Validity of Addition under section 68 on account of unsecured loan if loan was accepted via banking channels

 

Short Overview : Where loan was accepted through banking channel and the details furnished by Authorized signatory of Director were not verified vis-a-vis the records available with AO in its proper perspective, therefore addition was to be deleted under section 68.

AO made addition under section 68 on account of unsecured loan obtained by assessee as unexplained income because assessee was not able to prove the source and genuineness of creditors. CIT(A) and Tribunal confirmed the addition under section 68.

It is held that The finding of fact recorded by CIT(A) that loan was accepted through banking channel and the details furnished by Authorized signatory of Director were not verified vis-a-vis the records available with AO in its proper perspective. This finding of CIT(A) also came to be affirmed by Tribunal. Therefore addition was to be deleted under section 68.

Decision: In assessee’s favour

IN THE GUJARAT HIGH COURT

J.B. PARDIWALA & A.C. RAO, JJ.

Pr. CIT v. Vishal Plastomers (P) Ltd.

R/Tax Appeal No. 242 of 2019

9 July, 2019

Appellant (s) by: Mauna M Bhatt (174)

Opponent (s) by: None

J.B. Pardiwala, J.

This Tax Appeal under section 260-A of the Income Tax Act, 1961 (for short “the Act, 1961”) is at the instance of the Revenue and is directed against the order passed by the Appellate Tribunal “D” Bench, Ahmedabad, dated 26-10-2018 in ITA No. 1775/Ahd/2014 for the assessment year 2008-09.

2. The Revenue has proposed the following questions as the substantial questions of law in its memorandum of the Tax Appeal :–

“(A) Whether the Appellate Tribunal has erred in law and on facts in upholding the decision of Commissioner (Appeals) deleting the disallowance of Rs. 83,71,764 made on account of setting of STCG against depreciation?

(B) Whether the Appellate Tribunal has erred in law and on facts in upholding the decision of Commissioner (Appeals) deleting the addition of Rs. 20,90,000 made under section 68 of the Act?

(C) Whether the Appellate Tribunal has erred in law and on facts in upholding the decision of Commissioner (Appeals) deleting the disallowance of Rs. 5,49,74,891 on account of bad debts written off?

(D) Whether the Appellate Tribunal has erred in law and on facts in upholding the decision of Commissioner (Appeals) in deleting the addition of Rs. 47,60,000 made on account of cash deposit?”

3. It appears from the materials on record that so far as the first question as proposed by the Revenue is concerned, the Commissioner (Appeals) took the view that the unabsorbed depreciation can be carried forward for unlimited years in accordance with section 32(2) of the Act. Such unabsorbed depreciation becomes part of the allowance of depreciation for the subsequent assessment year irrespective of the fact whether there is business or not i.e. such unabsorbed depreciation in the subsequent year takes the shape of the current year depreciation and in case there is no sufficient income from business and profession or no such income, the same would be adjusted against such income or if not given set off would become negative income under the head “Profit and Gains from the business and profession” of current year eligible to be set off against any other head in accordance with the provisions of section 71 of the Act. In this regard, the Commissioner (Appeals) placed reliance on the decision of the Supreme Court in the case of CIT v. Mahalakshmi Sugar Mills Co. Ltd. (1986) 160 ITR 920 (SC) : 1986 TaxPub(DT) 1659 (SC). The ratio of Mahalakshmi Sugar Mills Co. Ltd. (supra) is that there is a duty cast on the Income Tax Officer to apply the relevant provisions of the Act for the purpose of determining the true figure of the assessee’s taxable income and the consequential tax liability. The Appellate Tribunal concurred with such findings of the Commissioner (Appeals). The Tribunal also discussed the decision of the Supreme Court in Mahalakshmi Sugar Mills Co. Ltd. (supra). Ultimately, the Tribunal observed as under, so far as the first proposed question is concerned :–

“Respectfully following the judgment passed by the Hon’ble Apex Court which decided the issue of the present case relating to setting off STCG against brought forward unabsorbed depreciation in favour of the assessee, we find no justification to interfere with the order passed by the learned Commissioner (Appeals) and dismiss this ground of appeal preferred by the Department.”

3.1 In so far as the second question as proposed by the Revenue is concerned, it is with regard to the deletion of the addition of Rs. 20,90,000 made under section 68 of the Act. In this regard, the findings recorded by the Commissioner (Appeals) are as follows :–

“In appeal, the learned Commissioner (Appeals) observed that since the PAN, address, details of ledger accounts showing such transaction through banking channel was duly filed by the Authorised person before the learned assessing officer the duties of the assessee casted upon him under section 68 of the Act has rightly been discharged in order to establish the identity, genuineness and creditworthiness. Relying upon judgment of Hon’ble Gujarat High Court in the matter of Ranchood Jivabhai Nakhava reported at (2012) 21 taxmann.com 159 (Guj.) : 2012 TaxPub(DT) 2351 (Guj-HC), he further observed that it was the learned assessing officer who is to find out from the records available with him since Shri Pradip S. Mehta being one of the assessees also under him has no creditworthiness before making such addition under section 68 of the Act. He therefore deleted the addition of Rs. 20,05,000. We find the learned assessing officer failed to consider that the loan was accepted through banking channel only and the details which was given by the Authorised signatory of the Director were also not verified vis-a-vis records available with him in its proper perspective. The said lacuna has rightly been pointed out by the learned Commissioner (Appeals) and deleted the addition accordingly. We thus do not find any infirmity in the order of the learned Commissioner (Appeals). The ground of appeal referred by the Revenue is therefore disallowed by us.”

3.2 The finding of fact recorded by the Commissioner (Appeals) is that loan was accepted through banking channel and the details furnished by the Authorised signatory of the Director were not verified vis-a-vis the records available with the assessing officer in its proper perspective. This finding of the Commissioner (Appeals) also came to be affirmed by the Appellate Tribunal.

3.3 So far as the question No. C is concerned, as proposed by the Revenue, the findings recorded by the Tribunal are as under :–

“32. In the matter of TRF Ltd. the Hon’ble Apex Court observed as under :–

“After 1-4-1989, it is necessary for assessee to establish that the debt, in fact, has become irrecoverable of it is written off as irrecoverable in the accounts of the assessee.”

32.1 Therefore, once such debts are written off in the books of accounts of the assessee, the claim of bad debts will be available to the assessee in that year. While deleting the depreciation, the learned Commissioner (Appeals) observed as follows :–

“I am inclined with appellant that after Hon’ble Supreme Court decision in the case of TRF Ltd. (supra), it is not mandatory on the part of appellant to establish that debt has become bad or appellant’s bona fide about the irrecoverability of debt. The only conditions required for claim of bad debt are (as per provisions).

(i) The debt must be trade debt and the same should have been taken in computing income of appellant of any year I.e current year and earlier years.

(ii) The debt should be written off from the books of accounts of appellant.

In view of details about trade debt, and ratio of Hon’ble Supreme Court, the assessing officer is directed to allow the claim of bad debt written off of Rs. 5,49,74,891 and delete the addition so made.

The appellant gets relief accordingly. This ground is allowed.”

33. Relying upon the judgment of TRF Ltd. (supra) as being settled principle of law, we find no infirmity in the order passed by the learned Commissioner (Appeals) and the same if hereby upheld.”

The Commissioner (Appeals) as well as the Tribunal relied on the decision of the Supreme Court in the case of TRF Ltd. (supra).

3.4 So far as the fourth question as proposed by the Revenue is concerned, the findings recorded by the Tribunal are as under :–

“37. In appeal, those documents were again considered by the learned Commissioner (Appeals) and also the contention made by the assessee that the books of accounts are duly audited under the Companies Act and Income Tax Act under section 44AB of the Act as well and such audited books and tax audit report does not reflect any adverse remarks in this regard. The contention of the assessee that the cash so deposited in the bank account is out of cash available in the hand or out of withdrawals from bank in normal business activity.

37.1 This particular fact is supported by the cash book being a good evidence for source of such cash deposits. The learned Commissioner (Appeals) thus on the basis of the audited books of accounts and in the absence of any adverse comment by tax auditor or finding of incorrect cash book and the recording of transactions and reflections in the books of accounts found no fault on the part of the assessee neither reason to disbelieve the assessee as made by the learned assessing officer because of export business of the assessee only on assumption and without any basis. The learned Commissioner (Appeals) found the addition is based on surmises & conjectures in the absence of verification made by the learned assessing officer. Relying upon the judgment of the Saurin Nandkumar Shodhan of the Co-ordinate Bench holding that presumption on surmises by the learned assessing officer cannot be justified for such audited cash book and bank book the learned Commissioner (Appeals) deleted such addition. Taking into consideration the ratio laid down by the Co-ordinate Bench in the matter of Saurin Nandkumar Shodhan, we find no infirmity in the order passed by the learned Commissioner (Appeals), same is hereby upheld. Thus, this ground of appeal raised by the Revenue is dismissed.”

3.5 Thus, there are concurrent findings of fact recorded by the two Revenue Authorities on all the four proposed questions referred to above. In our opinion, no error not to speak of any error of law could be said to have been committed by the Tribunal in passing the impugned order.

The Tax Appeal is more on facts rather than any question of law involved in the matter. We do not find any substantial question of law involved in this Tax Appeal.

4. In the result, this Tax Appeal fails and is hereby dismissed.