2019 (2) TMI 106 - AT - Income Tax

Addition on account of alleged unexplained cash credit u/s 68 - Held that - In order to establish the genuineness of the transaction the assessee supplied the relevant details of the concerned persons to the assessing officer and thus discharged her primary onus. With utter surprise we find no inquiry in order to come to a conclusion before making addition in the hands of the assessee has been conducted by the learned AO. It is relevant to mention that all transactions were routed through banking channels and the assessee duly explained source of income of those creditors. The additions, therefore, cannot be made under section 68 without due process of law. No deliberation on this score was made either by the first appellate authority when the same was again placed before him by the assessee. No remand report, even was not called for by the first appellate authority from the assessing officer before justifying the addition made by the AO. In the absence of any contrary evidence against the assessee up on inquiry made by the authorities below such addition, in our considered view, cannot be sustained in the present facts and circumstances of the case. We, thus, delete the addition made by the authorities below. - Decided in favour of assessee.

Summary

Issues:
1. Addition of alleged unexplained cash credit under section 68 of the Income Tax Act, 1961.
2. Addition of alleged interest expense on disallowed unsecured loan.

Analysis:

Issue 1: Addition of alleged unexplained cash credit under section 68 of the Income Tax Act, 1961:
The appellant challenged the addition of ?4,29,000 on account of unexplained cash credit under section 68 of the Act. The appellant, engaged in the business of resale and job work of Gold and Silver Jewellery, received unsecured loans from specific individuals. The assessing officer added the entire amount to the appellant's income, despite submissions providing details and proofs of the loans' genuineness. The appellant's explanations were rejected, leading to the appeal. During the appeal hearing, the appellant presented detailed documentation supporting the loan transactions' authenticity. The appellant's mother's regular rental income, the lender's agricultural income, and bank statements were submitted as evidence. The Tribunal noted that all transactions were conducted through banking channels, and the appellant explained the creditors' income sources. The Tribunal found no proper inquiry conducted by the assessing officer before making the addition, and the first appellate authority failed to justify the addition. Consequently, the Tribunal concluded that the addition could not be sustained without due process of law and deleted the amount from the appellant's income.

Issue 2: Addition of alleged interest expense on disallowed unsecured loan:
The assessing officer also added ?10,383 as interest expense on the disallowed unsecured loan. However, since the primary addition of the unexplained cash credit was deleted, the interest expense addition automatically became irrelevant and was also deleted by the Tribunal. The Tribunal's decision to delete the primary addition rendered the interest expense addition unnecessary, resulting in the allowance of the appellant's appeal.

In conclusion, the Tribunal allowed the appellant's appeal, deleting both the addition of unexplained cash credit and the interest expense on the disallowed unsecured loan. The decision emphasized the importance of proper inquiry and consideration of evidence before making additions to a taxpayer's income under section 68 of the Income Tax Act, 1961.