2019 (12) TMI 764 - AT - Income Tax

Unexplained cash credit u/s 68 - Penalty under section 271(1)(c) - HELD THAT - The non cooperation of the lenders in the enquiry conducted may be for various reasons. While confirming the addition in the quantum proceedings, one has to look at whether the ingredients of section 68 of the Act are established or not. Once the Appellate Authority on the basis of facts on record concludes that either the identity of the creditor or the genuineness of the loan transaction or the creditworthiness of the creditors are not established, addition can be made under section 68. The aforesaid finding has to be on the basis of facts/evidences brought on record during assessment proceeding. However, imposition of penalty under section 271(1)(c) is an independent proceeding wherein assessee s explanation qua the charge brought against him has to be evaluated afresh in the context of materials on record. In the facts of the present case, the assessee did furnish necessary information with some supporting evidence in respect of loan received from 22 creditors aggregating to ₹ 39,38,000. Therefore assessee cannot be accused of furnishing inaccurate particulars of income or concealing income to that extent. Therefore, imposition of penalty on the addition and the corresponding interest thereon deserves to be deleted.

Issues Involved:

1. Addition of ?34,98,000 as unexplained cash credit under section 68 of the Income Tax Act.
2. Imposition of penalty under section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition of ?34,98,000 as Unexplained Cash Credit:

The primary issue in the quantum appeal was the addition of ?34,98,000 as unexplained cash credit under section 68 of the Income Tax Act. The assessee had shown an unsecured loan of ?46,53,000 from various parties in the return of income but failed to provide confirmations during the assessment proceedings. The Assessing Officer (AO) treated the entire amount as unexplained cash credit and added it back to the income of the assessee.

Upon appeal, the assessee provided confirmations for loans amounting to ?39,38,000 from 22 parties. The Commissioner of Income Tax (Appeals) [CIT(A)] admitted these additional evidences and directed the AO to verify them. The AO issued notices under section 133(6) to the creditors, and 11 out of the 22 parties responded, confirming loans amounting to ?11,55,000. The AO accepted these loans as genuine but treated the remaining loans of ?27,83,000 as non-genuine due to non-response or unavailability of the creditors. The CIT(A) sustained the addition of ?34,98,000, deleting the balance amount of ?11,50,000.

The Tribunal noted that the assessee was unable to furnish confirmations for loans amounting to ?7,15,000 and did not contest this addition. For the remaining ?27,83,000, the Tribunal observed that the mere filing of confirmations does not establish the genuineness of the loan transactions or the creditworthiness of the creditors. The Tribunal found that the AO's attempts to verify the transactions were fruitless due to non-response or unavailability of the creditors. However, considering the relationship and proximity of some creditors to the assessee, the Tribunal accepted loans from related parties and certain other creditors as genuine, while sustaining the addition for the following creditors:

- P.B. Rao: ?10,00,000
- Troy Gomes: ?10,00,000
- Binay Padave: ?1,98,500
- Unicon Products and Packaging: ?2,00,000
- Gunjan Bengani: ?1,20,000
- Abhijit Joshi: ?1,00,000

The Tribunal also upheld the disallowance of interest paid on the loan amounts added back under section 68.

2. Imposition of Penalty under Section 271(1)(c):

The second issue involved the imposition of penalty under section 271(1)(c) of the Income Tax Act. The AO had imposed a penalty of ?22,42,436 on the basis of the addition made for unexplained cash credit. The CIT(A) modified the quantum of penalty, directing the AO to compute it based on the sustained addition.

The Tribunal observed that the assessee had furnished confirmations for loans amounting to ?39,38,000, and some creditors had confirmed the loans during the remand proceedings. The Tribunal noted that the non-cooperation of some creditors in responding to notices could be due to various reasons and that this alone should not lead to the conclusion that the assessee had furnished inaccurate particulars of income or concealed income. Therefore, the Tribunal deleted the penalty imposed on the addition of ?39,38,000 and the corresponding interest thereon.

However, for the loan amount of ?7,15,000, where the assessee failed to furnish any evidence, the Tribunal sustained the penalty, concluding that the assessee had furnished inaccurate particulars of income to this extent.

Conclusion:

Both appeals were partly allowed, with the Tribunal providing relief on some aspects while sustaining additions and penalties on others. The detailed analysis highlights the Tribunal's consideration of the genuineness of loan transactions, the creditworthiness of creditors, and the assessee's compliance with procedural requirements.

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