2022 (4) TMI 1375 - AT - Income Tax

Addition u/s 68 - assessee was selected for scrutiny under CASS for a limited category and one of the reasons for scrutiny was un-secured loans from the persons who have not filed the return of income - assessee had shown to have received loans from Shri Sachin Kumar, who is the Director of the company - HELD THAT - It is very surprising that the Assessing Officer has made the addition under Section 68 of the Act only on the ground that sum has come in the account of the assessee in the next financial year and, therefore, this loan has been treated as non-genuine in this year which has been taxed under the deeming provisions of Section 68 of the Act. If the amount is credited in the bank account of the assessee in this year and has been shown as a loan in the books this year; and when the Assessing Officer is not doubting the identity, genuineness and creditworthiness of the transaction, then I do not find any reason as to why the addition under Section 68 of the Act can be made. Just because, the cheque has been cleared in the next financial year, it does not mean the amount credited in books when cheque was received on 31st March is unexplained income of this year. If Assessing Officer is treating that it is not the amount received during the year, ostensibly then the addition under Section 68 could not have been made in this year. Thus, no reason for making addition under Section 68 of the Act in this year when the assessee had shown to have received amount in its books on 31st March, 2015 and nothing has been questioned about the nature and source of the credit. Again it is reiterated that Identity, genuineness and creditworthiness for the loan received has not been doubted, albeit the credit appearing in books has been taxed just because amount credited in the bank account in the next financial year. Accordingly, the addition is deleted. Appeal of assessee allowed.

Summary

Issues:
1. Addition under Section 68 of the Income Tax Act.

Analysis:
The case involved an appeal by the assessee against an order passed by the Commissioner of Income Tax (Appeals) confirming an addition of Rs. 18,60,820 under Section 68 of the Income Tax Act for the assessment year 2015-16. The Assessing Officer noted discrepancies in the loan amount received by the assessee from a director, as the amount was not credited to the bank account as claimed by the assessee. The CIT (Appeals) upheld the addition, stating that the actual transfer of the loan amount took place in the next financial year, and the explanation provided by the assessee was deemed unsatisfactory. However, the Judicial Member found that the loan was genuine, and the addition under Section 68 was unjustified. The Judicial Member emphasized that the credit appearing in the books should not be taxed solely because the amount was credited in the bank account in the subsequent financial year, especially when the identity, genuineness, and creditworthiness of the transaction were not in question. Consequently, the addition of Rs. 18,60,820 was deleted, and the appeal of the assessee was allowed.

This judgment primarily revolved around the interpretation and application of Section 68 of the Income Tax Act, which deals with unexplained cash credits. The Assessing Officer had raised concerns regarding the loan amount received by the assessee, specifically focusing on the timing of the credit in the bank account. The CIT (Appeals) agreed with the Assessing Officer's decision to treat the amount as non-genuine due to the discrepancy in the dates of credit. However, the Judicial Member disagreed with this reasoning, emphasizing that the mere timing of the credit in the bank account should not determine the genuineness of the transaction if the amount was duly recorded in the books of accounts. The Judicial Member highlighted the importance of assessing the nature and source of the credit rather than solely relying on the timing of the bank transaction.

Furthermore, the Judicial Member scrutinized the facts of the case and highlighted that the Assessing Officer did not question the identity, genuineness, or creditworthiness of the loan transaction, except for the timing of the credit in the bank account. The Judicial Member stressed that as long as the loan amount was properly recorded in the books and there were no doubts about the legitimacy of the transaction, the addition under Section 68 was unwarranted. The Judicial Member's analysis underscored the significance of considering the overall circumstances of the transaction and not basing tax implications solely on the timing misalignment between book entries and bank transactions.

In conclusion, the judgment provided a comprehensive analysis of the issues related to the addition under Section 68 of the Income Tax Act. It highlighted the importance of looking beyond temporal discrepancies in bank transactions and focusing on the substance of the transactions, especially when the genuineness and creditworthiness of the amounts in question were not in dispute. The decision to delete the addition of Rs. 18,60,820 underscored the need for a holistic assessment of transactions to prevent unjust tax implications based solely on timing differences in bank credits.