2016 (8) TMI 469 - AT - Income Tax

Addition u/s 68 - addition towards credits brought forward from last year - Held that - A plain reading of section 68 of the Act makes it clear that any sum found credited in the books of accounts of the assessee, assessee offers no explanations about nature and source of the credits, then the sums found credited in the books of accounts is taxable during that financial year. In the present case on hand, on perusal of the facts available on record, we noticed that the assessee has accepted loans from various individuals during the previous financial year 2008-09. During the financial year 2009-10 the assessee has re-grouped the various loan accounts into these 5 creditors accounts by passing necessary journal entries. We further noticed that there is no fresh credit accepted during the current financial year. All the credits are transferred from the previous financial year. Therefore, we are of the view that the A.O. was not correct in making additions towards brought forward credits during the financial year 2009-10. The CIT(A) after considering the relevant details deleted the additions made by the A.O. We do not see any error or infirmity in the order passed by the CIT(A). - Decided against revenue

Summary

Issues:
Assessment of unsecured loans under Section 68 of the Income Tax Act, 1961.

Analysis:
The case involved an appeal by the revenue and a cross objection by the assessee against the order of CIT(A) for the assessment year 2010-11 regarding unsecured loans. The assessing officer had made additions of a significant amount towards unsecured loans, considering them as bogus credits. The CIT(A) overturned this decision, stating that the loans were genuine and were re-grouped in the books of accounts for administrative convenience without fresh borrowings in the relevant year.

The revenue contended that the CIT(A) failed to recognize the modus operandi of the firm in grouping credits to 9 persons, including 5 alleged bogus creditors. They argued that the A.O. rightly disallowed the amounts based on statements from these 5 persons. The assessee, on the other hand, emphasized the creditors' creditworthiness, confirmed sources of loans, and the absence of fresh credits in the relevant year. They claimed that the A.O. incorrectly applied Section 68 to brought forward credits.

Upon review, the Tribunal found that the A.O. had not adequately proven the lack of genuineness or creditworthiness of the loans. The Tribunal noted that the loans were accepted in the previous financial year, re-grouped in the current year without fresh borrowings, and confirmed by creditors in their tax returns. Therefore, the A.O.'s decision to make additions under Section 68 was deemed incorrect. The Tribunal upheld the CIT(A)'s order to delete the additions.

In conclusion, the Tribunal dismissed the revenue's appeal and the assessee's cross objection, affirming the CIT(A)'s decision regarding the assessment of unsecured loans under Section 68 of the Income Tax Act, 1961.