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Facts
The assessee received unsecured loans totaling Rs. 9,52,50,000/- from M/s Rajkot Financial and Investment Pvt. Ltd. The Assessing Officer (AO) made an addition under Section 68 of the Income Tax Act, disallowing interest on the loan and making an ad-hoc addition for commission. The CIT(A) deleted these additions, and the Revenue appealed.
Held
The Tribunal upheld the CIT(A)'s deletion of the addition made under Section 68, holding that the assessee had discharged its onus by providing confirmation of accounts, lender's PAN and ITR, bank statements, and audited financial statements. The Tribunal also dismissed the grounds related to the disallowance of interest and commission, as they were consequential to the deletion of the main addition.
Key Issues
Whether the assessee discharged the onus of proving the identity, creditworthiness, and genuineness of unsecured loans under Section 68 of the Income Tax Act.
Sections Cited
68, 147, 143(3), 133(6), 148
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Income Tax Appellate Tribunal, DELHI
Before: SHRI YOGESH KUMAR U.S. & SHRI MANISH AGARWAL
ORDER
PER YOGESH KUMAR, U.S. JM:
The present appeal is filed by the Revenue and the Cross Objection is filed by the Assessee against the order of CIT(A)/National Faceless Appeal Centre (‘Ld. CIT(A)’/NFAC’ for short), Delhi dated 31/03/2023 pertaining to Assessment Year 2012-13.
The grounds of appeal of the Revenue are as under:-
“1.Whether on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs. 9,52,50,000/- made u/s 68 of the I.T. Act and not appreciating that the assessee has failed to justify the actual nature of transactions and sources of funds and
2. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in not appreciating the ratio of judgment of Hon'ble Delhi High Court in the case of PCIT vs. M/s NR Portfolio Pvt Ltd in dated 21.12.2012 wherein the Hon'ble High Court has held that it is an assessee's duty to establish that the amount which the AO proposes to add back u/s 68 are properly sourced, does not cease by merely furnishing the name, address and PAN or relying of entries in a registrar of companies website.
3. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs. 85,72,500/- in respect of interest on the unsecured loan from M/s Raikot Finance and Investment Pvt Ltd.
Whether on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs. 19,05,000/- on account of 2% of the amount of unsecured loan.
5. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.”
Brief facts of the case are that, the Assessee filed return of income declaring total income of Rs. 1,29,02,034/- based on the information received by the Department from the office of ITO (Investigation) Unit -2, Kolkata, the case of the Assessee was reopened u/s 147 of the Act after recording the satisfaction and reason for reopening. A notice i/s been issued to the Assessee in response the Assessee field return of income at Rs. 1,29,02,034/-. An order u/s 143 (3) r.w. Section 147 of the Income Tax Act, 1961 ('Act' for short)
9,52,50,000/- u/s 68 of the Act, disallowed Rs. 85,72,500/- in respect of interest of unsecured loan and further made ad-hoc addition of Rs. 19,05,000/- as commission. Aggrieved by the order of the A.O. dated 24/12/2019, the Assessee preferred an Appeal before the Ld. CIT(A).
The Ld.CIT(A) vide order dated 31/03/2023, allowed the Appeal of the Assessee. As against the order of the Ld. CIT(A) dated 31/03/2023, the Department preferred the present Appeal on the grounds mentioned above.
4. Ground No.1 is regarding deletion of addition of Rs. 9,52,50,000/- made u/s 68 of the Act. The Ld. Departmental Representative submitted that the Ld. CIT(A) has committed error in deleting the addition wherein not appreciated the fact that the Assessee has failed to justify the actual nature of the transaction and source of funds. Further submitted that the Assessee has not establish the genuineness and the creditworthiness of the transaction, thus Ld. CIT(A) has committed error in deleting the said addition, therefore, sought for allowing the Ground No. 1.
Per contra, the Ld. Assessee's Representative submitted that the Assessee has availed loan from NBFC and repaid the same with interest in the subsequent Financial Year which was very much prior to issuance of notice u/s 148 of the Act. Further submitted that the Assessee has filed copy of the confirmation of account from the lender, PAN of the lender and the income tax return of the lender for Financial Year 2011-12 along with copies of the bank statementof the appellant as well as the lender for the year under consideration coupled with audited financial statement of the appellant. The Ld. CIT(A) after appreciating the facts, rightly deleted the addition, which requires no interference in the hands of the Tribunal.
We have heard both the parties and perused the material available on record. During the assessment proceedings, in order to verify the actual nature and transaction of the Assessee with M/s Rajkot Financial and Investment Pvt. Ltd., the Ld. A.O. issued notice u/s 133 (6) of the Act calling upon the lender to furnish complete details of transaction in its books of account and documents related to credit transaction undertaken etc. However, the said NBFC M/s Rajkot Financial and Investment Pvt. Ltd. has not replied to the notice issued by the A.O. u/s 133(6) of the Act. Therefore, the Ld. A.O. by drawing adverse inference, concluded that the Assessee had received credit amount of Rs. 9,52,50,000/- from M/s Rajkot Financial and Investment Pvt. Ltd. and the same is in the nature of undisclosed credits as the Assessee company failed to offer credible explanation.
During the appellate proceeding, after verifying the material available on record, the Ld. CIT(A) deleted the addition.
It is not in dispute that the Assessee availed unsecured loan of Rs. 9,52,50,000/- from M/s Rajkot Financial and Investment Pvt. Ltd. which is a NBFC registered in Reserve Bank of India and the entire unsecured loan has been repaid by the Assessee in the subsequent Financial Year i.e. on Financial Year 2015-16. It is noteworthy to mention that the Assessee has repaid the entire unsecured loan before the date of service of notice u/s 148 of the Act. Apart from the same, during the assessment proceedings the Assessee has also filed the details, such as balance confirmation account from the lender, PAN and income tax return for Assessment Year 2011-12, copies of the bank account of the Assessee as well as the lender for the Financial Year 2011-12 along with the audited financial statement of the appellant and of the lender for Financial Year 2011-12. The very same documents have been produced even during the reassessment proceedings as well. Considering the above facts, the Ld. CIT(A) rightly found that onus of the Assessee to prove the identity and creditworthiness of the lender and the genuineness of the transaction stood established and discharged.
The only reason for making the addition by the A.O. was that the lender has not replied to the notice issued u/s 133(6) of the Act, however, mere none replying to the notice issued u/s 133 (6) of the Act cannot be a sole reason for making the addition when the Assessee has discharged its onus required u/s 68 of the Act by producing various documents. The Ld. CIT(A) has also relied on several judicial precedents and deleted the addition observing that the Assessee has established all the conditions and also discharged the onus as required u/s 68 of the Act. Considering the above facts and circumstances and in the absence of any contrary material available on record to contradict the findings of the Ld. CIT(A), we find no reason to interference with the deletion of the addition of Rs. 9,52,50,000/- made u/s 68 of the Act. Accordingly, we find no merits in the Ground No. 1 of the Revenue. Hence, Ground No. 1 of the Revenue is dismissed.
In Ground No. 2, the Revenue contended that the Ld. CIT(A) has erred in not following the Judgment of the Jurisdictional High Court in the case of PCIT Vs. N. R. Portfolio Pvt. Ltd. in wherein it has been held that it is the Assessee’s duty to establish that the amount which the A.O. proposed to add back u/s 68 of the Act are properly sourced, does not cease by merely furnishing name, address and PAN or relating on the entries in a register of the Company’s website.
We have heard the parties on Ground No. 2. In the case of N.R.
Portfolio Pvt. ltd. (supra), the Assessee was a stock broker with no activity and did not participate in the proceedings, thereby failed to establish the identity and creditworthiness of the share applications.
Further, in the said case, the Hon'ble High Court observed that, if on verification during the proceedings, the A.O. cannot contact the share applicants or that information becomes unverifiable or there are further doubts in the pursuit of such details, the onus shifts back to the Assessee. However, in the present case, the Assessee has admittedly taken loan from NBFC whose primary business itself is lending money and the said loan has been repaid well within date of service of notice u/s 148 of the Act. Apart from the same, the Assessee has also produced requisite documents to prove the genuineness of the transaction. Therefore, in our considered opinion, the ratio laid down by the Hon’ble Jurisdictional High Court in the cases of N. R. Portfolio Pvt. Ltd. (supra) is not applicable. Accordingly, finding no merits in the Ground No. 2 of the Revenue, the Ground No. 2 of the Revenue is dismissed.
The Ground No. 3 is pertaining to disallowance of Rs. 85,72,500/- made on account of interest on unsecured loan of Rs. 9,52,50,000/-. The Ld. A.O. made the said disallowance consequent to the addition of Rs. 9,52,50,000/- made u/s 68 of the Act on account of unsecured loan. The Ld. CIT(A) has deleted the said addition made u/s 68 of the Act and consequently also deleted the disallowance of Rs. 85,72,500/- made on account of interest on unsecured loan. Since we have upheld the deletion of the addition of Rs. 9,52,50,000/-, consequently the above disallowance which has been deleted by the Ld. CIT(A) requires no interference. Accordingly, the Ground No. 3 of the Revenue is dismissed.
The Ground No. 4 is regarding deletion of the addition of Rs. 19,05,000/-.The said addition has been made by the A.O. on the pretext that the Assessee must have paid commission at the rate of 2% on account of entry taken generally paid by beneficiary to entry provider. The Ld. CIT(A) has deleted the addition consequent to deletion of the addition made u/s 68 of the Act made on account of unsecured loan. We have upheld the order of the Ld. CIT(A) in deleting the addition u/s 68 of the Act. Therefore, the present addition of Rs. 19,05,000/- made by the A.O. which has been deleted by the Ld. CIT(A) is also requires no interference. Accordingly, finding no merits in the Ground No. 4 of the Revenue, the same is dismissed.
In the result, the Appeal of the Revenue is dismissed.
Since we have dismissed the Appeal of the Revenue, the Cross Objection filed by the Assessee is dismissed as having become in- fructuous.