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Facts
The assessee challenged an order by the CIT(A) that upheld an addition made by the AO for unsecured loans and interest. The assessee had obtained a loan from M/s. Sunshine Merchants P. Ltd, but the source of funds for the lender could not be established.
Held
The Tribunal noted that making additions in both the hands of the lender and the assessee would lead to double additions, which is impermissible. The matter was restored to the CIT(A) to ascertain the final outcome of additions in the lender's hands.
Key Issues
Whether additions made for unsecured loans and interest in the hands of the assessee are permissible when the source of funds for the lender is also under scrutiny, potentially leading to double additions.
Sections Cited
250, 68, 37
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Income Tax Appellate Tribunal, “B” BENCH MUMBAI
Before: HON’BLE SHRI SANDEEP GOSAIN & HON’BLE SMT. RENU JAUHRI
Date of Hearing 24.03.2025 Date of Pronouncement 02.06.2025 आदेश / ORDER
PER SANDEEP GOSAIN, JM:
1. The present appeal has been filed by the assessee challenging the impugned order 06.02.2025 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre, Delhi / CIT(A), for the A.Y 2010- 11.
All the Grounds raised by the are interrelated and interconnected and relates to challenging the order passed of Ld. CIT(A) in upholding the addition made by AO on account of unsecured loans in the hands of assessee and on account of interest paid to the lender. Therefore we have decided to take up all the grounds together and to adjudicate the same through the present consolidated order.
We have heard the counsels for both the parties, perused the material placed on record, orders passed by the revenue authorities and judgements cited before us. As per the facts of the case, the assessee had obtained loan from M/s. Sunshine Merchants P. Ltd during the year under consideration. However, it was found that the lender had advanced unsecured loans to various parties including the assessee and lender could not establish the source of such funds.
Although during the assessment proceedings assessee had filed financials, loan confirmation ledger and copy of bank statement which established that the ‘source of funds’ advanced by M/s. Sunshine Merchants Pvt Ltd is borrowing and security premium. Hence applying the principles of ‘preponderance of probability’ and keeping in view that assessee failed to discharge the burden of proof, the transaction was treated as ‘unexplained credit’ in the books of the assessee.
Since it was not clear, whether the funds in the hands of M/s Sunshine Merchants Pvt Ltd were genuine or not, therefore while completing the re-assessment proceedings in case of M/s Sunshine Merchants (P) Ltd the source of funds of loan to the assessee company has also been added in the hands of M/s. Sunshine Merchants P. Ltd against which demand has been raised. However, since copy of assessment order passed in the case of M/s. Sunshine Merchants P. Ltd., was not made available, therefore, keeping in view this fact addition u/s 68 of the Act were made by AO on ‘protective basis’ and the interest payment was also disallowed u/s 37 of the Act.
However, during the appellate proceedings before Ld. CIT(A) the copies of order of assessment in the case of M/s Sunshine Merchants Private Limited was submitted, but considering the financial health of M/s. Sunshine Merchants Private Limited, the additions on ‘substantive basis’ was made in the hands of assessee.
After having carefully gone through the facts and circumstances of the present case, we found that it is an undisputed fact that the present assessee had taken unsecured loan from M/s Sunshine Merchants Private Limited. Since the case of lender has also been reopened and the source of funds of loan to the assessee company has also been added in the hands of the lender i.e M/s Sunshine Merchant Private Limited. Therefore, making additions of unsecured loan in the hands of assessee would lead to double additions, which is not permissible under law.
6. Since the final outcome of the additions made in the hands of the lender has not been brought on record. Therefore, in our considered view sustaining additions both i.e in the hands of lender as well as the assessee would lead to double additions, which is not permissible under law. Therefore, keeping in view the above proposition in mind, the bench is of the view that the ends of justice would be met only if the matter is restored back to the file of Ld. CIT(A) to a certain the final outcome of the additions in the hands or of the lender and in case the additions are finally found to be sustained in the hands of the lender, then in that eventuality the additions in the hands of the assessee be deleted. Hence, with these directions matter stands restored to the file of Ld.CIT(A) to act in terms indicated above.
In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the open court on 02.06.2025.
Sd/- Sd/- (RENU JAUHRI) (SANDEEP GOSAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 02/06/2025 KRK, PS आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��थ� / The Respondent. 2. संबंिधत आयकर आयु� / The CIT(A) 3. आयकर आयु�(अपील) / Concerned CIT 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, मु�बई / DR, ITAT, Mumbai 5. गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, स�ािपत �ित //True Copy//
उप/सहायक पंजीकार ( Asst. Registrar) आयकर अपीलीय अिधकरण, मु�बई मु�बई / ITAT, Mumbai मु�बई मु�बई