Verification of unsecured loans' creditworthiness and genuineness required before deleting related tax additions; remand for fresh adjudication.

ITAT directed remand for specific verification because the AO failed to verify creditworthiness, genuineness and repayment of fresh unsecured loans of Rs. 3,63,73,694 despite lender confirmations and some ITRs; the CIT(A) had deleted additions based on the remand report but the Tribunal found that deletion unsustainable without the AO's specific findings and therefore set aside the deletion for fresh adjudication. The consequential deletion of interest likewise requires fresh adjudication after the AO reports on those specific verifications. The appeal was allowed for statistical purposes in favour of the Revenue and remanded to CIT(A).

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Issues: (i) Whether the deletion by the first appellate authority of addition made u/s 68 of the Income-tax Act in respect of fresh unsecured loans of Rs. 3,63,73,694/- taken during the year was sustainable; (ii) Whether the deletion of addition of interest of Rs. 6,54,650/- related to the fresh unsecured loans was sustainable.

Issue (i): Whether the deletion by the CIT(A) of additions under section 68 in respect of fresh unsecured loans of Rs. 3,63,73,694/- was correct.

Analysis: The Assessing Officer originally treated the entire unsecured loan as unexplained for want of details. On appeal the assessee produced lender confirmations and ITRs; the CIT(A) remanded part of the matter to the AO to verify the claim that loans were opening balances. The AO's remand report identified fresh loans of Rs. 3,63,73,694/- from 12 lenders and produced confirmations and some ITR copies but did not undertake or report specific verification of the creditworthiness or genuineness of those fresh loans nor verify repayments. The Tribunal found that the CIT(A)'s deletion rested on the remand report without the required specific verification on creditworthiness, genuineness and repayment and therefore set aside the matter to permit the AO to make those specific verifications and report back for fresh decision.

Conclusion: The matter is remanded to the CIT(A) for fresh adjudication after the AO verifies and reports on the creditworthiness, genuineness and repayment of the fresh unsecured loans of Rs. 3,63,73,694/-. The ground is allowed for statistical purpose in favour of the Revenue.

Issue (ii): Whether the deletion by the CIT(A) of addition of interest of Rs. 6,54,650/- pertaining to the fresh unsecured loans was correct.

Analysis: The addition of interest is consequential to the determination on the genuineness and creditworthiness of the fresh loans. As the Tribunal has set aside the deletion of the principal addition for fresh verification and report, the interest addition requires fresh adjudication on the basis of the AO's specific findings.

Conclusion: The issue of deletion of interest of Rs. 6,54,650/- is remanded for fresh adjudication by the CIT(A) after receipt of the AO's specific verification report. The ground is allowed for statistical purpose in favour of the Revenue.

Final Conclusion: The Revenue's appeal is allowed for statistical purpose and the matters are remanded to the file of the CIT(A) for fresh decision after specific verification by the AO of creditworthiness, genuineness and repayment of the fresh unsecured loans.

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