2022 (7) TMI 902 - HC - Income Tax

Addition u/s 68 - unexplained cash credit - whether the Appellate Tribunal has committed an ex-facie perverse error in deleting the said addition? - HELD THAT - While the revenue has tried to put up a case that the transactions were in the nature of accommodation entries, this case has only presumptive and assumptive value not supported by any factual data. On the contrary, on the basis of the material before the authorities, the transactions were found to be genuine. Learned advocate for the appellant attempted to emphasize that for the purpose of application of Section 68 of the Act, three ingredients were necessary. Firstly identity of the parties to the transaction of loan, second is the creditworthiness of such parties and thirdly the genuineness of the transaction. It was submitted in vain that neither of the ingredients were satisfied. As discussed above, since the requisite material was furnished by assessee showing the identity and since the assessee was not beneficiary when the loan was repaid in the subsequent year, even the ingredients of creditworthiness and genuineness of transaction were well satisfied. No substantial question of law.

Summary

Issues:
1. Deletion of addition under Section 68 of the Income Tax Act by the Appellate Tribunal.
2. Whether the Appellate Tribunal committed an error in deleting the addition.
3. Assessment of loan transactions and unexplained cash credit for the assessment year 2012-2013.
4. Identity, creditworthiness, and genuineness of the loan transactions.
5. Compliance with Section 68 of the Act in furnishing information and conducting inquiries.
6. Allegations of transactions being accommodation entries versus genuine transactions.
7. Application of Section 68 criteria: identity of parties, creditworthiness, and genuineness of transactions.
8. Justification for deletion of addition by the Appellate Tribunal based on documentary evidence.

Analysis:
The High Court of Gujarat addressed the grievance raised by the revenue regarding the deletion of an addition of Rs.32,20,00,000 under Section 68 of the Income Tax Act by the Appellate Tribunal. The issue revolved around the assessment year 2012-2013 and two loan transactions totaling Rs.32,20,00,000 received by the assessee from specific entities. The assessing officer initially treated these transactions as sham due to the lack of established creditworthiness of the lenders, resulting in the addition under Section 68 of the Act.

In the appeal process, the Commissioner of Income Tax found that the identity, creditworthiness, and genuineness of the loan transactions were established based on the information provided by the assessee. The appellate authority noted that the loans were repaid through account payee cheques, and the accounts were settled with the lender companies. The Appellate Tribunal upheld these findings, citing precedents and emphasizing the genuineness of the transactions.

The revenue contended that the transactions were accommodation entries, lacking factual support. However, based on the material presented, the transactions were deemed genuine. The appellant argued that the three ingredients for Section 68 application were not satisfied, but the court disagreed, stating that the identity, creditworthiness, and genuineness were indeed established.

The Tribunal's judgment highlighted the importance of considering both credit and debit entries to determine the legitimacy of transactions. Ultimately, the court found no merit in the appeal, dismissing it as no substantial questions of law arose from the case. The decision was based on the satisfactory fulfillment of Section 68 criteria and the documentary evidence supporting the repayment of loans, leading to the deletion of the addition by the Appellate Tribunal.