The present appeal was filed by the Revenue before the Income Tax Appellate Tribunal, Mumbai Bench “B”, challenging the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, for Assessment Year 2022-23.

The assessee, a limited liability partnership engaged in real estate development, filed its return of income declaring NIL income. The case was selected for scrutiny primarily on account of high liabilities reflected in the balance sheet vis-à-vis negligible income and substantial loan and advance positions. Due to alleged non-compliance during assessment proceedings, the Assessing Officer completed the assessment under Section 143(3) read with Section 144B of the Income Tax Act, 1961.

The Assessing Officer observed that the unsecured loan balance had reduced from ₹62.29 crore as on 31.03.2021 to ₹13.82 crore as on 31.03.2022. Treating the difference of ₹48.47 crore as repayment of loans allegedly made outside the books, the AO made an addition under Section 69A, holding the same as unexplained money.

In appellate proceedings, the assessee furnished a reconciliation explaining that the difference comprised three distinct components: fresh unsecured loans availed during the year, repayment of existing loans, and reclassification of certain loan balances from “unsecured loans” to “other payables” without any movement of funds. Additional evidences were admitted by the CIT(A) after calling for a remand report from the Assessing Officer.

Upon examination, the CIT(A) held that unsecured loans amounting to ₹9.38 crore were fully supported by documentary evidence establishing identity, creditworthiness, and genuineness. In respect of a balance amount of ₹53.15 lakh, where requisite evidence was not furnished, the addition was confirmed. With regard to loan repayments of ₹7.36 crore, it was found that the repayments were either effected through banking channels or adjusted against sales duly recorded in the books, and therefore no adverse inference was warranted.

As regards the major portion of ₹51.01 crore, the CIT(A) held that the same represented mere regrouping of existing liabilities from “unsecured loans” to “other payables” in the books of account. Since there was no inflow or outflow of funds and the balances were already reflected in earlier audited financial statements, the addition under Section 69A was deleted.

The Tribunal, after examining the records, upheld the findings of the CIT(A). It held that a mere difference between opening and closing balances of unsecured loans cannot, by itself, justify an addition under Section 69A. Where the assessee is able to demonstrate that the difference arises from fresh loans, explained repayments, and accounting reclassification without movement of funds, the same cannot be treated as unexplained money.

The Tribunal further observed that each loan transaction must be examined independently and the confirmation of addition in respect of certain unexplained loans does not invalidate other transactions which are duly supported by evidence.
Accordingly, finding no factual or legal infirmity in the order of the CIT(A), the appeal of the Revenue was dismissed.

SOURCE LINK: https://itat.gov.in/public/files/upload/1767608100-5Zwpr3-1-TO.pdf

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