Re-verify Section 69C interest expense disallowance: ITAT Ahmedabad

Upendra Chinubhai Shah Vs ACIT (ITAT Ahmedabad)

Disallowance of interest expense u/s. 69C needs re-verification hence matter send back: ITAT Ahmedabad

ITAT Ahmedabad held that disallowance of interest expense by treating the same as unexplained expenditure under section 69C of the Income Tax Act needs re-verification. Accordingly, matter send back to the file of jurisdictional AO.

Facts- The assessee is an individual deriving income from Salary, house property, capital gain, business as well as other sources. The return of the assessee was taken for scrutiny assessment. AO issued a notice dated 30.11.2019 to show cause as to why the interest expenses of Rs.10,79,531/- should not be treated as unexplained expenditure u/s. 69C of the Act being interest expenditure on unexplained cash credit as per Section 68 of the Act.

Assessee submitted for the earlier Asst. Year 2016-17 vide order dated 21-08-2019, CIT(A) treated the unsecured loan as genuine and thereby deleted the disallowance of interest expenses of Rs.8,29,884/-. Since there is no loan taken during this financial year the proposed disallowance of interest amount of Rs.10,79,531/- does not arise. Therefore requested to drop the addition. However the above explanation was not accepted by the AO, since the Revenue is in appeal against the Ld. CIT(A) order, the issue has not reached finality, the unsecured loan taken in earlier years cannot be considered as genuine thereby confirmed the sum of Rs.10,79,531/- as unexplained expenditure u/s. 69C of the Act.

Conclusion- Held that in the case of fresh loan during assessment year 2016-17 of Rs. 7,00,000/- was also deleted since identity, creditworthiness and genuineness were proved by the assessee. However, it is seen from record that as against revenue’s appeal before this Tribunal in ITA Nos. 1208, 2339 and 2748/Ahd/2017 relating to the assessment year 2012­13, 2013-14 and 2014-15, revenue’s appeals were dismissed vide order dated 25-02-2021 since the assessee has availed Vivad Se Vishwas Scheme. For assessment year 2015-16, Department’s appeal in ITA 2323/Ahd/2018 was dismissed vide order dated 22­02-2021 since the assessee has availed the Vivad Se Vishwas Scheme. For the very previous assessment year 2016-17 on account of low tax effect, revenue has not filed appeal before this Tribunal. These above facts are not properly appreciated by the CIT(A) in his orders dated 11-01-2024 passed for the assessment year 2018-19 and 2020-21. For the above reasons, we are unable to follow the earlier order passed by Co-ordinate Benches of this Tribunal since the same were passed not on merits but on account of assessee having availed the benefit of Vivad Se Vishwas Scheme, 2020. Thus, the entire issue of disallowance is to required be looked into again by the AO on merits in accordance with law, also keeping in view the present status of various additions made on account of unsecured loans on which the interest expenses were claimed and disallowed. Therefore, in the interest of justice, we deem it fit to set aside the issue back to the file of Jurisdictional Assessing Officer to denovo adjudicate the issue of disallowability of interest expenses on merits in accordance with law.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

This appeal is filed by the Assessee as against the appellate order dated 28.02.2024 passed by the Additional/Joint Commissioner of Income Tax (Appeals)-1, Kolkata arising out of the assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2017-18.

2. The brief facts of the case is that the assessee is an individual deriving income from Salary, house property, capital gain, business as well as other sources. The assessee filed his Return of Income on 29.10.2017 declaring total income of Rs.1,90,00,480/-. The return was taken for scrutiny assessment. The Assessing Officer issued a notice dated 30.11.2019 to show cause as to why the interest expenses of Rs.10,79,531/- should not be treated as unexplained expenditure u/s. 69C of the Act being interest expenditure on unexplained cash credit as per Section 68 of the Act. In response, the assessee submitted for the earlier Asst. Year 2016-17 vide order dated 21-08-2019, the Ld. CIT(A) treated the unsecured loan as genuine and thereby deleted the disallowance of interest expenses of Rs.8,29,884/-. Since there is no loan taken during this financial year the proposed disallowance of interest amount of Rs.10,79,531/- does not arise. Therefore requested to drop the addition. However the above explanation was not accepted by the AO, since the Revenue is in appeal against the Ld. CIT(A) order, the issue has not reached finality, the unsecured loan taken in earlier years cannot be considered as genuine thereby confirmed the sum of Rs.10,79,531/- as unexplained expenditure u/s. 69C of the Act.

3. Aggrieved against the same, assessee filed an appeal before Additional/JCIT-1, Kolkata who dismissed the assessee appeal since the matter is pending before the Appellate Tribunal.

4. Aggrieved against the appellate order, the assessee is in appeal before us raising the following Grounds of Appeal:

1. ADDL/JCIT (A) erred in law and on facts dismissing the appeal of the appellant by confirming action of AO in disallowing interest expense of Rs.10,79,531/- expended on genuine unsecured loans u/s 69C of the Act.

2. ADDL/JCIT (A) erred in law and on facts confirming disallowance of interest expense claimed on opening balances of unsecured loan that were held as genuine by Id. CIT (A) during the previous year.

3. ADDL/JCIT (A) erred in not appreciating submission of the appellant that once unsecured loans are held to be genuine then disallowance of interest on such unsecured loans will have to be deleted in consequence of deletion of the addition made u/s 68 of the Act.

4. ADDL/JCIT (A) erred in law and on facts in concurring with AO that since department has challenged the order of ld. CIT (A) holding the loans to be genuine during the previous year, the interest paid on such loans cannot be allowed as genuine business expenditure.

5. ADDL/JCIT (A) erred in law and on facts dismissing the appeal ignoring NFAC appellate orders of AY 2018/19 & AY 2020/21 submitted along with written submissions wherein disallowance of interest on the same unsecured loans is deleted following appellate order of A Y 2016/17.

6. Levy of interest u/s 234A/234B & 234C of the Act is unjustified.

5. Ld. Counsel, Mr. Urvashi Sodhan, appearing for the assessee submitted before us a Paper Book containing various documents including the appellate order passed by the Co-ordinate Bench of this Tribunal for Asst. Year 2011-12 and Commissioner of Income Tax (Appeals) order for the Asst. Year 2018-19 and 2020-21. During the course of hearing when specific query was raised about the pendency of appeal before the Tribunal relating to the Asst. Year 2016-17 and earlier years. The Ld. Sr. D.R., Mr. Bhavnasingh Gupta, came up with a reply that the assessee has opted for Vivad Se Vishwas Scheme as against the Department appeals filed for the Asst. Years 2012-13 to 2015-16. Thus the assessee has accepted the issue of unsecured loans as bogus and paid the taxes thereon. However for the Asst. Year 2016-17 Department could not pursue appeal before ITAT on account of Low Tax Effect Board Circular. Therefore Ld. Sr. DR requested to uphold the disallowance of interest on unsecured loans made by the Assessing Officer amounting to Rs.10,79,531/-. In this connection, ld. D.R. drawn our attention to the report of the Jurisdictional Assessing Officer reads as follows:

2. In this connection, the appeal status of A.Y.s 2012-13 to A.Y.s 2016-17 in the case of “Shri Upendra Chinubhai Shah” is as mentioned below:

6. Ld. Counsel appearing for the assessee could not dispute the above facts, but relied on subsequent decisions of the Ld. CIT(A) relating to the Asst. Years 2018-19 and 2020-21.

7. We have perused the orders passed by the Ld. CIT(A) for the subsequent assessment years. Ld. CIT(A) for assessment year 2016-17 vide order dated 21-08-2019 deleted the addition of Rs. 46,75,000/- in the case of 10 creditors whose opening balance available in the previous financial year. Similarly in the case of fresh loan during assessment year 2016-17 of Rs. 7,00,000/- was also deleted since identity, creditworthiness and genuineness were proved by the assessee. However, it is seen from record that as against revenue’s appeal before this Tribunal in ITA Nos. 1208, 2339 and 2748/Ahd/2017 relating to the assessment year 2012­13, 2013-14 and 2014-15, revenue’s appeals were dismissed vide order dated 25-02-2021 since the assessee has availed Vivad Se Vishwas Scheme. For assessment year 2015-16, Department’s appeal in ITA 2323/Ahd/2018 was dismissed vide order dated 22­02-2021 since the assessee has availed the Vivad Se Vishwas Scheme. For the very previous assessment year 2016-17 on account of low tax effect, revenue has not filed appeal before this Tribunal. These above facts are not properly appreciated by the CIT(A) in his orders dated 11-01-2024 passed for the assessment year 2018-19 and 2020-21. For the above reasons, we are unable to follow the earlier order passed by Co-ordinate Benches of this Tribunal since the same were passed not on merits but on account of assessee having availed the benefit of Vivad Se Vishwas Scheme, 2020. Thus, the entire issue of disallowance is to required be looked into again by the AO on merits in accordance with law, also keeping in view the present status of various additions made on account of unsecured loans on which the interest expenses were claimed and disallowed. Therefore, in the interest of justice, we deem it fit to set aside the issue back to the file of Jurisdictional Assessing Officer to denovo adjudicate the issue of disallowability of interest expenses on merits in accordance with law. We order accordingly.

8. Needless to say that the assessee should make use of this opportunity and produce all necessary materials before the Jurisdictional Assessing Officer for passing order on merits.

9. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.

Order pronounced in the open court on 17 -10-2024