Introduction: In the case of “PCIT Vs Avdesh Mishra,” pertaining to Assessment Year 2016-17, the Delhi High Court delivered a significant verdict. The essence of this case revolves around the Assessing Officer’s addition for an unsecured loan obtained by the respondent/assessee from Dayal Trust. This article provides an in-depth analysis of the court’s decision and the circumstances leading to the deletion of the addition.
AO’s Addition for Unsecured Loan: The Assessing Officer (AO) had, through an assessment order dated 22.12.2018, made additions to the respondent/assessee’s income. This addition was attributed to an unsecured loan from Dayal Trust, totaling Rs. 2,91,00,849/-
Additional Addition for Interest Payment: In addition to the unsecured loan, the AO also added an amount of Rs. 35,71,306/- for the interest paid by the respondent/assessee to Dayal Trust. The cumulative addition made by the AO was Rs. 3,26,72,155/-, under Section 68 read with Section 115BBE of the Income Tax Act, 1961.
Appeal to CIT(A) and Tribunal: The respondent/assessee, dissatisfied with the AO’s additions, appealed to the Commissioner of Income Tax (Appeals) [CIT(A)]. Subsequently, the CIT(A), in an order dated 28.02.2020, removed the addition after considering additional evidence submitted by the respondent/assessee. An appeal by the appellant/revenue to the Tribunal was dismissed, affirming the CIT(A)’s order.
AO’s Oversight and Beneficiary Taxation: The AO’s error was failing to recognize that the interest paid to Dayal Trust was distributed among the trust’s beneficiaries, who were individually taxed.
Documentary Evidence by the Assessee: The respondent/assessee furnished comprehensive details of payments made by Dayal Trust to the builder, Emaar MGF Land Ltd., for the acquisition of the subject property. This included cheque details, dates, loan installment amounts, interest rates, and bank information. Moreover, confirmation from Dayal Trust, copies of the Income Tax return, balance sheet, and trust’s taxable income details were provided.
Tribunal’s Consideration of Evidence: The Tribunal reviewed the evidence in the remand report of the AO dated 10.02.2020, as documented in paragraph 10 of the impugned order.
Conclusion: The Delhi High Court found that the addition made by the AO was unwarranted. The respondent/assessee had convincingly demonstrated that the entry in their books of accounts accurately represented a loan extended by Dayal Trust. Consequently, the court concluded that no substantial question of law was raised.
As a result, the appeal was closed, and any pending applications were dismissed. Parties were directed to act based on the digitally signed copy of the court’s order. This case exemplifies the importance of presenting thorough evidence in tax-related matters to uphold the taxpayer’s position and avoid unwarranted additions to their income.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. This appeal concerns Assessment Year (AY) 2016-17.
2. Via the instant appeal, the appellant/revenue seeks to assail the order dated 08.12.2022 passed by the Income Tax Appellate Tribunal [in short, “Tribunal”].
3. The record shows that the Assessing Officer (AO), via the assessment order dated 22.12.2018, had made additions on account of an unsecured loan obtained by the respondent/assessee from a trust going by the name Dayal Trust. The addition on account of the unsecured loan made was to the extent of Rs.2,91 ,00,849/-.
4. Besides this, an addition was also made for the interest paid by the respondent/assessee to Dayal Trust. The amount added on this score was Rs.35,71,306/-. Therefore, the total addition made by the AO was Rs.3,26,72,155/-. This addition was made under Section 68 read with Section 115BBE of the Income Tax Act, 1961 [in short, “Act”].
5. Being aggrieved by the addition made by the AO, the respondent/assessee preferred an appeal with the Commissioner of Income Tax (Appeals) [in short, “CIT(A)”].
6. The CIT(A), via order dated 28.02.2020, deleted the addition after calling for a remand report from the AO regarding additional evidence placed by the respondent/assessee.
6.1. In an appeal preferred against the CIT(A)’s order by the appellant/revenue, the Tribunal dismissed the appeal and sustained the said order.
7. The record discloses that one of the errors that the AO had committed was his failure to notice that the interest paid by the respondent/assessee to Dayal Trust was bifurcated amongst the beneficiaries of the trust, which was thereafter taxed in their hands.
7.1 This aspect has been duly appreciated and noted by the CIT(A).
8. Furthermore, the record shows that the respondent/assessee had furnished details of payments made by lender trust (Dayal Trust) to the builder, Emaar MGF Land Ltd., for the acquisition of the subject property- containing cheque numbers, dates, amounts of each installment of loan released, bank details, interest charged (rate and amount); along with confirmation from the lender trust, copy of Income Tax return, balance sheet and details of the taxable income of trust.
9. To be noted, the respondent/assessee had taken a loan from Dayal Trust for the acquisition of the subject property from Emaar MGF Land Ltd.
10. The Tribunal has adverted to the evidence placed on record which is the subject matter of the remand report of the AO dated 10.02.2020 in paragraph 10 of the impugned order.
11. According to us, the addition made by the AO was not called for in the instant case. The respondent/assessee had been able to place the relevant material to back his explanation that the entry in its books of accounts was nothing but a loan extended by Dayal Trust.
12. Thus, for the foregoing reasons, we are of the view that no substantial question of law arises for our consideration.
13. The appeal is, accordingly, closed.
14. Consequently, the pending application shall stand closed.
15. Parties will act based on the digitally signed copy of the order.