2018 (11) TMI 593 - AT - Income Tax

Addition u/s 68 - assessee has provided the source of immediate credit by entering into the bank accounts of the loan credits - Held that - As gone through the facts in entirety that these loan credits have advanced the money after taking loan or whatever receipts from other parties by account payee cheque. The assessee has explained the immediate source of the entry and source of source cannot be asked for. Hence, delete the addition of unsecured loans and allow the appeal of the assessee.

Summary

Issues:
Appeal against addition of unsecured loans under section 68 of the Income Tax Act, 1961.

Analysis:
1. The sole issue in this appeal pertains to the addition made by the Assessing Officer (AO) on unsecured loans received by the assessee from four parties totaling to ?15 lacs. The AO treated these loans as unexplained under section 68 of the Act due to doubts regarding the creditworthiness of the parties. The Commissioner of Income Tax (Appeals) upheld this addition, stating that the assessee failed to prove the creditworthiness of the parties and the genuineness of the transactions.

2. The assessee presented detailed explanations for each loan received. For instance, regarding the loan from Dheeraj M. Nagda (HUF), the assessee provided loan confirmation, PAN card, and bank statements. Similar documentation was provided for loans from Virendra Manilal Gandhi, Haresh Deva Ravariya, and Smt. Ria Ritesh Chedda. The counsel for the assessee highlighted that in a previous case, the Tribunal accepted similar confirmations as evidence of genuine transactions.

3. The Tribunal noted that the assessee adequately explained the immediate source of the loan credits, emphasizing that the source of the source cannot be demanded. Consequently, the Tribunal deleted the addition of unsecured loans and allowed the appeal of the assessee.

4. The Tribunal's decision was based on the principle that the assessee had discharged the initial burden of proving the source of the loans through documentary evidence such as loan confirmations, PAN cards, bank statements, and transaction details. The Tribunal emphasized the importance of corroborative evidence from lenders to establish creditworthiness and genuine transactions.

5. The Tribunal's ruling aligned with the legal requirement under section 68 of the Act, where the burden of proof initially rests on the assessee to explain the nature and source of credits. By providing detailed documentation and explanations for each loan received, the assessee successfully demonstrated the legitimacy of the transactions and the creditworthiness of the parties involved.

6. The judgment highlighted the significance of documentary evidence in tax assessments, emphasizing that the assessee's compliance with providing necessary documents and explanations played a crucial role in disproving the AO's doubts regarding the loans. The Tribunal's decision underscored the importance of thorough documentation and transparency in financial transactions to avoid additions under section 68 of the Income Tax Act.