2016 (12) TMI 1795 - AT - Income Tax

Unexplained cash credit u/s 68 - Addition merely on the ground that the assessee has not furnished the loan confirmation from the above parties, whereas as per learned AR, no such confirmation was asked by AO during assessment proceedings - HELD THAT - We found that these loans have been repaid in subsequent accounting year 2007-08. The assessee has also filed copies of ledger account of above three parties. The assessee has also filed the copies of bank statements of the assessee wherein these loans are received, the copies of bank statements of assessee's account in ICICI Bank wherein these payments are reflected and a statement of name and address of these parries. By filing all these documentary evidences, the assessee had discharged its primary onus. However, even after furnishing all these details, the AO failed to issue notice to above parties u/s.133(6). We restore the matter back to the file of the AO with a direction to the AO to issue 133(6) to the concerned creditor to find out their genuineness and for obtaining their confirmation. Accordingly, AO is to decide the issue afresh after giving due opportunity to the assessee. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
1. Notice u/s 143(2) not served on the assessee club.
2. Addition of loans received as unexplained cash credit u/s 68.
3. Application of doctrine of mutuality to loans given by members.
4. Addition of members' subscription ignoring principles of mutuality.
5. Levy of interest u/s 234A, 234B, and 234C.

Analysis:
1. The appeal was against the CIT(A)'s order for the assessment year 2007-08 under section 143(3) r.w.s. 147. The primary issue raised was the absence of a notice u/s 143(2) served on the assessee club, questioning the validity of the assessment proceedings.

2. The Assessing Officer added loans received from three members as unexplained cash credit u/s 68. The appellant argued that these loans were genuine, reflected in bank statements and balance sheets, and were repaid in subsequent years. The Tribunal found that the AO did not ask for loan confirmations during assessment, and the burden to disprove genuineness shifted to the revenue.

3. Regarding the application of the doctrine of mutuality to loans given by members, the Tribunal noted that section 68 may not apply where mutuality is involved. The CIT(A) erred in adding loans under section 68 without considering the doctrine of mutuality.

4. The addition of members' subscription amount was disputed by the appellant, citing principles of mutuality. The Tribunal found that the CIT(A) erred in adding the subscription amount without considering the principles of mutuality, which should have been applied in such cases.

5. The CIT(A) levied interest under sections 234A, 234B, and 234C, which was challenged by the appellant. The Tribunal did not delve into this issue in detail but allowed the appeal for statistical purposes, indicating a possible error in the levy of interest.

In conclusion, the Tribunal directed the AO to issue notices u/s 133(6) to concerned creditors to verify the genuineness of loans and obtain confirmations. The matter was remanded back to the AO for fresh consideration after providing the assessee with due opportunity, ultimately allowing the appeal for statistical purposes.