2021 (10) TMI 422 - HC - Income Tax

Addition u/s 68 - unexplained cash credit in the nature of unsecured loan received from three entities - tribunal deleted the addition - HELD THAT- As the entire material in case of each of these persons and entities and eventually held that the identity of the depositors had been proved as they had filed the return of income along with the PAN. Moreover, loans have been granted through banking channels and in respect of the same copy of the bank statement also has been provided and hence, genuineness also has been believed by the CIT(Appeals) and further the return of income had been filed by the said depositors and hence, the creditworthiness also has been proved. The appellant provided a copy of audited balance sheet and profit and loss account for the year under consideration in respect of depositors to the Assessing Officer and after verification, the Assessing Officer has the only objection that the company was not having fresh funds in its books of accounts and negligible operational income was derived. CIT(Appeals) has rightly opined that since the depositor company had duly recorded the deposits/loans given to the appellant in its books of accounts out of its own funds or borrowed funds, no addition in the hands of the appellant is permissible so far as the transactions are recorded in the books of depositor company No reason for us to interfere as addition contemplation was under Section 68 of the IT Act which provides that any sum found credited in the books of account of an assessee maintained for any previous year and if the assessee does not offer any explanation about the nature and source thereof or even when explanation is given and the AO is dissatisfied, the sum shown credited in the accounts can be questioned by him. All the ingredients contemplated under Section 68 have been duly satisfied on the aspect of identity of the creditors, genuineness of the transactions and their creditworthiness. Appeal dismissed.

Summary

Issues Involved:
1. Whether the Appellate Tribunal erred in deleting the addition under Section 68 of the Income Tax Act regarding unexplained cash credits?
2. Whether filing a return of income automatically establishes the creditworthiness of a party?
3. Whether the lenders' meager taxable income affects their capacity to advance significant amounts?

Analysis:

Issue 1:
The Assessing Officer added a sum under Section 68 of the Income Tax Act concerning unsecured loans from three entities. The Appellate Tribunal deleted this addition, leading to the current appeal. The Tribunal found that the loans were granted through banking channels, supported by bank statements. The CIT(Appeals) also noted that the primary onus was on the assessee to provide supporting documents, shifting the burden to the Assessing Officer for further inquiries. The Tribunal concurred with the CIT(Appeals), emphasizing the importance of evidence and due consideration. The High Court upheld the Tribunal's decision, citing Section 68 requirements being met.

Issue 2:
The Assessing Officer doubted the creditworthiness of the depositors due to their low income declarations. However, the CIT(Appeals) and Tribunal found that the depositors' identities were proven through PAN and income tax returns. They emphasized that the loans were recorded in the depositors' books, fulfilling the primary onus on the assessee. The High Court referenced precedents and upheld the findings, emphasizing the need for further inquiries by the Assessing Officer.

Issue 3:
The Assessing Officer raised concerns about the depositors' capacity to provide significant loans based on their meager taxable income. However, the CIT(Appeals) and Tribunal focused on the evidence provided, including bank statements and audited accounts. They highlighted that the onus was on the assessee to provide initial proof, which was successfully done. The High Court supported this approach, emphasizing the importance of following due process and evidence evaluation.

In conclusion, the High Court dismissed the Tax Appeal, upholding the decisions of the lower authorities. The Court emphasized the importance of meeting Section 68 requirements, providing supporting evidence, and shifting the burden of proof appropriately. The judgment underscores the significance of thorough examination of facts and adherence to legal procedures in tax matters.