No Addition Made w.r.t. Loans u/s 68 of Income Tax Act: ITAT deletes Disallowance of Interest Claim [Read Order]

The Mumbai bench of Income Tax Appellate Tribunal (ITAT) deleted the disallowance of interest claim, on the ground that no addition was made with respect to the Loans u/s 68 of the Income Tax Act.

The assessee, Rakesh Gupta Family Trust, filed its return of income reporting total income at Nil. Based on findings during the search and seizure action in the case of Vidur Bhatt Group, it was found that the assessee is a beneficiary of obtaining bogus loans and claiming bogus interest thereon. Consequently, the case of the assessee was taken up for reopening proceedings for which notice was given.

The assessee raised its objection by submitting that the reopening is not valid as it was made based on the statement of Shri Vipul Vidur Bhatt. From the perusal of the reasons to believe recorded by the AO, noted that Rakesh Gupta Family Trust was also a beneficiary of such accommodation entries, like loans taken from bogus parties.

In the course of assessment, the assessee submitted that the statement given by Shri Vipul Vidur Bhatt was retracted, for which a copy of the affidavit was placed on record. Assessee also filed affidavits from Ajay M Bhatt, the Karta of Sanjay G. Parmar HUF and Shirish J. Bhatt HUF stating that they have given loans to the assessee and are from their regular source.

Assessee had also filed confirmations from the other parties. The documentary evidences placed by the assessee in the course of assessment proceedings included Income Tax Return acknowledgement of the parties, confirmation from parties, affidavit of the parties, relevant extract of bank statement of the parties, relevant extract of bank statement of the assessee and ledger account of the said party in the books of the appellant for various years showing loans taken in earlier years and repaid in subsequent years.

For the onus cast upon the assessee under Section 68 to establish the identity and creditworthiness of the parties and the genuineness of the transaction, the assessee submitted that he had proved the identity of 6 parties by providing the Income Tax Return (ITR) of the party. Further, the appellant has also submitted a confirmation and affidavit of these parties.

Assessee further submitted that the loans taken by the assessee from the six parties are old loans taken much before the period under consideration and the conduct of the search. These loans, on which interest has been paid, do not pertain to the year under consideration. The year in which these loans were taken are Assessment Year 2005- 06 and 2006-07, for which copies of the ledger account were referred.

The Tribunal observed that the fact is undisputed that loans on which interest payment has been disallowed are of earlier years, i.e., years much before the conduct of the search and seizure operation in the case of Vidur Bhatt Group. For establishing the identity and credit

worthiness of the parties and genuineness of the transaction, the assessee has placed on record relevant material corroborating the transaction.

Furthermore the Tribunal noted that the assessee demonstrated by way of documentary evidence that the said loans have been repaid subsequently. Also, the Revenue has not brought any cogent material on record to point out the discrepancy or deficiency in the corroborative documentary evidence placed on record by the assessee. Also, it was a fact on record, no adverse view was taken by the Revenue on these loans, on which interest payment has been disallowed in the corresponding years in which the loans were taken by the assessee.

The two-member bench comprising Sandeep Gosain (Judicial Member) and Girish Agrawal

( Accountant Member) held that in the given set of circumstances where no addition has been made in respect of loans on which the interest payment has been disallowed and more particularly where the assessee has discharged its onus casted under Section 68 in respect of the said loans, the interest payment disallowed by the AO is deleted.

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