2016 (7) TMI 829 - AT - Income Tax

Addition u/s 68 - creditworthiness - agriculture income - Held that - Source of loan has been stated to be agriculture income. But when we peruse the statement, it will reveal that creditor has meager income. It is highly improbable that one could keep saving in cash at home for a long time. For example, Smt. Vijaylaxmi Shrivastva has given an amount of ₹ 3.00 lakhs to the assessee on 31.5.20093. She has bank account with Bharat Co-op. Bank Ltd. She has agriculture land of 16 bighas. Her annual agriculture income has roughly ₹ 50,000/- to ₹ 60,000/-. She has stated that savings were being deposited in the Co-operative Bank. If we appreciate the statement of this creditor, then, it would reveal that it is highly improbable that agriculturist, having meager income would keep safe the sale proceeds of agriculture produce for five to six years in cash at home. Her statement in itself is contradictory. In reply to question no.5, she stated that I keep all my savings at Bharat Cooperative Bank . Then, in the next reply to the next question, she deposed that I keep few amounts of saving at home . If these two questions are compared with question no.9, where the AO had asked place of keeping agriculture income, she deposed that such income was kept at home. Similarly, we have perused the statement of other creditors. All that statements did not inspire credence to us. The assessee has taken alleged unsecured loan in systematic manner. In some of the cases cash was deposited one or two days before the money was given to the assessee, and the assessee is man of means. How it can be expected that small farmers not having any regular source of income would give loan in this fashion. As far as discrepancy pointed by the assessee with regard to Mr.Mahesh Shrivastva, if that discrepancy is taken note of, he was not credit-worthy of giving any loan to the assessee. The ld.Revenue authorities have appreciated the facts and circumstances in right perspective while making addition. We do not see any reasons to interfere with the order of the ld.CIT(A). - Decided against assessee.

Summary

Issues:
Challenge to addition under section 68 of the Income Tax Act.

Analysis:
1. Background: The assessee appealed against the order confirming the addition of &8377; 10,01,734 made by the Assessing Officer under section 68 of the Income Tax Act for the assessment year 2004-05.

2. Facts: The assessee had taken an unsecured loan of &8377; 13,37,109 from 34 individuals. The Assessing Officer was not satisfied with the explanation provided by the assessee and made the addition.

3. CIT(A) Decision: The CIT(A) partly deleted the addition after considering the facts and submissions. The CIT(A) found discrepancies in the explanations provided by the depositors and observed that the creditworthiness of some depositors was not proven. The CIT(A) sustained the addition to the extent of &8377; 10,01,734.

4. Appellate Tribunal's Analysis: The Tribunal analyzed the provisions of section 68 of the Income Tax Act, which require the assessee to explain the nature and source of any sum found credited in their books. The Tribunal noted that while the identity of the creditors was established, the assessee failed to prove the creditworthiness of the creditors.

5. Credibility of Creditors: The Tribunal scrutinized the statements and affidavits of the creditors and found inconsistencies. For example, one creditor claimed to have significant agricultural income but kept savings in cash at home, which seemed improbable. The Tribunal also noted that the timing of cash deposits before lending to the assessee raised suspicions about the credibility of the transactions.

6. Conclusion: The Tribunal upheld the decision of the CIT(A) and rejected the appeal of the assessee. The Tribunal agreed with the Revenue authorities that the explanations provided were not satisfactory, and the addition under section 68 was justified.

In conclusion, the appellate tribunal upheld the decision of the CIT(A) to partly sustain the addition under section 68 of the Income Tax Act, emphasizing the importance of proving the creditworthiness of creditors and providing consistent and credible explanations for unsecured loans.