2014 (7) TMI 517 - AT - Income Tax

Addition u/s 68 of the Act - Unexplained unsecured loans Held that - No specific error in the finding of the CIT(A) could be pointed out by the revenue - all the four creditors were examined by the AO wherein they admitted the fact of advancing of loan in question to the assessee - no material could be brought on record by the Revenue to show that the cash which was deposited in the bank account of the creditors had flown from the assessee or creditors had actually no source of their own - all the four creditors were income tax assessee, advanced the loan to the assessee through banking channel and they all had their independent source of income and the only observation of the AO is that in his subjective opinion, they are persons of small means. Where the loan creditors have shown the amount advanced to the assessee in the income tax return filed with the Income Tax Department and the Department has accepted the same, then the credits are prima facie genuine Relying upon Jalan Timbers Vs. Commissioner of Income Tax 1996 (8) TMI 83 - GAUHATI High Court - the phraseology of section 68 of the Income Tax Act, 1961 was clear, that the legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income tax as the income of the assessee of that previous year, that the legislative mandate is not in terms of the words shall be charged to income tax as the income of the assessee of that previous year , that the unsatisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as income of the assessee. The loan creditors who have advanced sum to the assessee were income tax assessees and have disclosed the sum advanced to the assessee in their return of income filed with the Income Tax Department and also admitted to above facts in their statement recorded u/s. 131 of the Act - the loans were received by the assessee through cheques drawn on the bank accounts of the creditors - the assessee has discharged its burden of proving the identity of the creditors, genuineness of the transactions and creditworthiness of the loan creditors CIT(A) was fully justified in deleting the addition and there was no reason to interfere with the order of the CIT(A) Decided against Revenue.

Summary

Issues Involved:
1. Deletion of addition of Rs. 13,50,000/- made as unexplained unsecured loans under Section 68 of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Deletion of Addition of Rs. 13,50,000/- as Unexplained Unsecured Loans under Section 68 of the Income Tax Act, 1961

Background:
The Revenue filed an appeal against the order of the Commissioner of Income Tax (Appeals)-II, Ahmedabad, which deleted the addition of Rs. 13,50,000/- made by the Assessing Officer (AO) as unexplained unsecured loans under Section 68 of the Income Tax Act, 1961. The AO had observed that the assessee, engaged in the construction business, showed unsecured loans from four individuals. The AO issued summons under Section 131 to verify these loans and recorded the statements of the creditors. The AO concluded that the creditors lacked the creditworthiness to advance the loans, leading to the addition of Rs. 13,50,000/- to the assessee's income.

Findings of the Commissioner of Income Tax (Appeals):
The Commissioner of Income Tax (Appeals) deleted the addition, observing that:
1. The genuineness and identity of the loan creditors were not disputed by the AO.
2. The creditors had provided their books of accounts, including cash books, which showed withdrawals corresponding to the cash deposits in their bank accounts.
3. The AO did not find any discrepancies in the entries of the cash books.
4. The creditors were income tax assessees with independent sources of income, and the loans were advanced through banking channels.

Tribunal's Analysis:
The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals), noting the following:
1. The creditors were examined under oath and admitted to advancing the loans.
2. The creditors were income tax assessees and had shown the loans in their balance sheets filed with their returns of income.
3. The AO could not demonstrate that the cash deposited in the creditors' bank accounts had flown from the assessee.
4. The Tribunal referenced the Hon'ble Gauhati High Court's decision in Jalan Timbers Vs. Commissioner of Income Tax and the Hon'ble Gujarat High Court's decision in DCIT Vs. Rohini Builders, which supported the view that the assessee is not required to prove the source of the source.

Conclusion:
The Tribunal concluded that the assessee had discharged the burden of proving the identity of the creditors, the genuineness of the transactions, and the creditworthiness of the loan creditors. Since the loans were received through cheques and the creditors had disclosed these loans in their income tax returns, the Tribunal found no reason to interfere with the order of the Commissioner of Income Tax (Appeals). Consequently, the appeal of the Revenue was dismissed.

Order Pronouncement:
The order was pronounced in the Court on Friday, the 4th of July, 2014, at Ahmedabad.