2021 (4) TMI 989 - AT - Income Tax

Addition of unexplained cash credit u/s 68 of the Act in respect of loans received by the assessee - second round of proceedings before this tribunal - In the first round, this tribunal had remanded the issue to the file of ld CIT-A for the reason that the loan confirmations that were filed by the assessee before the ld CITA in the paper book were not considered by the ld CIT-A - HELD THAT - We find that the ledger extracts given by the assessee before the ld CITA itself contains the counter signature of the creditors duly confirming all the transactions together with their PAN. From the perusal of the ledger extracts, we find that there is a running account maintained by the assessee with these creditors and all the transactions are routed through regular banking channels in account payee cheques. One more excruciating fact to be noted here is that the assessee had paid interest on these loans after subjecting the same to due deduction of tax at source. We find that the lower authorities had duly granted deduction for the interest expenditure claimed on these loans by the assessee. Once the interest is accepted to be genuine , then how the principal component thereon could be disbelieved by the lower authorities. We are unable to comprehend and unable to persuade ourselves to accept to this act of the lower authorities. We find that the assessee had requested the ld AO to issue summons u/s 131 of the Act to those loan creditors to find out the truth, which was not acted upon by the ld AO - assessee had duly disclosed the identity of the creditors and genuineness of the transactions are very much evident from the ledger extracts itself as all the transactions are routed through regular banking channels and assessee had even paid interest on these loans. Due to existing disputes with the parties by the sister concerns of the assessee, the assessee could not procure the financial statements and income tax returns from the loan creditors to prove their creditworthiness. But there is no dispute that the assessee had indeed furnished the PAN of all the loan creditors. AO / ld CITA could have cross verified from the PAN of the creditors with the assessing officers of the creditors and ascertain the creditworthiness. In any case, all these 5 loan creditors had duly confirmed the transactions carried out with the assessee by way of counter signature in the ledger extracts. We find that no adverse inference was drawn on the said ledger extracts by the lower authorities. Loan borrowed from 20th Century Finance Corporation Ltd had been duly repaid during the assessment year under consideration itself by the assessee with interest. With regard to loans received from Sharda Castings Ltd, Mittal Ispat Ltd and Pondy Metal Rolling Mill (P) Ltd, the assessee had repaid the loans in Asst Year 2000-2001 (i.e the immediately succeeding asst year) together with interest. We find that the ld AR before us had tried to produce certain documents connected with DSQ Software and 20th Century Finance Corporation Ltd (which was demerged later as TCFC Finance Ltd) to prove their creditworthiness. In our considered opinion, these documents are not required to be looked into at this stage as we have already held that the assessee had reasonable cause from not proving the creditworthiness of the creditors by producing the necessary documents due to ongoing legal suits and disputes pending with those creditors vis a vis the sister concern of the assessee. Moreover those disputes are money suits and obviously the loan creditors would not come forward to cooperate with the assessee by furnishing their financials In view of the aforesaid detailed observations, we are inclined to accept to the contentions of the assessee that the loans received from aforesaid 5 parties are genuine and not to be treated as unexplained cash credit u/s 68 of the Act in the peculiar facts and circumstances of the instant case. Accordingly, the grounds raised by the assessee are allowed

Summary

Issues:
Confirmation of addition made on account of unexplained cash credit u/s 68 of the Income Tax Act in respect of loans received by the assessee.

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai concerned the confirmation of an addition made on account of unexplained cash credit under section 68 of the Income Tax Act in relation to loans received by the assessee during the assessment year 1999-2000. The assessee, a public limited company engaged in shares and stock broking, investment, and trading, had declared business income of ?1,37,38,650 in the return of income. The issue had been remanded to the ld Commissioner of Income Tax (Appeals) in a previous round of proceedings for verification of loan confirmations from specific parties. The ld AO had treated the loans as unexplained cash credit due to lack of confirmations, which were subsequently provided by the assessee. The confirmations contained counter signatures of the creditors, confirming transactions routed through regular banking channels. The assessee had also paid interest on the loans after TDS deduction, which was accepted as genuine by the authorities. Despite existing disputes with the creditors, the assessee had disclosed creditor identities and furnished PAN details. The ld CITA did not find the confirmations in his file, leading to a discrepancy. The assessee's request for summons under section 131 to verify the creditors' creditworthiness was not acted upon by the ld AO. The Tribunal noted that the loans from certain parties had been repaid with interest in subsequent assessment years. The ld AR attempted to produce additional documents to prove creditworthiness, but the Tribunal found them unnecessary due to ongoing legal disputes with the creditors. Based on the detailed observations, the Tribunal accepted the contentions of the assessee, ruling the loans genuine and not to be treated as unexplained cash credit under section 68. Consequently, the appeal of the assessee was allowed.

This judgment highlights the importance of providing necessary documentation and evidence to substantiate transactions, even in the presence of legal disputes with creditors. The Tribunal's decision was based on the genuine nature of the loans, evidenced by proper documentation and adherence to banking channels. The ruling emphasizes the need for thorough verification and consideration of all relevant factors before treating transactions as unexplained cash credits under the Income Tax Act.