2018 (11) TMI 1920 - AT - Income Tax

Addition of bogus loans as unexplained cash credit - Addition u/s 68 - CIT-A deleted the addition - HELD THAT - CIT-A held since the three cardinal criteria of identity, creditworthiness of the loan creditor and the genuineness of the transactions are established with cogent evidentiary documentary materials, do not find any merit in the action of the AO in making the impugned addition / disallowance for which the same are directed to be deleted. In our view the ld. CIT(A) has given cogent reasons as to why he could not sustain the additions. The ld. DR could not controvert these findings. Appeal of the revenue is dismissed.

Summary

Issues:
1. Whether the addition of bogus loans as unexplained cash credit was allowed by the CIT(A) erroneously?
2. Can the Revenue add or alter any ground before the date of hearing?

Analysis:
1. The appeal pertained to the assessment year 2012-13, where the assessing officer added Rs. 70,00,000 under section 68 of the Income Tax Act, disallowing the interest on the loan. The CIT(A) deleted this addition, leading to the Revenue's appeal. The Tribunal examined the nature of the loan, which was a running account between the parties for over five years. The loan from M/s Sunny Rocks Estates Pvt. Ltd. was found genuine, supported by evidence of regular business transactions, PAN details, and responses to notices under section 133(6) of the Act. The Tribunal highlighted that the AO's reference to an ex-director's statement regarding accommodation entries was irrelevant, as the current director affirmed the genuineness of the transaction. The CIT(A) relied on precedents to emphasize that non-appearance of a director does not warrant an addition. The Tribunal concurred with the CIT(A)'s reasoning, upholding the deletion of the addition.

2. The CIT(A) analyzed the loans received by the appellant to determine if they fell under section 68 of the Act. The AO's conclusion of the loans being bogus was based on an ex-director's statement and the non-appearance of the current director for examination. However, the Tribunal found that the AO failed to provide corroborative evidence or afford the appellant an opportunity for cross-examination, violating principles of natural justice. The Tribunal noted that all transactions were conducted through banking channels, and the appellant provided sufficient details to establish the loan's legitimacy. The failure of the director to appear before the AO did not justify deeming the transactions as bogus. The CIT(A's decision to delete the addition was upheld based on the established criteria of identity, creditworthiness of the creditor, and transaction genuineness, supported by documentary evidence.

3. The Tribunal concluded that the CIT(A) provided sound reasoning for deleting the addition, and the Revenue failed to challenge these findings. Consequently, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal. The order was pronounced on 28.11.2018, affirming the deletion of the addition of the loans as unexplained cash credit.