2022 (3) TMI 210 - AT - Income Tax

Addition u/s 68 - loan received from seven individuals - HELD THAT - Assessee has discharged the burden on him to prove the identity, creditworthiness and genuineness of the loan transaction. And it is noted that the AO has not been able to controvert the material placed before him by finding any infirmity in it. Thus it is noted that the AO has drawn adverse inference against the assessee without any basis and it was only on the basis of surmises and conjectures. Other than alleging that there was deposit of cash before the cheque was given to the assessee as loan, it is noted that the AO has not taken one step ahead from that observation. When the AO noticed that there was deposit of cash just before the cheque was given to the assessee as loan, then that should have been the triggering point to enquire into the genuinety of the claim; and he should have enquired from these lenders about the purported deposit of cash in their accounts before lending money to assessee. However, no such enquiry has been made by the AO to draw adverse inference against this loan transaction. Moreover, it is noted that the AO on same breath has given a finding of fact that these seven creditors had enough cash in hand as on 31.03.2012 - no addition u/s. 68 of the Act was warranted . Therefore, the addition and the interest payment is directed to be deleted.

Summary

Issues:
1. Ad-hoc disallowance confirmed by Ld. CIT(A)
2. Addition u/s. 68 of the Income-tax Act, 1961

Ad-hoc Disallowance:
The appeal was against the Ld. CIT(A)'s order confirming the ad-hoc disallowance of ?23,143. The Ld. AR of the assessee did not press ground no. 5, leading to its dismissal. The order of the lower authorities was consequently confirmed.

Addition u/s. 68 of the Income-tax Act, 1961:
The AO added ?12,38,000 u/s. 68 of the Income-tax Act, 1961, and ?53,661. The issue pertained to the addition of ?12,38,000 made by the Assessing Officer on account of a loan received from seven individuals and disallowance of ?53,661 made on account of interest paid. The AO observed discrepancies in the bank statements of the loan creditors, indicating artificially created financials to justify cash in hand and authenticate the loan transaction. The assessee provided evidence to substantiate the identity, creditworthiness, and genuineness of the loan transaction. The loan creditors were all income tax assessees, and the transaction occurred through the banking channel. The AO's adverse inference lacked basis and was solely based on surmises and conjectures. No further enquiry was made despite observing cash deposits before issuing the loan. The Tribunal found that the assessee had discharged the burden to prove the loan transaction's legitimacy, leading to the deletion of the addition u/s. 68 of the Act. Consequently, the appeal was partly allowed, and the addition of ?12,38,000 and interest payment of ?53,661 were directed to be deleted.

This judgment highlights the importance of substantiating the nature and source of credit entries to prevent unwarranted additions under section 68 of the Income-tax Act, 1961.