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Facts
The Assessing Officer (AO) made an addition of Rs. 56,60,000/- under Section 68 of the Income Tax Act for unsecured loans, including Rs. 42,50,000/- from MNF Projects Ltd., citing lack of creditworthiness and genuineness. Additionally, the AO disallowed sales commission of Rs. 15,59,666/- and charged interest under Sections 234B and 234C. The Ld. CIT(A) deleted an addition related to Shyam Investment Pvt. Ltd. but confirmed the addition for MNF Projects Ltd., upheld the disallowance of sales commission, and confirmed interest charges.
Held
The ITAT deleted the addition of Rs. 42,50,000/- from MNF Projects Ltd. under Section 68, finding that the lender had sufficient creditworthiness and genuineness was established. However, the ITAT upheld the disallowance of sales commission of Rs. 15,59,666/- as the assessee failed to establish the services rendered. The charging of interest under Sections 234B and 234C was deemed consequential and thus not adjudicated upon.
Key Issues
Whether the addition of unsecured loans, particularly from MNF Projects Ltd., was justified under Section 68. Whether the disallowance of sales commission expenses was correct due to lack of proof. Whether the charging of interest under Sections 234B and 234C was appropriate.
Sections Cited
68, 143(3), 234B, 234C
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Income Tax Appellate Tribunal, DELHI BENCH ‘E’’ : NEW DELHI
Asstt. Year : 2013-14 MNF Metals & Forming Pvt. Ltd. vs. DCIT, Circle 16(2), 1313, Ansal Tower, New Delhi – 2 38, Nehru Place, New Delhi – 110 019 (PAN: AABCI4339L) (Appellant) (Respondent) Appellant by : Sh. Ram Avtar, CA & Sh. Bhupesh Aggarwal, CA Respondent by : Sh. Sunil Kumar Yadav, CIT(DR) Date of Hearing 17.04.2025 Date of Pronouncement 17.04.2025 ORDER PER MAHAVIR SINGH, VP This appeal by the Assessee is arising out of the order dated 31.05.2019 of the Ld. CIT(A)-37, New Delhi in Appeal No. CIT(A), Delhi-37/10057/2017-18. Assessment was framed by the Assessing Officer/DCIT, Circle 16(2), New Delhi for assessment year 2013-14 u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as “Act”) vide order dated 23.03.2016. The assesse has raised the following grounds:- 1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in law by confirming AO’s act of addition of unsecured loan received from MNF Projects Ltd. Of Rs. 42,50,000/- as income of the appellant under section 68 of the Act.
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in concluding that creditworthiness and genuineness of the transaction of loan received from MNF Projects Ltd., of Rs. 42,50,000/- remained unexplained whereas the transaction was genuine and party was having creditworthiness to advance the loan to the appellant.
3. On the facts and circumstances of the case and in law, Ld. CIT(A) has erred in law by confirming AO’s act of disallowing sales commission amounting to Rs. 15,59,666/- which were incurred by the appellant during the course of business and related to the business.
4. On the facts and circumstances of the case, and in law Ld. CIT(A) has erred in law and in confirming the act of the AO of charging interest u/s. 234B and 234C on the appellant.
The facts relevant to ground no. 1 & 2 are that the AO added the unsecured loans amounting to Rs. 56,60,000/- u/s. 68 of the Act on the ground that creditworthiness of the parties alongwith genuineness of the parties transactions remained unexplained. In Appeal, Ld. AR submitted that the amount of unsecured loan was genuine in nature and substance of form of the transaction depicted clearly showed in the balance sheet could not be submitted as the same was not made available during assessment proceedings. The assesse has submitted the copy of balance sheet, bank statement, confirmation from parties as additional evidence. Regarding creditworthiness of the parties, the assesse in rejoinder dated 26.10.2018 has submitted that during the year under consideration these parties having loss but it can be seen from the balance sheet that the parties were having positive net worth and was having sufficient creditworthiness to give loan to the assesse. But Ld. CIT(A) did not convince with the submissions of the assesse, hence, he confirmed the finding of the AO that creditworthiness and genuineness of the loan transaction remained unexplained. As far as Shyam Investment Pvt. Ltd. it was noted that this company had advanced a loan of Rs. 14,10,000/- to the assesse company and on perusal of the submission and documents submitted regarding creditworthiness and genuineness, Ld. CIT(A) held that the lender was having sufficient creditworthiness for giving loan to the assesse, hence, this addition was deleted and credit entry in the name of MNF Project amounting to Rs. 42,50,0000/- was confirmed and the said ground was partly allowed.
Aggrieved, Assessee is in appeal before us.
We have heard the rival contentions and gone through the facts of the case. At the time of hearing, ld. Counsel for the assessee submitted that during the year under consideration the assesse was having unsecured loan payable from M/s MNF Projects Ltd. (formerly known as Indosin Port Services Ltd.) and the loan amounting to Rs. 42,50,000/- was payable to the above lender by the assessee as on 31.3.2013. Out of the same, loan amounting to Rs. 30,50,000/- has been taken by the assessee from MNF Projects Ltd. and the remaining loan of Rs. 12,00,000/- was opening balance as on 1.4.2012. It was further submitted that the said unsecured loan taken from MNF Projects Ltd. is genuine in nature and substance of form of the transaction depicted clearly showed in the balance sheet and relevant documents. To prove the genuineness of the loan taken from MNF Projects, Ld. AR placed the copy of loan confirmation containing name, address and PAN of the lender corporate at page 48 of the paper book; copy of income tax return acknowledgement of the lender for the assessment year 2013-14 attached with paper book at page no. 36A, copy of Audited Financial Statement for the year 2012-13 of the lender attached at page no. 37 to 44 of the paper book; copy of ledger account of the lender attached at page no. 36 of the Paper book and copy of bank statement of the party evidencing payments of the loan to the appellant at page no. 45 to 48 of the Paper Book. On going through the balance sheet of M/s MNF Projects Ltd. as on 31.3.2023, we note that it is evident that the said loan is shown in Note No. 11 to Balance Sheet under “Short Term Loans and Advances”, which establishes that the lender balance sheet tallies to the extent of Rs. 59,44,489/- and had the capacity to give the loan of Rs. 42,50,000/- to the assessee. On perusing the page no. 45 of the Paper book which is a copy of bank statement, it is noticed that the lender had given loan to the assessee out of the maturity proceeds of its Fixed Deposits during the year. Accordingly, the lender had sufficient creditworthiness to advance the loan to the assessee. In the background of the aforesaid discussions, we are of the considered view that lender had sufficient creditworthiness to advance the loan to the assessee, hence, we delete the addition of Rs. 42,50,000/- by setting aside the order of the Ld. CIT(A) on this issue.
Apropos addition of Rs. 15,59,666/- on account of commission expenses is concerned, we find that during the period the assessee has paid total sales commission of Rs. 15,59,666/- to various parties and AO has added total sales commission in the income of the assessee on the ground that the assessee did not file even a single confirmation from any of the parties. In appeal, Ld. CIT(A) upheld the action of the AO because the assessee could not establish the services rendered by the commission agents. Even before us, the assessee could not explain the services rendered and the details thereof. In the background of the aforesaid discussions, we are of the considered view that Ld. CIT(A) has taken a correct view in upholding the action of the AO, which do not require any interference on our part, hence, we uphold the same and reject the ground no. 3 raised by the assessee accordingly.
Apropos ground no. 4 relating to charging of interest u/s. 234B and 234C are concerned, the same are consequential in nature, hence, not being adjudicated upon.
In the result, the appeal filed by the Assessee is partly allowed. in the aforesaid manner. Order pronounced in the Open Court on 17.04.2025.