedabad and Safari Biotech Pvt. Ltd. Versus The ACIT, Central Circle-1 (4), Ahmedabad

Riddhi Siddhi Estate Creator LLP Versus The ACIT, 10 Central Circle-1 (4), Ahmedabad, The DCIT, Central Circle-1 (4) Versus Riddhi Siddhi Estate Creator ... 1. ISSUES PRESENTED AND CONSIDERED 1. Whether amounts received as unsecured loans are taxable as unexplained cash credits under section 68 for failure to prove genuineness and creditworthiness of lenders? 2. Whether interest expense attributable to such unsecured loans is disallowable (u/s 37/69C or otherwise) when principal is treated as unexplained/added back? 3. Whether valuation-based additions under section 43CA require adjustment where assessee produces corrected valuations and the appellate authority directs verification by the Assessing Officer (including application of the 10% tolerance in the first proviso to section 43CA)? 4. Whether a departmental appeal may be dismissed on account of low tax effect in terms of administrative circular/guidance? 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Treatment of unsecured loans under section 68 - genuineness and creditworthiness Legal framework: 1. Section 68 permits addition of unexplained cash credits where assessee fails to satisfactorily explain nature and source of credited amounts; genuineness of transaction and creditworthiness of the creditor are core considerations in the enquiry. Precedent treatment: 2. The Court records no binding precedent applied by it in this judgment; findings rest on assessment material and appellate fact-finding. Interpretation and reasoning: 3. The Tribunal affirms the appellate authority's finding that seized documents (loose papers and diary entries from search) linking the assessee/group to the bank accounts and loan entries, coupled with the assessee's inability to produce corroborative documentary evidence proving genuineness/creditworthiness of the lender, support treating the receipt as a colorable device to introduce unaccounted funds. 4. The Tribunal gives weight to: (a) seized material found at group premises containing entries of loans and bank statements; (b) assessee's explanation that such entries were merely 'outstanding payment of parties as per books' without supporting documents; and (c) the Assessing Officer's view that presence/control of accounts in the assessee's premises points to sham/controlled transactions. On these materials, the Tribunal finds no reason to interfere with the CIT(A)'s adverse finding. Ratio vs. Obiter: 5. Ratio: Where contemporaneous incriminating material from a search links credited amounts to the assessee and the assessee fails to furnish independent documentary proof of genuineness and creditor creditworthiness, additions under section 68 are sustainable. Conclusions: 6. The Tribunal dismisses the appeal against the addition under section 68 of the unsecured loan (amount confirmed by CIT(A)), concluding that the assessee did not discharge onus to prove genuineness/creditworthiness; the addition stands. Issue 2: Disallowance of interest expenses linked to unexplained unsecured loans (section 37/69C) Legal framework: 1. Section 37 permits deduction of business expenditure if incurred wholly and exclusively for business; separate provisions (e.g., section 69C) may disallow expenditure where money is shown as spent but not accounted for, or where related to undisclosed sources. When principal is held as unexplained, interest related thereto may be disallowed. Precedent treatment: 2. No precedential authorities are cited in the Court's reasoning; assessment and appellate fact-finding govern the outcome. Interpretation and reasoning: 3. The Tribunal accepts the CIT(A)'s approach that interest expenses attributable to the same unsecured loans found to be unexplained cannot be allowed; since the principal was treated as unexplained under section 68, the consequential interest expense was rightly disallowed/confirmed by the CIT(A). Ratio vs. Obiter: 4. Ratio: Interest expenses directly attributable to cash credits or unsecured receipts treated as unexplained on account of failure to prove genuineness are not allowable as business deductions. Conclusions: 5. Appeals attacking the confirmation of disallowance of interest (both under section 37 and in relation to section 69C adjustments) are dismissed; the CIT(A)'s confirmation is sustained. Issue 3: Valuation adjustments under section 43CA - verification, DVO report and 10% tolerance proviso Legal framework: 1. Section 43CA treats consideration for transfer of capital assets (where stamp valuation exceeds consideration) as deemed full value; the first proviso permits tolerance (10%) in certain cases (subject to conditions), and valuation disputes may require DVO/Dominion of Valuation Officer inputs or verification by AO. Precedent treatment: 2. The Tribunal's order does not rely on or distinguish earlier judicial precedents; it applies statutory scheme and appellate fact assessment. Interpretation and reasoning: 3. The assessee produced corrected valuations showing lower stamp valuations for specified sheds, quantifying a reduction in the addition. The CIT(A) directed the Assessing Officer to verify the claim and reduce the addition if the assessee's corrected figures were found correct. On the separate ground claiming applicability of the 10% first proviso tolerance, the Tribunal directs the AO to consider the matter in light of the DVO's report and applicable law. 4. The Tribunal treats the CIT(A)'s direction for verification as appropriate - i.e., where the assessee furnishes documentary material to demonstrate overstated stamp valuations, the AO must examine and, if satisfied, reduce the section 43CA addition. Where an adjustment arguably falls within statutory tolerance, the AO must apply the proviso as per the DVO findings and law. Ratio vs. Obiter: 5. Ratio: When an assessee produces concrete documentary evidence of correct valuation differing from stamp authority figures, the appellate authority may remit/ direct verification to the Assessing Officer for adjustment under section 43CA; the AO must also apply the 10% tolerance proviso where factually and legally appropriate, guided by DVO report. Conclusions: 6. The Tribunal upholds the CIT(A)'s instruction to the AO to verify and effect the quantified reduction (if substantiated) and to reconsider the 10% tolerance issue per the DVO's report; the appeal on this issue is partly allowed for statistical purposes to enable reassessment/verification by the AO. Issue 4: Dismissal of departmental appeal on low tax effect Legal framework: 1. Administrative guidance/CBDT circulars permit dismissal of departmental appeals where tax effect is below prescribed thresholds; this is an administrative/prudential device rather than a substantive tax-law determination. Precedent treatment: 2. The Tribunal notes the Revenue's appeal was dismissed because the tax effect is low as per CBDT Circular No. 05/2024 but does not engage in legal controversy about the circular's validity. Interpretation and reasoning: 3. The Tribunal applies the administrative threshold and dismisses the low tax-effect departmental appeal accordingly, treating such dismissal as within available administrative practice. Ratio vs. Obiter: 4. Obiter/Administrative: Dismissal of departmental appeals on account of low tax effect is an administrative exercise; it does not amount to a substantive decision on the underlying tax point. Conclusions: 5. The departmental appeal with negligible tax effect is dismissed on that administrative ground. Cross-References 1. Issue 1 and Issue 2 are interrelated: the finding under section 68 (Issue 1) directly informs the treatment of interest expenses (Issue 2); the Tribunal sustained both as a connected conclusion (see para reasoning above). 2. Issue 3 is procedurally distinct but linked to appellate remedial powers: where valuation errors are demonstrated, the appellate authority may remit verification to AO and instruct application of statutory tolerances, which the Tribunal endorsed. Overall Conclusions 1. Additions under section 68 for unsecured loans sustained where assessee fails to prove genuineness/creditworthiness in the face of incriminating seized material. 2. Interest expenses attributable to such unexplained loans are properly disallowed. 3. Valuation-based additions under section 43CA require AO verification where corrected evidence is produced; statutory 10% tolerance must be applied by AO per DVO report when applicable. 4. Departmental appeal dismissed where tax effect falls below administrative threshold per applicable circular; such dismissal is administrative not a substantive ruling on merits.