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Facts
The revenue filed an appeal against the order of the CIT(A) which deleted the addition made by the AO under section 68 of the Income Tax Act, 1961, and the consequent disallowance of interest on unsecured loans. The AO had made additions on account of alleged unsecured loans amounting to Rs. 24,65,08,920/- and disallowed interest of Rs. 1,45,64,970/-.
Held
The Tribunal held that the assessee had successfully discharged the initial burden of proof by providing all necessary documentary evidence for the impugned loans. The lenders were found to be independent NBFCs with sufficient funds and had confirmed the transactions. The AO's inference that the loans were not genuine was based on flimsy reasons and was not justified.
Key Issues
Whether the additions made by the AO under Section 68 of the Income Tax Act on account of alleged bogus unsecured loans and the consequential disallowance of interest are justified.
Sections Cited
68, 115BBE, 133(6)
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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI NARENDRA KUMAR BILLAIYA, HON’BLE & SHRI SANDEEP SINGH KARHAIL, HON’BLE
Assessee by : Shri R.B. Doshi, A/R Revenue by : Shri Biswanath Das, CIT, D/R सुनवाई की तारीख/Date of Hearing : 24/10/2024 घोषणा की तारीख /Date of Pronouncement: 06/11/2024 आदेश/O R D E R
PER NARENDRA KUMAR BILLAIYA, AM:
This appeal by the revenue is preferred against the order dated 14/06/2024 passed by the NFAC, Delhi [hereinafter ‘the ld. CIT(A)’], pertaining to AY 2020-21.
The grievance of the revenue is that the ld. CIT(A) erred in deleting the disallowance made by the AO of Rs. 24,65,08,920/- u/s 68 of the Act and further erred in deleting the disallowance of Rs.1,45,64,970/- being interest paid on the alleged unsecured loan. 3. Representatives of both the sides were heard at length. Case records carefully perused and with the assistance of the ld. Counsel, we have carefully perused the relevant documentary evidence brought on record in the light of Rule 18(6) of the ITAT Rules, 1963. 2 4. Briefly stated the facts of the case are that the assessee filed its return of income on 31/12/2020 declaring total income of Rs.47,08,25,890/-. The return was selected for complete scrutiny on account of large difference in the opening stock of current year and closing stock of previous year. The statutory notices were accordingly issued and served upon the assessee. 5. During the course of scrutiny assessment proceedings, the assessee was asked to furnish complete details of unsecured loans from the following parties:-
The assessee was asked to furnish ITR of the lender/creditor, bank statement of the assessee reflecting payment of interest, bank statement reflecting the receipt of loan, ledger details of creditors & bank statement of the lenders. In addition, the AO also issued notices u/s 133(6) of the Act to all the above-mentioned creditors asking them to furnish their tax details, financial statements and bank statements. The assessee furnished completed details as sought for by the AO. Eight creditors responded to the notices received u/s 133(6) of the Act and furnished copy of the bank statement, their tax returns, financial statements and other details asked by the AO. However, no response was received from Sukhmehar Finance Pvt. Ltd. and Value Pitch e- technology Pvt. Ltd..
4 6.1. After perusing the details mentioned by the assessee and also submitted by the creditors, the AO formed a belief that the creditors do not have the capacity to lend the impugned money to the assessee. The AO also questioned their creditworthiness and finally came to the conclusion that the assessee has grossly failed to discharge the initial onus cast upon it by the provisions of Section 68 of the Act and made the addition of Rs. 24,65,08,920/- u/s 68 r.w.s. 115BBE of the Act and further disallowed Rs.1,45,64,970/- being interest claimed on unsecured loans.
The assessee carried the matter before the ld. CIT(A) and vehemently argued that the assessee has furnished all the details required by the AO and the AO, without making any independent enquiry has simply commented on the financials of the impugned creditors and came to the conclusion that the creditors do not have the capacity to lend money. After considering the facts and the submissions, and after going through the financial statements of the creditors, the ld. CIT(A) was of the opinion that the assessee had submitted sufficient documents to discharge its burden of proof u/s 68 of the Act. The ld. CIT(A) further observed that the parties who lent money were independent and were not related to the assessee and they are NBFCs who are into the money lending business for many years. The ld. CIT(A) further observed that the AO ought to have conducted independent enquiries to shift the burden of proof from him to the assessee by countering the evidence submitted by the assessee. The ld. CIT(A) concluded by holding that the AO’s action and arbitrary inference based on some factors which are not correlating in nature, was unjustified and 5 deleted the addition made on account of Section 68 of the Act and the consequent interest disallowance.
Before us, the ld. D/R strongly supported the findings of the AO and read the operative part. Per contra, the ld. Counsel for the assessee reiterated what has been stated before the lower authorities.
We have given a thoughtful consideration to the orders of the authorities below.
The six parties under dispute are as under:-
In response to the specific queries, the assessee submitted the following documents before the AO:-
Let us now analyze each lender and the reasons given by the AO for not accepting the same as genuine loan.
6 Sai Baba Finvest Pvt. Ltd.:- This company has given a loan of (i) Rs.9.60 Crores. The confirmation is placed at page 43 of the paper book wherein the loan creditor has confirmed the transactions. Page 45 is its return of income for AY 2020-21, where the returned income is Rs.1.14 Crores. This company has free reserves of Rs.42.26 Crores as per the balance sheet placed at page 46 and total revenue from operations of Rs. 2.71 Crores as per the P&L account at page 47 of the paper book. The reasons given by the AO is that on the date on which this company gave money to the assessee, it had negative balance in its bank account. A perusal of the bank statement shows that the money has been transferred through RTGS and if the balance is negative, means that this company is availing some credit facility from the bank otherwise it is impossible for any bank to honor the transactions if there is no fund in the bank account. Therefore, the allegation of the AO is baseless and considering the beneficiaries of this company, we are convinced that it has more than sufficient funds to lend money to the assessee. (ii) Hari Vintrade Pvt. Ltd. :- This company has given Rs. 2,08,59,170/-. The confirmation is at page 65 of the paper book where the transactions have been confirmed. The return of income for AY 2020-21 is at page 66 where the returned income is at Rs.1.18 Crores. Capital and fee reserve of this company is Rs.48.70 Crores as the per the balance sheet at page 68 and revenue from operations as per the P&L account is Rs.1.34 Crores. The only reason for not accepting these transactions is that on 20/04/2019, the assessee paid Rs.30 Lakhs to this company and this company paid Rs.49.99 Lakhs to Prince Dealtrade Pvt. Ltd. and Prince Dealtrade Pvt. Ltd., in turn paid to the assessee Rs.49.99 Lakhs. According to the AO, the assessee has circulated its own 7 money in its account. We fail to understand how these transactions can be treated as the unaccounted/unexplained money of the assessee for making addition u/s 68 of the Act. The reasons given by the AO are baseless. (iii) Bengal Credit Corporation Pvt. Ltd.:- This company has given Rs.2.75 Crores. The transaction is confirmed as per confirmation at page 83 of the paper book. Page 85 of the return of income for AY 2020-21 where the returned income of this company is Rs.29.19 Lakhs. The total capital and free reserves of this company is Rs.43.09 Crores and the revenue from operation is Rs.1.38 Crores. The reasons given by the AO are insufficient bank balance. Again, we fail to understand that if the assessee has insufficient bank balance, then why would the bank honor the transactions when the same is made through RTGS. It appears that the AO has failed to recognize the facts that these lenders are NBFCs who must be enjoying credit facilities from their respective banks. Further the AO observed that this company has repaid the assessee’s own money and inferred that the assessee’s own money has been routed as a loan. We fail to understand, how this inference can make additions u/s 68 of the Act. The flimsy reasons given by the AO are not accepted. (iv) Prince Dealtrade Pvt. Ltd.:- This company has given Rs.6,49,99,750/-. The transactions have been confirmed as per the confirmation at page 100 of the paper book, page 102 is the return of income for AY 2020-21 where the returned income is Rs.1.65 Crores. Capital and free reserves of this company is Rs.53.82 Crores as per the balance sheet at page 104 and the revenue from operations is Rs.1.88 Crores as per P&L account at page 105 of the paper book. Once again, the AO has not accepted the transactions as genuine for the reason that 8 the amount first came to Hari Vintrade Pvt. Ltd., then it was transferred to Prince Dealtrade Pvt. Ltd., from where money went to the assessee. So, according to the AO it was assessee’s own money. We do not find any merit in such inference drawn by the AO. (v) Sukhmehar Finance Pvt. Ltd.:- It has given Rs.3,07,50,000/-. The transactions have been confirmed at page 122 of the paper book to page 123 is the return of income for AY 2020-21 where the returned income is Rs. 1.12 Crores. The capita and free reserves are at Rs.67.08 Crores as per the balance sheet at page 124 and the operations from revenue is Rs.7.22 Crores as per P&L account at page 125. The reasons given by the AO are that it has very less returned income and it has not responded to the notice u/s 133(6) of the Act. We find that the assessee at very first instance informed the AO that this company has not received any notice u/s 133(6) of the Act and further along with the confirmation the financial statements and banks statements were furnished before the AO. Therefore, the allegations made by the AO are without any basis. (v) Dwarika’s Sons Estate Pvt. Ltd.:- Loan given of Rs.64,00,000/-. The reasons given for not accepting the loan given by this company are that this company is found to be having very low revenue from operations and the income as per the ITR also does not justify the large loan amount and the bank statement show that this company received money from some other company before lending money to the assessee. The loan transaction has been confirmed as per the confirmation on page 137 of the paper book. Now, the return of income for this company for AY 2020-21 is only Rs.28,983/- but it had capital and reserves of Rs.2.34 Crores that revenue from operations at Rs.74.16 Lakhs. The I.T.A. No. 3961/Mum/2024 9 transactions have been done through RTGS reflected in the bank statement.
Considering the factual matrix hereinabove, we are of the considered view that each and every lender had sufficient own funds to give the impugned loans to the assessee supported by all the documentary evidence necessary for discharging the initial onus cast upon the assessee by the provisions of Section 68 of the Act. Further each loan has been confirmed and supported by the affidavit of the directors of the companies which have not been proved to be false. Therefore, considering the vortex of evidence, we have no hesitation to hold that the assessee has successfully discharged the initial burden cast upon it by the provision of Section 68 of the Act. Therefore, we do not find any reason to interfere with the findings of the ld. CIT(A). The impugned additions of Rs.24,65,08,920/- made u/s 68 of the Act stands deleted and since the loan amount has been accepted as such, the disallowance of interest of Rs.1,45,64,970/- is also deleted.