2021 (6) TMI 364 - AT - Income Tax

Addition u/s 68 - unsecured loan received from three firms belongs to assessee group - addition on the ground that said loan transactions are nothing but accommodation entries of assessee own unaccounted income in form of unsecured loans - HELD THAT - As assessee has discharged burden caste upon u/s. 68 of the Act to prove unsecured loans received from M/s.C.K.Exports, M/s. Mehta Motors General Finance Company and M/s. Swastic Trading Corporation. AO as well as learned CIT(A) without appreciating the evidences filed by assessee has simply made additions on suspicious ground that said sum was undisclosed income of the assessee. Hence, we set aside the order of learned CIT(A) and direct the Assessing Officer to delete additions made towards unsecured loans received from three entities. Appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer.
2. Disallowance of unsecured loans.
3. Applicability of Section 68 of the Income Tax Act, 1961.
4. Genuineness of transactions and creditworthiness of creditors.

Issue-Wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer:
The assessee contended that the order of the Assessing Officer (AO) was without jurisdiction. However, this issue was not elaborated upon in the judgment, and the primary focus remained on the genuineness of the unsecured loans and the applicability of Section 68.

2. Disallowance of Unsecured Loans:
The AO disallowed unsecured loans amounting to ?3,26,00,000/- received from three entities: C.K. Exports, Mehta Motors & General Finance Co., and Swastik Trading Corporation. The AO observed that these loans were dubious and suspected to be accommodation entries. The AO concluded that the transactions were sham, as they involved circulation of funds among group concerns, and added the amounts as undisclosed income under Section 68 of the Income Tax Act, 1961.

3. Applicability of Section 68 of the Income Tax Act, 1961:
Section 68 deals with cases where any sum is found credited in the books of the assessee for which the assessee fails to establish the identity, genuineness of transactions, and creditworthiness of the parties. The AO and CIT(A) held that the payment by account payee cheque alone was not sufficient to establish the genuineness of transactions. The CIT(A) relied on the case of M/s. Kachwala Gems Vs. JCIT and CIT vs Precision Finance Pvt. Ltd., where it was held that payment by cheque does not automatically make a transaction genuine.

4. Genuineness of Transactions and Creditworthiness of Creditors:
The assessee argued that the unsecured loans were genuine and supported by necessary evidence, including ledger accounts, bank statements, and confirmation letters. The assessee provided detailed explanations and evidence showing that the loans were routed through proper banking channels and were out of commission income received from M/s. Kawarlal & Sons. The assessee also highlighted that these transactions were part of the assessment records and had been explained satisfactorily.

The Tribunal examined the evidence and found that the assessee had discharged its burden under Section 68 by proving the identity, genuineness, and creditworthiness of the creditors. The Tribunal noted that the AO failed to bring any evidence to prove that the loans were undisclosed income of the assessee. The Tribunal also referred to the Supreme Court's decisions in CIT Vs. Lovely Exports and M/s. Steller Investments Ltd., which held that once the initial burden of identity is proved, the AO must proceed against the creditors, not the assessee.

Conclusion:
The Tribunal concluded that the assessee had satisfactorily explained the unsecured loans and the AO erred in making the additions. The Tribunal set aside the CIT(A)'s order and directed the AO to delete the additions made towards unsecured loans. The appeal filed by the assessee was allowed.