2010 (5) TMI 853 - AT - Income Tax

Addition u/s 68 - amount introduced under the head unsecured loan from various parties - HELD THAT - The Learned CIT(A) on appreciation of entire facts noticed that the amount was received by account payee cheques. These were repaid by account payee cheques. The loans were taken in the previous year relevant to the assessment year under appeal and the same were paid in the said financial year. The mere fact that prior to issue of cheque, there is some cash deposit, in our opinion, this alone is no ground to make the addition u/s 68. We found considerable force in submissions made by the ld. counsel of the assessee that the addition of ₹ 10,00,000/- was made on doubt and suspicion and the Learned CIT(A) has given cogent reason for deleting the same. We, therefore, incline to uphold the order of Learned CIT(A). In the result, the appeal filed by the Revenue is dismissed.

Issues:
1. Addition of unsecured loans under section 68 of the Income Tax Act, 1961 for the assessment year 2004-05.
2. Verification of loan transactions from Uday Overseas Pvt. Ltd.
3. Analysis of cash withdrawals and deposits in the bank account.
4. Determination of creditworthiness and genuineness of loan transactions.
5. Appeal against the order of Learned Commissioner of Income Tax(Appeals).

Issue 1: Addition of unsecured loans under section 68
The appeal filed by the Revenue challenged the deletion of the addition of Rs. 10,00,000/- made under section 68 of the Income Tax Act, 1961 by the Learned Commissioner of Income Tax(Appeals). The assessee, a Company engaged in investment and financing, had taken short-term loans from various parties, including Uday Overseas Pvt. Ltd., Kolkata. The Assessing Officer added Rs. 10,21,000/- under section 68, which was partly confirmed by the Learned Commissioner of Income Tax(Appeals) for two parties but deleted for Uday Overseas Pvt. Ltd. The deletion was based on the appellant providing necessary documentation, including PAN, bank transactions, and intimation under section 143(1), establishing creditworthiness. The Revenue disputed this deletion, leading to the appeal before the Tribunal.

Issue 2: Verification of loan transactions from Uday Overseas Pvt. Ltd.
The Revenue contended that the Assessing Officer's findings regarding the loan transaction with Uday Overseas Pvt. Ltd. were not adequately considered by the Learned Commissioner of Income Tax(Appeals). Concerns were raised about the bank account statement discrepancies, including large cash withdrawals and subsequent deposits, indicating a possible modus operandi of obtaining accommodating entries of cash credits. The Revenue argued that the deletion of the addition was unjustified based on these discrepancies and the suspicious nature of the transactions.

Issue 3: Analysis of cash withdrawals and deposits in the bank account
The Revenue highlighted significant cash withdrawals from the assessee's bank account, followed by deposits after a period, suggesting a pattern of obtaining accommodating entries. These cash balances were not utilized for official expenses but were deposited back into the account later. The Revenue argued that this evidence indicated the questionable nature of the transactions and the involvement of accommodating entries, supporting the initial addition made by the Assessing Officer.

Issue 4: Determination of creditworthiness and genuineness of loan transactions
The Assessing Officer had raised concerns about the creditworthiness and genuineness of the loan transactions based on the lack of clarity in the balance sheet of Uday Overseas Pvt. Ltd., discrepancies in bank account statements, and patterns of cash withdrawals and deposits. However, the Learned Commissioner of Income Tax(Appeals) upheld the deletion of the addition, emphasizing that the loans were received and repaid through account payee cheques, and the addition was made on doubts and suspicions without substantial evidence to prove the transactions were not genuine. The Tribunal agreed with the reasoning of the Learned Commissioner of Income Tax(Appeals) and dismissed the appeal filed by the Revenue.

Issue 5: Appeal against the order of Learned Commissioner of Income Tax(Appeals)
After considering the arguments presented by both sides, the Tribunal upheld the order of the Learned Commissioner of Income Tax(Appeals) to delete the addition of Rs. 10,00,000/- under section 68. The Tribunal found merit in the submissions made by the counsel of the assessee, emphasizing that the loans were transacted through account payee cheques and there was no concrete evidence to establish the loans as non-genuine. Therefore, the Tribunal dismissed the appeal filed by the Revenue, affirming the decision of the Learned Commissioner of Income Tax(Appeals).

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