Landmark Judgement : If loan was not received during the relevant assessment year, no addition can be made under section 68

Short Overview  Where AO made addition under section 68 in respect of a loan received by assessee, however, it was found that the said loan was not received during the assessment year under consideration; the addition made under section 68 on account of such loan was not called for during the said assessment year and hence, the said addition was liable to be deleted.

AO observed that assessee received a loan. However, the AO was not satisfied with submissions made by the assessee explaining identity and creditworthiness of creditor and genuineness of transaction, thus, he made addition of the same under section 68 on account of unexplained cash credit. CIT(A) confirmed the said addition. Assessee submitted that no such amount was received during the year and the alleged sum was received in preceding financial year and, therefore, no such addition was called for.

It Is held that  It was found that alleged loan was received by assessee in preceding year. On perusal of books of account, it was found that there was no such transaction during the year. Further, other documentary evidence in form of bank statement had also been filed to prove that the alleged fund was not received during the assessment year under consideration. Thus, since the alleged loan was not received during the said assessment year, the addition made under section 68 on account of such loan was not called for during the assessment year under consideration and hence, the said addition was accordingly, deleted.

Decision: In assessee s favour

Income Tax Act, 1961, Section 69C

Income from undisclosed sources—Addition under section 69C–Interest on loan–Addition on alleged loan being deleted

Short Overview : Where addition made under section 68 as unexplained cash credit in respect of loan received by assessee, was deleted by Tribunal; the addition made under section 69C on account of interest paid on such loan was liable to be deleted.

AO made addition under section 68 as unexplained cash credit in respect of loan received by assessee. Accordingly, he made addition under section 69C in respect of interest expenditure on the said alleged loan. CIT(A) confirmed the said addition under section 69C. Assessee submitted that it was a genuine expenditure and the same should be allowed.

It is held that  Since addition made under section 68 as unexplained cash credit in respect of loan received by assessee, was deleted by Tribunal; the addition made under section 69C on account of interest paid on such loan was liable to be deleted.

Decision: In assessee s favour

IN THE ITAT KOLKATA

A.T VARKEY, J.M. & MANISH BORAD, A.M.

Sanjay Mehta v. ACIT

ITA No. 1440/Kol/2018

17 September, 2021

Appellant by : Anikesh Banerjee, Advocate, learned Authorised Representative

Respondent by : Supriyo Pal, Addl.CIT, learned DR

ORDER

This appeal filed by the assessee pertaining to the assessment year 2015-16 is directed against the order of learned Commissioner (Appeals)-10, Kolkata dated 5-4-2018 vide Appeal No. 912/Commissioner (Appeals)-10/C-36/2015-16/2017-18/Kol. which is arising out of the assessment order framed under section 143(3) of the Income Tax Act dated 28- 12-2017 by ACIT, Circle-36, Kolkata.

2. The assessee has raised following grounds of appeals for assessment year 2015-16:-

 

1. For that learned Commissioner (Appeals) was wrong in not adjudicating ground number 1 before him by holding “I find that the appellant has participated in the assessment proceedings without protest and is raising certain technical issues for academic purposes. As such, in my considered view these matters do not call for any specific adjudication.

2. For that in view of facts and circumstances of the case variations made by Ld. assessing officer, which are beyond scope of limited scrutiny, are void being without jurisdiction. The same may be declared void .

3. For that learned Commissioner (Appeals) was wrong in not considering clear language in section 14A in two phrases namely “total income under this Chapter” and “which does not form part of the total income under this Act” as used in section 14A. AS per reading of these phrases a disallowance is called for only in relation to income which is not chargeable under the Act. Therefore, learned Commissioner (Appeals) was wrong in confirming invocation of section 14A, because dividend constitute chargeable income I total income under the Act and is a final tax levied under the Act. Therefore, in relation to such income section 14A cannot be invoked. The Ld. assessing officer may be directed not to invoke section 14A.

4. For that without prejudice to above ground, learned Commissioner (Appeals) was wrong in confirming disallowance under section 14A to the extent of Rs. 88558 which is highly excessive, particularly when no expenses have been incurred to earn dividend.

5. For that learned Commissioner (Appeals) was wrong in confirming invocation of 5.68 in respect of Loan received amounting to Rs. 4,00,000 nature and source of which was fully explained by assessee and therefore, 5.68 is not at all applicable, in view of provisions of the Negotiable Instrument Act; because the assessee received a/c payee cheque, which was held and deposited as a holder in due course, on presentation of cheque, through banker of assessee to the drawee bank, the drawee bank honored the cheque against balance available in account of drawer of the cheque. In such circumstances cheque, therefore 5.68 cannot be invoked.

6. For that learned Commissioner (Appeals) was wrong in confirming addition under section 68, merely on basis of presumption, bias, conjecture and hearsay, without any evidence that assessee had in fact paid cash in lieu of cheque received for which assessee confirmed received, acknowledged liability, paid interest from time to time, deducted tax on interest and repayment was also made in due course.

7. For that learned Commissioner (Appeals) was wrong in confirming addition under section 69C in respect of interest paid by assesse which was duly recorded in books of account of assesse and is a genuine payment of interest on capital borrowed.

8. For that learned Commissioner (Appeals) was wrong in confirming invocation of S.234A though Return of income was filed timely.

9.  For that learned Commissioner (Appeals) was wrong in holding that invocation and levy of interest under section 234B and 234C are consequential in nature. Furthermore when assessing officer did not make any order to levy interest us. 234A, 234B and 234C but in computerized computation sheet interest has been levied. In case of additions made due to difference of opinion, and also additions made not as per law and binding precedence, interest can only be charged on the basis of income as per return and not as per income assessed by assessing officer. Because it is impossible for assesse to foresee, what additions will be made by the assessing officer. Levy of interest may be deleted fully.

10. The appellant seeks permission to raise new contentions and new grounds of appeal.

3. Brief facts of the case as culled out from the records are that the assessee is an individual. E-Return of income for the assessment year 2015-16 filed on 29-09-2015 declaring total income of Rs. 43,33,390. Case selected for scrutiny through CASS followed by serving of notices issued under section 143(2) and 142(1) of the Act. The Ld. assessing officer called for submissions of the details. After considering the same, he computed the disallowance under section 14A read with rule 8D of Rs. 9,18,028. The learned assessing officer also observed that there was a loan from M/s. Attitude Merchants Pvt. Ltd of Rs. 4 lakhs. The learned assessing officer was not satisfied with the submissions made by the assessee explaining the identity, genuineness and creditworthiness. The learned assessing officer disallowed interest expenditure of Rs. 40,000 on the alleged loan of Rs. 4 lakhs. The total addition was made at Rs. 13,58,028 (Rs. 9,18,028 under section 14A read write rule 8D, Rs. 4,00.000 under section 68 and Rs. 40,000 under section69C of the Income Tax Act, 1961). Accordingly, income of assessee assessed at Rs. 56,91,420.

4. Aggrieved, the assessee preferred an appeal before the learned Commissioner (Appeals) and partly succeeded.

5. Now, the assessee is in appeal before this Tribunal challenging the additions confirmed by learned Commissioner (Appeals).

6. Ld. Counsel for the assessee submitted that as regards the disallowance made under section 14A of the Act, sustained at Rs. 88,558 by the learned Commissioner (Appeals) to the extent of total exempt income earned during the year under consideration, could not submit any other contention to challenge the finding of the learned Commissioner (Appeals). As regards the addition made under section 68 of the Act of Rs. 4 lakhs, the ld. Counsel for the assessee has submitted that no such amount was received during the year. The alleged sum was received in the preceding F.Y (financial year) and, therefore, no addition on this issue was called for. As regards the disallowance made on interest expenditure of Rs. 40,000 under section 69C of the Act and confirmed by the learned Commissioner (Appeals), it was submitted by him that it is a genuine expenditure and the same may be allowed. The ld. Counsel for the assessee also took us through the paper book dated 14-10-2020 running pages from 1 to 36 and another paper book dated 23-11-20 running pages from 1 to 63.

7. Per contra, learned Departmental Representative vehemently argued supporting the order of the learned Commissioner (Appeals).

8. We have heard the rival contentions and perused the records placed before us. Though the assessee has raised 10 grounds of appeal, but the effective issue are the followings:-

(i) disallowance made under section 14A of Rs. 88,558

(ii) addition made under section 68 of the Act of Rs. 4 lakhs, and

(iii) addition/disallowance made under section 69C of the Act of interest expenditure of Rs. 40,000.

9. As regards the disallowance made under section 14A/read write rule 8D, we find that the exempt income earned during the year under consideration is of Rs. 88,558. The learned assessing officer made the disallowance at Rs. 9,18,028. When the matter came to the learned Commissioner (Appeals), he in view of settled judicial precedence sustained the disallowance to the extent of exempt income. The ld. Counsel for the assessee failed to rebut the finding of the learned Commissioner (Appeals) by placing any finding of judicial precedent to controvert the finding of learned Commissioner (Appeals) confirming the disallowance made under section 14A of the Act to the extent of exempt dividend income of Rs. 88,558 earned during the year. We, thus, find no infirmity in the finding of the learned Commissioner (Appeals). Accordingly, ground nos. 3 & 4 of assessee s appeal are dismissed.

10.  As regards the addition of Rs. 4 lakhs made under section 68 of the Act, we find that the assessee took a loan of Rs. 4 lakhs from M/s. Attitude Merchants Pvt. Ltd in preceding year. A perusal of confirmation of accounts placed at page 33 of the P.B dated 23-11-20 for the financial year 2013- 14 relevant to assessment year 2014-15 shows that there was an opening credit balance of Rs. 7 lakhs as on 1-4-2013. The assessee took a loan of Rs. 4 lakhs on 1-1-2014. Interest was paid and TDS was deducted and the closing balance was at Rs. 11,00,000. Further, during the year under appeal i.e. financial year 2014-15 from perusal of paper book at page-34, we find that in confirmation of accounts there is no transaction during the year and interest has been charged on the opening balance. Other documentary evidence in the form of bank statement has also been filed to prove that the alleged fund was not received during the assessment year under consideration. This fact remains undisputed at the end of the learned Departmental Representative also. We, therefore, under the facts and circumstances of the case, are of the considered view that since the alleged sum of Rs. 4 lakhs was not received during the assessment year under consideration, the addition made under section 68 of the Act is not called for during the assessment year under consideration. We, thus, set aside the finding of the learned Commissioner (Appeals) and delete the addition of Rs. 4 lakhs made under section 68 of the Act. Accordingly, ground nos. 5 & 6 of assessee s appeal are allowed.

11.  As regards ground no. 7 relating to disallowance of interest paid of Rs. 40,000 on the alleged unexplained cash credit of Rs. 4 lakhs, we are of the view that since the addition made under section 68 of the Act for alleged cash credit of Rs. 4 lakhs stands deleted by us and there being no other finding of the learned assessing officer challenging the genuineness of the interest expenditure, no disallowance is called for. Relevant finding of the learned Commissioner (Appeals) is set aside and addition for Rs. 40,000 made under section 69C of the Act by the learned assessing officer stands deleted. Accordingly, ground no. 7 raised by the assessee is allowed.

12. . Ground No. 1, 2 & 10 are general in nature, which need no adjudication. Ground nos. 8 & 9 are consequential in nature.

13. In the result, the appeal of the assessee stands partly allowed.

The order pronounced in the open Court on 17-9-2021.