2019 (10) TMI 1072 - AT - Income Tax

Addition u/s 68 in respect of the loan received from 9 persons - assessee has not proved the creditworthiness of these persons even when all the persons are regularly assessed to tax - amount advanced by them to the assessee in the statement recorded u/s 131 by the AO - HELD THAT - The deposits of the cash in the bank accounts is certainly a relevant aspect and strong reason to conduct an enquiry and to verify the transaction but the deposit itself cannot be a ground to hold that the transaction is not genuine and the loan creditors were not having the capacity to grant the loan. Accordingly, when the assessee has produced all the documentary evidence to dispel the doubts of the AO, then the transaction cannot be held as non-genuine without bringing any material or fact to show that the assessee s own unaccounted money has routed through the bank accounts of the loan creditors. The last loan credit is Ms Neha Jain of ₹ 5 lacs - source of income of Ms Neha Jain is not in dispute as she was having income from bank interest, advances, tuition fees as well as salary income. Thus when the assessee has explained the source of deposit of cash in the bank account then mere fact of deposit in bank cannot be a ground for rejecting the claim. As per the books of account of Ms Neha Jain, the opening cash balance of ₹ 7,61,376/- was not doubted and hence if the cash deposit is less than the said opening cash balance, then the creditworthiness and genuineness of the transaction is duly established. Accordingly, when the identity and creditworthiness of the creditor is established then the genuineness of the transaction cannot be disputed merely because of deposit of cash. In view of the above facts and circumstances as well as the documentary evidence produced by the assessee, the addition made by the AO and sustained by the ld. CIT (A) is not justified and the same is deleted. Addition on account of capital introduced by the assessee - HELD THAT - On careful consideration and analysis of the details as appearing in the personal balance sheet of the assessee, it is clear that there is a matching of each and every item of the cash balance with in-flow as well as out-flow for each of the years including the assessee s capital balance in the proprietorship concern M/s. Leela Kothari. These documents were produced by the assessee before the authorities below and particularly when the ld. CIT (A) referred all these details to the AO for verification and to submit the remand report then in the absence of finding any discrepancy or irregularity in the details given in the personal capital account and balance sheet of the assessee along with the balance sheet of the proprietorship concern, the rejection of the claim merely because the personal balance sheet was not part of the assessment record is not justified. Once the assessee has established the availability of the opening cash balance of more than ₹ 44 lacs as on 1st April, 2014, then the source of introduction of capital of ₹ 14,25,000/- is duly explained and established and the same is deleted. - Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Addition of ?59,50,000/- under Section 68 of the IT Act for loan received from 9 persons.
2. Addition of ?14,25,000/- under Section 68 for the amount introduced in the assessee's capital account.
3. Non-allowance of set-off of ?63,380/- under Section 43CA against the addition confirmed.

Issue-wise Detailed Analysis:

1. Addition of ?59,50,000/- under Section 68 of the IT Act for loan received from 9 persons:

The assessee, an individual and proprietor of M/s. Leela Kothari, filed a return of income declaring ?7,36,940/-. During scrutiny, the AO noted loans from 13 persons and issued notices under Section 133(6). For 9 creditors, cash deposits were made before issuing cheques to the assessee, raising doubts about creditworthiness and genuineness. The AO recorded statements under Section 131, finding contradictions and holding the assessee failed to prove creditworthiness, thus adding ?59,50,000/- under Section 68. The CIT (A) confirmed the addition after a remand report.

The assessee argued that the cash deposits were handled by family members, particularly Shri Manish Chouhan, who managed financial matters for the family. The transactions were confirmed by the creditors, and the source of funds was explained as withdrawals from M/s. Gandhar Rocktech and M/s. Hemant Sales Corporation. The assessee provided affidavits, confirmations, bank statements, and income tax returns of the creditors. The Tribunal found that the withdrawals and subsequent deposits were sufficiently explained, and the AO's suspicion was not justified without contrary evidence. The Tribunal concluded that the assessee had discharged the onus of proving identity, creditworthiness, and genuineness, thus deleting the addition.

2. Addition of ?14,25,000/- under Section 68 for the amount introduced in the assessee's capital account:

The assessee introduced ?14,25,000/- as capital during the year, claiming it was from an opening cash balance of ?44,41,950/- as on 01.04.2014. The AO rejected this, citing a nil cash balance in the return for the assessment year 2014-15. The CIT (A) upheld the addition. The Tribunal noted the assessee's regular tax filings and personal balance sheets from 2007-08 onwards, showing consistent cash balances. The Tribunal found the personal balance sheet credible and matched with income records, thus accepting the opening cash balance and deleting the addition.

3. Non-allowance of set-off of ?63,380/- under Section 43CA against the addition confirmed:

This issue was not separately addressed in the detailed analysis, as the primary focus was on the additions under Section 68. The Tribunal's decision to delete the additions implicitly resolved this issue in favor of the assessee.

Conclusion:

The Tribunal allowed the appeal, deleting the additions of ?59,50,000/- and ?14,25,000/- under Section 68, finding the assessee had adequately explained the sources and transactions. The decision emphasized the importance of documentary evidence and the need for the AO to provide concrete findings before making additions.