Addition u/s. 68 sustained as repayment of loan or interest payment not demonstrated: ITAT Ahmedabad

Nyalkaran Builders LLP Vs ITO (ITAT Ahmedabad)

ITAT Ahmedabad held that addition towards unsecured loan where loan was repaid is unsustainable, whereas, addition where assessee failed to demonstrate repayment or interest payment to creditor sustained.

Facts- The assessee is a Limited Liability Partnership Firm (LLP) engaged in the business of construction and development activities. The return of the assessee was taken-up for scrutiny assessment since it was found large increase in unsecured loans, availed by the assessee. After verification, AO confirmed the unsecured loans relating to the 5 parties amounting to Rs.1,30,45,000/-. CIT(A) confirmed the addition. Being aggrieved, the present appeal is filed.

Conclusion- Held that CIT(A), without making any comments on the repayment of loan by the assessee, but merely relying upon the creditworthiness of the creditors, confirmed the addition made by the Assessing Officer. Thus, the addition sustained by the ld. CIT(A) is not correct in law, in a case where repayment of loan made within the same assessment year – that too within a period of 10 days. However, even before us, the assessee has not shown the loan availed from Pravinbhai Nanjibhai Golaviya HUF of Rs.7,25,000/- and the details about the repayment or interest to the creditor. In the absence of the same, the addition made on this account is liable to be sustained. Similarly, in the case of Shreeji Developers, there is a closing balance of Rs.12,50,000/-which is not being explained properly. Thus, the above additions are to be upheld.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

This is an appeal filed by the assessee against the order dated 09.01.2024 passed by the learned Commissioner of Income-Tax (Appeals), National Faceless Appeal Centre, Delhi (hereinafter referred to as the “CIT(A)”), arising out of the assessment order passed under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “the Act” in short), relating to the Assessment Year (AY) 2018-19.

2. The brief facts of the case are that the assessee is a Limited Liability Partnership Firm (LLP) engaged in the business of construction and development activities. For the assessment year 2018-19, the assessee filed its return of income on 20.10.2018 declaring total income of Rs.96,54,550/-. The return was taken-up for scrutiny assessment since it was found large increase in unsecured loans, availed by the assessee. The Assessing Officer issued a show-cause notice calling for explanation of 13 unsecured creditors; in reply, the assessee filed various details before the Assessing Officer. After verification of the same, the Assessing Officer confirmed the unsecured loans relating to the 5 parties amounting to Rs.1,30,45,000/- as follows:-

2.1 Thus, the Assessing Officer determined the total income as Rs.2,26,99,550/- and demanded the taxes thereon.

3. Aggrieved against the assessment order, the assessee filed an appeal before the ld. CIT(A). The ld. CIT(A) held that the assessee failed to establish the creditworthiness and identity of the parties and thereby confirmed the addition made by the Assessing Officer.

4. Aggrieved against the appellate order, the assessee is now in appeal before us raising the solitary ground that the ld. CIT(A) has erred in confirming the addition of Rs.1,30,45,000/- made by the Assessing Officer u/s 68 of the Act.

5. Counsel Shri Chetan Agarwal, appearing for the assessee, submitted before us a paper-book running into 43 pages containing various details and evidences relating to the unsecured loans availed by the assessee. The ld. Counsel also presented before us a tabulated chart clearly showing when the loan was taken, when the repayment has been done, and also the evidences filed before the ld. CIT(A). Therefore, the ld. Counsel requested to delete the addition made by the Assessing Officer.

6. Per contra, the ld. Sr. DR., Smt. Mamta Singh, appearing for the Revenue, supported the order passed by the ld. CIT(A) and requested to sustain the addition made by the Assessing Officer and confirmed by the ld. CIT(A).

7. We have given our thoughtful consideration to the orders of the authorities below and also perused the material available on record. It is pertinent to note the details of unsecured loans and repayment made thereon, alongwith evidences filed by the assessee, which are as follows:-

8. Perusal of the above table makes it very clear that the unsecured loans availed from Empire Realty, Shree Swaminarayan Industries and Prerna Reality were being repaid by the assessee within a short duration of seven days. Whereas, in the case of Pravinbhai Nanjibhai Golaviya-HUF, the unsecured loan remained with the assessee and details of interest paid thereof by the assessee was not shown. In the case of Shreeji Developers, unsecured loan of Rs.58,76,000/- availed by the assessee on 15.06.2017 was repaid in entirety on 28.06.2017; however, another loan of Rs.17,50,000/- availed on 15.06.2017 wherein Rs.5,00,000/- only repaid on 03.08.2017; thus, there is a closing balance of Rs.12,50,000/- with the assessee. However, the ld. CIT(A), without making any comments on the repayment of loan by the assessee, but merely relying upon the creditworthiness of the creditors, confirmed the addition made by the Assessing Officer.

9. In our considered view, the addition sustained by the ld. CIT(A) is not correct in law, in a case where repayment of loan made within the same assessment year – that too within a period of 10 days. Therefore, the addition made on this account in the case of Empire Reality, Shree Swaminarayan Industries, Prerna Reality, and Shreeji Developers are liable to be deleted. However, even before us, the assessee has not shown the loan availed from Pravinbhai Nanjibhai Golaviya HUF of Rs.7,25,000/- and the details about the repayment or interest to the creditor. In the absence of the same, the addition made on this account is liable to be sustained. Similarly, in the case of Shreeji Developers, there is a closing balance of Rs.12,50,000/-which is not being explained properly. Thus, the above additions are to be upheld.

10. In the result, the appeal filed by the assessee is partly allowed, as indicated above.

Order pronounced in the open Court on 22/08/2024 at Ahmedabad