2022 (6) TMI 73 - AT - Income Tax

Addition u/s 68 - Assessee could not prove the genuineness of the transaction and creditworthiness and identity of the person - Journal entry only in the books of account of the Assessee and in fact, no actual cash credit has been credited/received in the account of the Assessee - HELD THAT - It is not in controversy here that the credit entry pertains to the journal entry only in the books of account of the Assessee and in fact, no actual cash credit has been credited/received in the account of the Assessee. Hon ble Madras High court in the case of V.R. Global Energy Pvt. 2018 (8) TMI 866 - MADRAS HIGH COURT transactions were only book transactions and there was no cash receipt and therefore, set aside the addition made u/s. 68 of the Act. The Hon ble high Court further held that when there was no cash involved of the transaction of allotment of shares, the provisions of section 68 of the Act treating it as unexplained cash credit are not attracted. Assessee has also relied upon the judgment passed in the case of ITO ward 27(4) New Delhi vs. Zexus Air Services Pvt. Ltd. 2021 (4) TMI 1024 - ITAT DELHI wherein also, the Hon ble Court dealt with the identical issue and affirmed the deletion of similar addition made by the Assessing Officer by invoking the provisions of section 68 of the Act, however, opined that the addition, if any, has to be made in the hands of a person to whom the shares were allotted for his services rendered by debiting the accounts in the books. Therefore, the AO may take necessary steps for bringing this amount to tax in the hands of that person or his legal heirs in accordance with law. Appeal filed by the Assessee stands allowed.

Summary

Issues:

1. Addition of unsecured loan under section 68 of the Income-tax Act, 1961 based on genuineness and creditworthiness.
2. Applicability of section 68 to journal entries in books of account without actual cash credit.
3. Judicial precedents on similar cases of unexplained cash credits and their impact on the current judgment.

Issue 1: Addition of unsecured loan under section 68:
The appeal was against an order by the Commissioner of Income-tax (Appeals) regarding the addition of an unsecured loan of Rs.10 lakhs taken from a company. The Assessing Officer added the amount under section 68 due to the Assessee's failure to prove the genuineness of the transaction and creditworthiness of the lender. The Assessee argued that the entry was a journal entry and not an actual receipt of money, supported by evidence such as confirmations, PAN, and ROC details of both parties. However, the Commissioner upheld the addition as the Assessee failed to provide Income-tax returns of the lender, leading to the unproved creditworthiness.

Issue 2: Applicability of section 68 to journal entries:
The Tribunal noted that the credit entry was a journal entry without actual cash being credited to the Assessee's account. Referring to a Madras High Court case, it highlighted that transactions without cash involvement do not attract section 68. The Tribunal also cited a Delhi Tribunal case where a similar loan through a general entry was not considered a cash credit. Relying on these precedents, the Tribunal found no justification to sustain the addition and consequently deleted it.

Issue 3: Judicial precedents on unexplained cash credits:
The Tribunal referenced various judgments to support its decision. It mentioned a case where the High Court set aside an addition under section 68 as there was no cash involved in the transaction of share allotment. Additionally, it cited a Supreme Court dismissal of an appeal related to a similar case. The Tribunal also highlighted another Delhi Tribunal case where a similar addition was deleted, emphasizing that any necessary tax implications should be on the recipient of shares. Based on these considerations and analyses, the Tribunal allowed the Assessee's appeal, deleting the addition.

In conclusion, the Tribunal ruled in favor of the Assessee, deleting the addition of the unsecured loan under section 68 of the Income-tax Act, 1961, based on the nature of the transaction as a journal entry without actual cash credit. The judgment relied on legal precedents to support the decision and emphasized the importance of cash involvement in determining the applicability of section 68 to transactions.