2012 (11) TMI 1257 - HC - Income Tax

Unexplained Cash Credit u/s 68 - Assessee firm took loan from a company that was engaged in providing accommodation entries, thus AO added the aforesaid loan amount in question by invoking provisions of Section 68 of the Act. - HELD THAT - Lenders were regular income tax assessee and their PANs are on record. The amount had been advanced through Account Payee Cheques. Before issuing the cheques, they had got the balance in their accounts and the amount has also been repaid through Account Payee Cheques, thus the identity, credit, worthiness etc. of the lenders have been disclosed, therefore addition deleted. Revenue Appeal dismissed.

Summary

Issues:
1. Addition of unexplained cash credit under Section 68 of the Income-tax Act, 1961.
2. Justification of deletion of the addition and interest paid on loans by the Tribunal.
3. Verification of identity, genuineness, and creditworthiness of donors.
4. Allegations of bogus/accommodation entries by lenders belonging to a specific group.
5. Assessment of loan transactions through account payee cheques.

Analysis:
1. The appeal pertains to the Assessment Year 2002-2003, where the Assessing Officer added Rs. 11,00,000 on account of unexplained cash credit under Section 68 of the Income-tax Act, 1961, and interest of Rs. 49,167 paid on loans. The Tribunal deleted this addition, prompting the Revenue to raise substantial questions of law regarding the justification of this deletion.

2. The Commissioner of Income-tax (Appeals) found that the lenders, despite belonging to a group under suspicion for providing bogus/accommodation entries, were regular income tax assessees with disclosed PANs. The loans were transacted through Account Payee Cheques, and repayment was also made through such cheques. The Commissioner concluded that the identity and creditworthiness of the lenders were established, leading to the deletion of the addition. The Tribunal upheld this decision.

3. The Revenue argued that the loans were deemed unexplained under Section 68 due to the lenders' association with a group suspected of engaging in fraudulent activities. However, the Court disagreed, noting that no admission of involvement in bogus/accommodation entries was made by the lenders during the search operation on the group. The loan transactions were legitimate, with funds transferred through bank accounts and PAN numbers provided, indicating the genuineness of the transactions.

4. The Court emphasized that findings by the Assessing Authority regarding the lenders' involvement in fraudulent activities were not substantiated and could not be relied upon. The use of Account Payee Cheques for loan transactions, along with the lenders' financial stability, further supported the legitimacy of the loans. Therefore, the Commissioner's decision to delete the addition was deemed appropriate and was upheld by the Tribunal.

5. Ultimately, the Court dismissed the appeal, affirming the Tribunal's decision to delete the addition of unexplained cash credit and interest on loans. The Court found no grounds for interference in the Tribunal's order, considering the established legitimacy of the loan transactions and the lack of concrete evidence linking the lenders to fraudulent activities.