2019 (5) TMI 1442 - AT - Income Tax

Unexplained cash credit u/s 68 - unsecured loans additions - HELD THAT - No cash was found to be deposited prior to the date of the issue of cheques to the assessee company. This conclusively proves that the assessee has not purchased cheques by paying cash to the lender companies. Since, the banks have responded to the notice by furnishing the Articles of Association, Memorandum of Association, bank opening forms of the lender companies which clearly demonstrated that all the companies have fulfilled KYC Norms of banks. Therefore, the identity of these lender companies have been established beyond doubts. The genuineness of the transaction can be safely concluded as all the transactions have been done through proper banking channel. The source of funds are clearly established from the financial statements of these lender companies irrespective of their meager income or nil income. The assessee has discharged the onus cast upon it by the provisions of section 68 of the Act and, therefore, we do not find any reason to interfere with the findings of the CIT(A). - Decided against revenue.

Issues Involved:
1. Deletion of addition on account of unexplained cash credit under Section 68 of the Income Tax Act.
2. Examination of the identity, genuineness, and creditworthiness of the lender companies.
3. Analysis of the documentary evidence provided by the assessee.
4. Consideration of the statement of Shri Himanshu Verma as an entry provider.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Unexplained Cash Credit under Section 68 of the IT Act:
The Revenue challenged the CIT(A)'s order deleting the addition of ?1.14 crores made by the AO under Section 68 for unexplained cash credit. The AO had initially added this amount, questioning the legitimacy of the unsecured loans received by the assessee from five companies. However, the CIT(A) found that the assessee had adequately explained the source of these funds, leading to the deletion of the addition.

2. Examination of the Identity, Genuineness, and Creditworthiness of the Lender Companies:
The AO scrutinized the documents submitted by the assessee, including bank statements, income tax returns, PAN details, and audited financial statements of the lender companies. The AO found that three companies had nil income, and the remaining two had minimal income. Additionally, the AO observed that funds were deposited into the lender companies' accounts shortly before issuing cheques to the assessee, raising doubts about the transactions' genuineness. Notices issued under Section 133(6) returned with remarks "Incomplete Address," and field inquiries revealed that the companies were non-functional.

3. Analysis of the Documentary Evidence Provided by the Assessee:
The CIT(A) meticulously examined the documentary evidence for each lender company:
- AVS Alloy India Pvt. Ltd.: The company had substantial owned funds and no cash deposits before issuing the loan.
- PHV Securities Pvt. Ltd.: The company had significant owned funds and no cash deposits before issuing the loan.
- Royal Mirage Financial Consultant Pvt. Ltd.: The company had considerable owned funds and no cash deposits before issuing the loan.
- SNG Securities Pvt. Ltd.: The company had substantial owned funds and no cash deposits before issuing the loan.
- Super Sine Technologies Pvt. Ltd.: The company had significant owned funds and no cash deposits before issuing the loan.

The CIT(A) concluded that the source of the loans was adequately explained, and the companies' financial statements supported the transactions' legitimacy.

4. Consideration of the Statement of Shri Himanshu Verma as an Entry Provider:
The AO referenced a statement by Shri Himanshu Verma, who admitted to being an entry provider. However, the CIT(A) found no evidence in Shri Verma's statement indicating that he provided accommodation entries to the assessee. The CIT(A) dismissed the AO's reliance on this statement, finding it irrelevant to the case.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, noting that the assessee had discharged the onus under Section 68 by providing sufficient evidence of the lender companies' identity, genuineness, and creditworthiness. The Tribunal found no cash deposits before the issuance of cheques, confirming the genuineness of the transactions. The Tribunal dismissed the Revenue's appeal, affirming that the assessee met the requirements of Section 68, and the addition of ?1.14 crores was unwarranted. The judicial decisions cited by both parties were considered but found not analogous to the case at hand. The appeal was thus dismissed, and the order was pronounced in the open court.

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