2011 (8) TMI 1067 - AT - Income Tax

Undisclosed Cash Credits u/s 68 - Assessee has received fresh loans during the year from three of its Directors. The AO treated the majority of the loans as genuine but made the addition of the amounts which were deposited in cash in the bank account of the creditors -The assessee submitted an explanation to explain the credits in the accounts of the creditors but AO dis-believed it - CIT(A) confirmed the addition - HELD THAT - AO dis-believed part of the deposits which has been received by the assessee through the banking channel but there was cash deposit of similar amount in the accounts of the creditor on or around the date on which the assessee received the amount. Since the assessee has proved the identity and also creditworthiness of these lenders the assessee cannot be asked to prove the source of the source of the creditors. There is no evidence on the record which could show that the deposits made in the books of account of the creditors were from the money belonging to the assessee itself. Similarly the explanation about the source of deposit in the creditors account if not found to be acceptable then also the addition cannot be made in the hands of the assessee. It may be subjective to the proceedings for inclusion of the amount as income of the depositors from the undisclosed sources or if they are found benami then the real owner can be brought to the tax - Decision in favour of Assessee. Unexplained Cash Deposit - There was a cash deposits in the two bank accounts held by the assessee. The assessee submitted an explanation that the amount deposited in the bank accounts are received from the debtors/client and also cash withdrawals from the bank account of the company which have been accounted for in the books of account - CIT(A) considered them as unexplained cash deposits on the basis of small time gap between the withdrawals and corresponding to cash deposits - HELD THAT - We hold that the assessee was maintaining books of account and the assessee has submitted an explanation that the deposits in the bank account were out of the cash withdrawals from the bank and cash in hand available with the assessee and also from the advances received from the clients entered into the books of account. The ITAT Delhi A Bench in the case of ASSISTANT COMMISSIONER OF INCOME-TAX. VERSUS BALDEV RAJ CHARLA AND OTHERS. 2008 (12) TMI 241 - ITAT DELHI-C held as under simply because there was a time gap the explanation of the assessee cannot be rejected. Assessee has to maintain margins with N.S.E. at short notice and for that ready cash in hand has to be maintained. Since the deposits are from the cash balance available to the assessee in its books of account therefore in our considered view no addition is called for. The addition cannot be made or sustained on the basis that there was time gap between withdrawal and deposits. When cash balance is available in cash book maintained no addition can be made. In view of this factual position we set aside the orders of the authorities - Decision in favour of Assessee. Interest charged u/s 234D - The question involved was regarding the chargeability of interest u/s 234D in respect of assessment year 2003-04 - HELD THAT - In the instant case of the assessee the assessment year involved is 2003-04 under consideration before us therefore tax authorities were not justified in charging interest u/s 234D from the assessee and the same is liable to be deleted in view of the decision of Special Bench of the ITAT in the case of INCOME-TAX OFFICER WARD 11 (1) NEW DELHI. VERSUS EKTA PROMOTERS (P.) LIMITED. 2008 (7) TMI 452 - ITAT DELHI-E . We order accordingly. - Decision in favour of Assessee.

Summary

Issues Involved:

1. Addition of Rs. 3,10,000/- under Section 68 of the Income Tax Act, 1961.
2. Addition of Rs. 33,55,000/- as unexplained cash deposits.
3. Charging of interest under Sections 234B and 234D of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition of Rs. 3,10,000/- under Section 68 of the Income Tax Act, 1961:

The assessee challenged the confirmation of the addition of Rs. 3,10,000/- under Section 68 of the Income Tax Act. The assessee had received fresh loans from its directors, and the Assessing Officer (A.O.) accepted most of these loans as genuine but doubted the creditworthiness of certain amounts, leading to the addition. The assessee argued that the identity and creditworthiness of the directors were established, and the transactions were through banking channels. The assessee cited case laws to support the argument that once the identity and creditworthiness of the creditors are proved, the assessee is not required to prove the source of the creditors' funds. The Tribunal agreed with the assessee, noting that the A.O. accepted the majority of the loans and there was no evidence that the deposits were from the assessee's funds. Therefore, the Tribunal set aside the orders of the authorities below and allowed the ground, thereby deleting the addition of Rs. 3,10,000/-.

2. Addition of Rs. 33,55,000/- as unexplained cash deposits:

The assessee contested the addition of Rs. 33,55,000/- as unexplained cash deposits in two bank accounts. The assessee explained that these deposits were from debtors/clients and cash withdrawals from the company's bank account, duly accounted for in the books of account. The Tribunal observed that the assessee maintained books of account and provided explanations for the deposits, supported by entries in the cash book. The Tribunal referred to case laws where similar explanations were accepted despite time gaps between withdrawals and deposits. The Tribunal concluded that since the deposits were from cash balances available in the books, no addition was warranted. Consequently, the Tribunal set aside the orders of the authorities below and allowed this ground, thus deleting the addition of Rs. 33,55,000/-.

3. Charging of interest under Sections 234B and 234D of the Income Tax Act, 1961:

The assessee challenged the charging of interest under Sections 234B and 234D. The Tribunal held that charging of interest under Section 234B is mandatory as per the Supreme Court's decision in CIT vs. Anjum M.H. Ghaswala, and thus dismissed this plea. However, regarding interest under Section 234D, the Tribunal noted that the interest could not be charged for the assessment year 2003-04, following the Special Bench decision in ITO vs. Ekta Promoters P. Ltd., which held that Section 234D, being substantive, applies prospectively from assessment year 2004-05. Therefore, the Tribunal ordered the deletion of interest charged under Section 234D for the assessment year 2003-04.

Conclusion:

The Tribunal partly allowed the appeal, deleting the additions of Rs. 3,10,000/- and Rs. 33,55,000/- and the interest charged under Section 234D, while upholding the interest charged under Section 234B. The judgment was pronounced in open court on August 5, 2011.