The Income Tax Appellate Tribunal (ITAT), Ahmedabad bench has held that mere waiver of interest on a loan between parties will not vitiate the genuineness of the loan transaction unless and until the revenue brought some cogent material on record to prove that such transaction of loan is not genuine.
The assessee Shri Mihir Subodhbhai Shah is an individual deriving his income under the head business and profession as a share of profit from the partnership firm, income from other sources in the form of interest.
During the year the bank account of the assessee was credited by Rs. 8 Lakh which was treated as unexplained investment by the AO in the absence of necessary detail.
The assessee contended that the same represents the receipt of an unsecured loan from Paresh N Patel and Paresh N Patel HUF. To this effect the assessee also furnished copy confirmation letter from the parties and a copy of their PAN as well as ITR acknowledgement. The CIT(A) after considering the submission of the assessee and deleted the addition made by the AO.
The Two-Member ITAT comprising Shri Waseem Ahmed, Accountant Member & Shri T. R. Senthil Kumar, Judicial Member observed that “the only issue of the revenue is that the transaction of credit of unsecured loan as discussed above was not genuine because the assessee has not paid interest on the loan. As such the assessee during the remand proceeding to establish the identity & creditworthiness of the creditor and the genuineness of the transaction, furnished a copy of the pan, ITR and confirmation letter of the creditor. The AO in the remand did not find any infirmity in the primary evidence furnished by the assessee.”
Concluding the order in favour of the assessee, the ITAT held that “The law is fairly settled in case of credit in the books of account the assessee is required to furnished primary document to establish identity & creditworthiness of creditor and genuineness of the transaction, once the primary documentary evidence furnished, the onus shifts on the revenue to point infirmity in the document furnished by the assessee after conducting a necessary inquiry. In the case on hand, the AO has not carried out any independent inquiry and has not found any infirmity in the primary documents filed by the assessee but merely doubted the genuineness of the transaction since interest was not paid on an impugned loan. In our considered view, the prerogative to pay/charge interest on a loan is between the parties who accepted/provided the loan and the same also depends upon various factors. Merely the parties agreed not to charge/pay interest on the loan will not vitiate the genuineness of such loan transaction unless and until the revenue brought some cogent material on record to prove that such transaction of loan is not genuine.”
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