PCIT Vs Jagmag Builders (Delhi High Court)
The Delhi High Court considered an appeal against the ITAT order dated 25 October 2023 concerning additions under Sections 68 and 37 of the Income Tax Act, 1961.
The Assessing Officer had made additions of Rs.2,67,05,957 under Section 68 concerning unexplained unsecured loans and Rs.50,05,512 under Section 37 relating to interest expenses on those loans. The Revenue challenged the deletion of these additions by the CIT(A), which had been affirmed by the ITAT.
The ITAT recorded that the entire loan amount had been repaid either during the relevant year or in subsequent assessment years. The transactions relating to obtaining and repaying the loans were conducted through banking channels. The assessee had furnished details of the loans and repayments, along with bank statements, income-tax returns and confirmations of the lenders.
The ITAT held that the assessee had discharged its onus of establishing the identity and creditworthiness of the creditors and the genuineness of the loan transactions. It therefore upheld deletion of the Rs.2,67,05,959 addition under Section 68. Since the Section 68 addition was deleted, the ITAT also deleted the related disallowance of interest.
Before the High Court, the Revenue raised questions concerning the unexplained unsecured loans, interest disallowance, and the assessee’s failure, as alleged in the grounds, to establish the sources and genuineness of the lenders.
The High Court, bearing in mind the ITAT’s findings, held that no substantial question of law arose. The appeal was accordingly dismissed.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Bearing in mind the disclosures made, the delay of 30 days in filing and the delay of 36 days in re-filing the appeal is condoned.
2. The applications shall stand disposed of.
ITA 325/2024
1. This appeal is directed against the order of Income Tax Appellate Tribunal [‘Tribunal’] dated 25 October 2023 and poses the following questions of law for our consideration:-
“A. Whether on facts and circumstances of the case and in law, Ld. ITAT has erred in sustaining the deletion made by the Ld. CIT(A), in respect of the additions made by the AO in the assessment order under Section 68 of the Act for Rs.2,67,05,957/- and interest thereon of Rs.50,05,512/- and also the Ld. ITAT has erred in deleting the addition of Rs.2,67,05,959/- under Section of the Act on account of unexplained unsecured loans without considering the settled position of law?
B. Whether on facts and circumstances of the case and in law, Ld. ITAT has erred in deleting the addition of Rs.50,05,512/- under Section 37 of the Act on account of disallowance of interest expenses on the unsecured loans?
C. Whether on facts and circumstances of the case and in law, Ld. ITAT has not considered, during the assessment proceedings, the assessee has also failed to furnish any positive evidence in support of sources of the funds of the lender and no explanation was offered in respect of frequent credit entries in the account of lenders, all the lenders were given summons for personal appearance. However, none of the lender appeared for interrogation, could not prove the genuineness of the party and the assessee has failed to prove the identity, creditworthiness and genuineness of the lenders from which unsecured loans were availed and therefore, it was seen that the assessee has taken bogus entries in the guise of unsecured loans?”
2. The issue itself pertains to additions under Sections 68 and 37 of the Income Tax Act, 1961 [‘Act’] which were made by the Assessing Officer [‘AO’] on account of unexplained unsecured loans and disallowance of interest expenses. We note that the Tribunal while affirming the conclusions which were arrived at by Commissioner of Income Tax (Appeals) has observed as follows:-
“6. From the evidences furnished by the assessee before the departmental authorities, it is established that the entire loan, which is subject matter of addition, as unexplained cash credit has been repaid either in the year under consideration or subsequent assessment years. The entire transaction relating to availing of and repayment of loan has been done through banking channel. All details relating to loan availed and repayments made have been furnished before the departmental authorities, the details of which have been produced at pages 24 to 29 of the order of learned First Appellate Authority. It is also a fact on record that assessee has furnished all supporting evidences not only to prove the identity of the lenders but even creditworthiness as well as genuineness of the transaction by furnishing their bank statements, income-tax return copy, confirmations etc. Thus, it is evident, assessee has discharged its onus of proving the identity and creditworthiness of the creditors as well as genuineness of the loan transactions. Therefore, in our considered opinion, learned First Appellate Authority was justified in deleting the addition of Rs.2,67,05,959 made under Section 68 of the Act. Since, the addition made under Section 68 of the Act has been deleted, as a natural corollary, the disallowance of interest paid on such loan also has to be deleted. Accordingly, we do so. Grounds are dismissed.”
3. Bearing in mind the aforesaid, we are of the considered opinion that no substantial question of law arises. The appeal fails and shall stand dismissed.
