2016 (10) TMI 919 - AT - Income Tax

Addition u/s 68 - cash credit - genuineness and creditworthiness of creditors - disallowance of interest expenses in respect of alleged cash credit - Held that - The assessee has produced their statement of accounts, confirmation, bank statements, and PANs. In other words, the assessee has proved their identities. She has also proved genuineness of the transactions, because amounts have been taken through account payee cheques. The ld.CIT(A) has doubted the credit-worthiness of the creditors, but the assessee has alleged that out of 15 creditors, 9 creditors are assessed to tax. Therefore, inquiry in their hands could be made about the source of funds. Once they are alleging that they have advanced money to the assessee, then, merely on surmises it cannot be inferred that they were not having any means. Some of the creditors appeared before the AO and have re-affirmed the transaction. Thus, flaw pointed out by the ld.Revenue authorities is based on an inference drawn according to their understanding. The assessee has submitted sufficient evidences on the record which demonstrated that these amounts are genuine loans. In some of the cases, amounts were swollen to this figure on account of accumulation of interest from the past. Delete the additions made by the AO with the aid of section 68 of the Act. - Decided in favour of assessee

Summary

Issues Involved:
1. Addition of ?25,26,149/- under Section 68 of the Income Tax Act, 1961.
2. Disallowance of interest expenses of ?94,466/- related to alleged cash credit.

Detailed Analysis:

1. Addition of ?25,26,149/- under Section 68 of the Income Tax Act, 1961:

The primary issue in this appeal concerns the addition of ?25,26,149/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961, which was subsequently confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The AO's scrutiny revealed that the assessee had borrowed money from 15 individuals through account payee cheques. These transactions were questioned due to the inability of the assessee to satisfactorily prove the identity, creditworthiness, and genuineness of the creditors and the transactions.

The assessee, represented by legal counsel, provided extensive documentation, including confirmations, bank statements, PAN details, and statements of accounts for the creditors. Despite these submissions, the AO and CIT(A) doubted the creditworthiness of the creditors, asserting that they were "men of no means." The key argument from the Revenue was that the creditors lacked sufficient financial capacity to lend the amounts in question.

Upon review, the Tribunal noted that the assessee had indeed provided substantial evidence to establish the identity and genuineness of the transactions. Specifically, it was highlighted that nine out of the fifteen creditors were assessed to tax, and the transactions were conducted through account payee cheques, thereby establishing a prima facie case for the genuineness of the loans. The Tribunal observed that the Revenue's doubts were based on inferences without concrete evidence to the contrary. It was emphasized that merely questioning the creditworthiness without substantial proof was not sufficient to uphold the addition under Section 68. Consequently, the Tribunal allowed the appeal, deleting the addition of ?25,26,149/-.

2. Disallowance of Interest Expenses of ?94,466/-:

The second issue was the disallowance of interest expenses amounting to ?94,466/-, which was related to the alleged cash credits. Since the primary addition under Section 68 was deleted, the Tribunal held that the interest on such genuine loans should be considered an allowable expenditure. Therefore, the disallowance of interest expenses was also reversed.

Conclusion:

The Tribunal's decision was based on a thorough analysis of the evidence provided by the assessee, which demonstrated the legitimacy of the loans and the transactions. The appeal was allowed in favor of the assessee, with the Tribunal ordering the deletion of the addition under Section 68 and the allowance of the related interest expenses. The judgment underscores the importance of substantial evidence in proving the genuineness and creditworthiness of transactions under scrutiny.