2022 (5) TMI 276 - AT - Income Tax

Addition u/s. 68 - unsecured loans - HELD THAT - There is nothing on record suggesting that the assessee had sought explanation from these parties regarding cash deposits. Therefore, in the absence of the inquiry from the concerned parties about the source of deposits of such amount, we are of the considered view that the authorities below erred in making addition merely on the ground of suspicion. As in the case of Smt. Seema Singhal, she has been withdrawing salary income and rental income to make the payment. In the case of M/s. S.K. Singhal (HUF), it was stated that lender had deposited only Rs. 10,000/- in cash and rest of sum of Rs. 2,90,000/- was credited through account payee cheque on 12.06.2014 and Rs. 30,000/- deposited in cash in the bank on 12.06.2014. Further, in the case of Smt. Shalika Singhal, it was stated that a sum of Rs. 30,000/- was received as a professional income in cash which was deposited out of the professional income. It is seen that the authorities below have not commented and made any inquiry on this explanation of the assessee. We find that there is a categorical submission by the assessee that in the case of lenders HUF, the amount was deposited through account payee cheque which was recorded as cash deposits by the assessing authority. Therefore, under these facts, additions made and sustained by the authorities below was in a mechanical manner without bringing on record the correct facts. Hence, additions made by the AO are hereby deleted. Ground raised by the assessee is allowed.

Summary

Issues:
1. Unsecured loans received by the assessee
2. Addition of Rs. 5,70,000 as undisclosed income under section 68

Issue 1: Unsecured loans received by the assessee

The assessee filed its return of income declaring Rs. 62,970 and claimed to have obtained unsecured loans from various parties. The Assessing Officer noticed cash deposits in the accounts of these lenders and treated a sum of Rs. 5,70,000 as undisclosed income of the assessee under section 68 of the Income Tax Act. The CIT(A) dismissed the appeal, leading the assessee to approach the Tribunal. The assessee argued that the amount was received through banking channels and only a small amount of cash was deposited on the date of the loan. The Tribunal noted that the AO did not inquire from the lenders about the source of cash deposits, leading to an erroneous addition based on suspicion. The Tribunal found that the authorities erred in making the addition without proper inquiry and deleted the additions made by the AO, allowing the assessee's appeal.

Issue 2: Addition of Rs. 5,70,000 as undisclosed income under section 68

The AO made the addition of Rs. 5,70,000 as undisclosed income under section 68 based on unexplained unsecured loans received by the assessee. The CIT(A) confirmed this addition, stating that the appellant failed to substantiate the creditworthiness of the lenders. The AO questioned the cash deposits in the lenders' accounts just before or on the date of the loan, and the appellant's explanations were considered insufficient. However, the Tribunal found that the authorities did not properly consider the explanations provided by the assessee regarding the source of funds and the nature of deposits. The Tribunal noted that the lenders' cash deposits were explained as professional income or through account payee cheques, contradicting the AO's observations. As a result, the Tribunal concluded that the additions made by the authorities were mechanical and without proper verification, leading to the deletion of the additions and allowing the assessee's appeal.

In conclusion, the Tribunal ruled in favor of the assessee, deleting the additions made by the AO regarding the unsecured loans and undisclosed income. The Tribunal emphasized the importance of proper inquiry and verification before making such additions under section 68 of the Income Tax Act.