2010 (9) TMI 647 - AT - Income Tax

Addition u/s 68 - Bogus loan and gift - assessee had accepted voluntary gifts of Rs.50,000/- each on four dates, totalling to Rs.2,00,000/-, from Smt. Mini Agarwal, aged about 21 years old at the relevant time, daughter of cousin sister of the assessee by bankers cheque, who is also assessed to tax - It was, therefore, contended that the assessee was able to discharge his onus u/s. 68 of the Act to establish the identity of the loan creditors, genuineness of the transactions and creditworthiness of the loan creditors - It is undisputed fact that all the loan creditors, except two, appeared in person before the A.O. in response to notice u/s. 131 of the Act and they have duly confirmed the transaction - once the returned income of the loan creditors, wherein the gifts received by them have been shown, has been accepted by the department, we fail to understand how in that situation the transaction of the loan creditor with the assessee can be said to be non-genuine and assessee s income from undisclosed sources - all the nine loan creditors are assessed to tax and their return of income for assessment years 2001-02 to 2003-04 have been accepted by the department - Out of the total addition of Rs.12,55,000/- made u/s. 68 of the Act, the ld. C.I.T.(A) deleted the addition of Rs.9,70,000/- and sustained the same to the extent of Rs.2,85,000 - Appeal is partly allowed

Issues Involved:

1. Disallowance of loans under Section 68 of the I.T. Act, 1961.
2. Deletion of addition on account of bogus loans.
3. Deletion of addition on account of bogus gift.

Issue-wise Detailed Analysis:

1. Disallowance of Loans under Section 68 of the I.T. Act, 1961:

The assessee contested the disallowance of loans totaling Rs.2,85,000/- under Section 68 of the I.T. Act, 1961. The assessee argued that all loan creditors were income tax assessees, had confirmed the loan transactions, and their respective balance sheets reflected those loans. The CIT(A) upheld the addition of Rs.2,85,000/- out of Rs.7,05,000/- as unexplained cash credits under Section 68.

2. Deletion of Addition on Account of Bogus Loans:

The Revenue appealed against the deletion of Rs.9,70,000/- on account of bogus loans by the CIT(A). The CIT(A) had deleted the addition after considering the creditworthiness of the loan creditors and the genuineness of the transactions. The AO had treated loans totaling Rs.12,55,000/- from nine relatives of the assessee as the assessee's income from undisclosed sources. The AO's primary contention was the lack of sufficient opening cash/bank balances and the improbability of the loan creditors' capacity to advance such loans. The CIT(A), however, accepted the creditworthiness of the creditors based on their returned income and deleted Rs.9,70,000/- while sustaining Rs.2,85,000/-.

3. Deletion of Addition on Account of Bogus Gift:

The Revenue also contested the deletion of Rs.2,00,000/- on account of a bogus gift from Smt. Minu Agarwal. The AO had added the gift as unexplained cash credit under Section 68, questioning the financial soundness of the donor and the improbability of such a gift. The CIT(A) accepted the gift as genuine, considering the donor's returned income and her confirmation of the gift. The Tribunal upheld the CIT(A)'s decision, citing that the Revenue could not bring any evidence to show that the donor was non-existent or the gift was bogus.

Detailed Analysis:

Gift of Rs.2,00,000/-:

The assessee received voluntary gifts totaling Rs.2,00,000/- from Smt. Minu Agarwal. The AO questioned the financial soundness of the donor and treated the gift as unexplained cash credit under Section 68. The CIT(A) accepted the gift as genuine, considering the donor's returned income for three assessment years totaling Rs.2,43,600/-. The Tribunal upheld the CIT(A)'s decision, noting that the Revenue failed to provide evidence that the donor was non-existent or that the gift was bogus.

Loans totaling Rs.12,55,000/-:

The AO treated loans totaling Rs.12,55,000/- from nine relatives of the assessee as the assessee's income from undisclosed sources, questioning the creditworthiness of the loan creditors. The CIT(A) deleted Rs.9,70,000/- of the addition, accepting the creditworthiness of the creditors based on their returned income for three assessment years. The CIT(A) sustained Rs.2,85,000/- of the addition, considering the limited creditworthiness of some creditors. The Tribunal upheld the CIT(A)'s decision, noting that the returns of income of the loan creditors had been accepted by the department and the Revenue could not provide conclusive evidence to establish that the assessee's own money was routed through the loan creditors.

Conclusion:

The Tribunal dismissed both the assessee's and the Revenue's appeals, upholding the CIT(A)'s decision to delete Rs.9,70,000/- and sustain Rs.2,85,000/- of the addition on account of loans, and to delete the addition of Rs.2,00,000/- on account of the gift. The Tribunal emphasized the importance of proving the identity, creditworthiness, and genuineness of transactions to discharge the burden under Section 68.

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