ITAT Deletes Rs. 1.6 Crore Unsecured Loan Additions; Expense Disallowance Cut To 20%

ITAT Deletes Rs. 1.6 Crore Unsecured Loan Additions; Expense Disallowance Cut To 20%

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has recently decided on an appeal filed by a company named Singla Realters Limited against the income tax authorities, challenging an order dated January 14, 2020, passed by the CIT(A) Delhi. The case belongs to the assessment year 2014-15. The impugned order had confirmed several expense disallowances and additions made on the assessee’s income related to unsecured loans.

During the year in consideration, the assessee was engaged in the business of real estate and construction. Concerning the same, the assessee hired security guards on a salary basis for the purpose of security of its properties. The assessee had claimed expenses amounting to Rs. 20,07,400 on the purchase of construction material. During assessment proceedings, the Assessing Officer (AO) disallowed most of the claimed expenses on the grounds of insufficient supporting evidence.

When the tribunal analysed the facts of the case, it noted that the assessee had indeed not fully furnished all the relevant documents supporting the expenses; however, the AO also could not reject the expenses entirely. In conclusion, the tribunal held that only 20% of the unverified construction material and travelling expenses should be disallowed instead of the complete amount. Meaning, this ground was partially allowed.

Another dispute was regarding additions imposed under Section 68 for unsecured loans taken from five parties. The AO made an addition of Rs. 1.6 crore mainly on the grounds that the “source of source” of funds was not explained. On this claim too, the assessee stated that it had furnished all relevant documents proving the source of credits, and the lenders had also replied to notices. Additionally, the tribunal noted that all the transactions were made through proper channels, and the AO itself also could not find any mismatches. It was further noted that the requirement to explain the “source of source” did not pertain to the year in consideration.

In conclusion to the aforesaid findings, the tribunal deleted all the additions concerning unsecured loans and allowed the appeal of the assessee partially, granting relief on loan additions and partial relief on expense disallowances.