2013 (12) TMI 132 - AT - Income Tax

Loans taken - Held that - The AO should have made proper inquiries to satisfy himself regarding the genuineness of the creditors etc - The AO should have asked the assessee to furnish the required details such as PAN number etc. of the creditors and secondly he himself could have summoned the records and in case of need the creditors by issuing summons under section 131 - The issue was restored for fresh decision. Interest on laons taken - Held that - The assessee had submitted the necessary details to the AO regarding the interest payment which in fact was relating to the loans taken in the past and not during the relevant year - Decided against Revenue. Cash deposit - Held that - The Bank account of the assesee was forming the part of the regular books of the account maintained by the assessee - The cash deposits were sufficiently explained and also tallied with the books of accounts of the assessee - Decided against Revenue.

Summary

Issues:
1. Unsecured loans - Rs.31,00,000
2. Interest payment - Rs.3,60,000
3. Cash deposit - Rs.5,74,500

Unsecured loans - Rs.31,00,000:
The AO added Rs.31,00,000 as unexplained cash credit under section 68 of the Income Tax Act due to lack of proof of creditworthiness of loan creditors. The CIT(A) noted that confirmation letters from creditors were filed, showing transactions through the banking channel and repayment via cheques. The CIT(A) deleted the addition, emphasizing the lack of proper inquiries by the AO. The Tribunal agreed, directing the AO to conduct necessary inquiries to establish creditworthiness, with liberty to take action if needed.

Interest payment - Rs.3,60,000:
The AO disallowed interest payment of Rs.3,60,000 as unexplained expenditure under section 69C due to treating loans as not genuine. However, the CIT(A) found the interest was on loans from previous years, not the current year, and deleted the disallowed amount. The Tribunal upheld this decision, noting the AO's error in relating interest to loans of the current year.

Cash deposit - Rs.5,74,500:
The AO added Rs.5,74,500 as unexplained cash credit for cash deposits in the bank account. The CIT(A) found the source explained through cash book and balance sheet, deleting the addition. The Tribunal upheld this decision, stating the cash deposits were adequately explained and aligned with the assessee's books of accounts.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on the issues of unsecured loans, interest payment, and cash deposit. The Tribunal emphasized the importance of proper inquiries by the AO to establish creditworthiness and sources of transactions, ensuring compliance with the Income Tax Act.