2019 (6) TMI 775 - AT - Income Tax

Addition u/s 68 treating part of the unsecured loans as unexplained - HELD THAT - The assessee has fully explained the loan received by it by furnishing the confirmation, ITR and bank statement of creditors. CIT(A) confirmed the addition to the extent of immediate cash deposited in their bank account. However, while doing so he has not brought any evidence to prove that the cash amount deposited in the bank account of these persons belongs to assessee. Thus, in the absence of anything to establish that the cash amount deposited in the bank account of the creditors flew from the assessee, part of the cash credits cannot be treated as unexplained income of the assessee. Assessee has explained identity of loan creditor, genuineness of loan transaction as well as availability of funds in the creditor s account. During the A.Y. 2010-11 and 2012-13 under consideration, the assessee is not required to prove source of the source. See ARAVALI TRADING CO. VERSUS INCOME-TAX OFFICER 2007 (1) TMI 567 - RAJASTHAN HIGH COURT Accordingly, we do not find any merit in the addition so confirmed by the ld. CIT(A). Similarly, in the A.Y. 2012-13, CIT(A) confirmed the addition of ₹ 1.00 lac U/s 68 by holding that source of giving loan to this extent is by cash deposit. However, while doing so he has not brought any evidence to prove that the cash amount deposited in the bank account of these persons belongs to assessee. Thus, in the absence of anything to establish that the cash amount deposited in the bank account of the creditors flew from the assessee, part of the cash credits cannot be treated as unexplained income of the assessee more particularly when assessee has repaid the loan in subsequent years. - Decided in favour of assessee.

Summary

Issues:
Appeals against orders of ld.CIT(A) for A.Y. 2010-11 and 2012-13 - Addition made U/s 68 treating unsecured loans as unexplained.

Analysis:
1. Background: The assessee, engaged in real estate business, filed returns for A.Y. 2010-11 declaring Nil income. Subsequent search operations led to additions under sections 40A(3) and 68 of the Income Tax Act, 1961.

2. Legal Standpoint: Assessee argued that as no incriminating material was found during the search and assessment proceedings were not pending, no additions were warranted for unsecured loans taken in previous years under section 153A.

3. Judicial Precedents: Citing decisions from Bombay and Gujarat High Courts, assessee contended that section 153A assessments should be limited to incriminating evidence found during the search for pending years.

4. Assessee's Defense: Assessee provided confirmations, ITR, and bank statements of creditors to justify unsecured loans. Assessee relied on High Court decisions to support the genuineness of transactions.

5. Revenue's Argument: Revenue contended that original assessment under section 143(1) cannot be considered an assessment, thus abatement theory does not apply. Revenue highlighted immediate cash deposits before issuing cheques as suspicious.

6. Judgment: ITAT found that the assessee adequately explained loans received and confirmed by creditors. The tribunal relied on High Court judgments to assert that the burden on the assessee is to prove the existence of creditors and the source of funds, not beyond that. Hence, additions under section 68 were deemed unjustified.

7. Conclusion: The ITAT allowed both appeals, emphasizing that the assessee had sufficiently proven the identity and genuineness of loan transactions, and the source of the source was not required to be proved. The additions made by the CIT(A) were overturned based on the lack of evidence linking cash deposits to the assessee. Legal issues were not delved into as the merits of the additions were already decided.