2023 (2) TMI 82 - AT - Income Tax

Cash deposits made in the bank account - As confronted to explain the source of cash deposits, the assessee explained that it had declared a sum of Rs 6 crores as income under Income Declaration Scheme which was utilized for depositing cash in bank accounts. The assessee company further explained that on money received from various customers in the Amar Harmony Project which were offered to tax is also available for explaining the cash deposits made by the assessee - HELD THAT - AO erred in understanding the meaning of the term utilise as spent , which is factually incorrect, as is evident from the entry passed in the cash book supra. Hence we hold that the assessee company indeed had sufficient cash balance to make cash deposits in the bank account. We find that the assessee had actually disclosed Rs 18,12,40,800/- (6,00,00,000 12,12,40,800) in IDS 2016 and in survey. Out of this, a sum of Rs 12,12,40,800/- represent on money received from various customers in the project Amar Harmony at Taloja at the rate of Rs 400 per square feet for 303102 square feet sold. Hence only a sum of Rs 7,35,70,750/- was utilized by the assessee company for making advances to various parties as is evident from the balance sheet of the assessee company and remaining sum of Rs 10,76,70,050/- on 22/09/2016 was very much available in the form of cash balance with the assessee company which explains the total cash deposits made during 22/09/2016 to 31/03/2017 which includes the demonetization period of 09/11/2016 to 31/12/2016 also. We have no hesitation to hold that the entire cash deposits made by the assessee company stood properly explained by way of available cash balance and hence there is no scope of making any addition towards unexplained cash deposits. AO is hereby directed to delete the addition made in the sum. Accordingly, the Ground No.2 raised by the assessee is allowed. Addition made u/s.68 of the Act in respect of unsecured loans - HELD THAT - AO did not resort to make any verification of the evidences filed by the assessee by way of issuing notice u/s 133(6) of the Act to the lender company. In this scenario, the only logical conclusion that could be derived is that the assessee company had duly discharged its onus by furnishing all the requisite documentary evidences proving the three necessary ingredients of Section 68 of the Act and that the ld. AO had not drawn any adverse inference on the same. In view of this, we direct the ld. AO to delete the addition made. Ground raised by the assessee is allowed.

Summary

Issues Involved:
1. Addition of Rs 10,20,38,500/- in respect of cash deposits made in the bank account.
2. Addition of Rs 43,27,42,916/- in respect of unsecured loans under Section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition of Rs 10,20,38,500/- in respect of cash deposits made in the bank account:

The assessee, a private limited company engaged in land development and construction, challenged the addition of Rs 10,20,38,500/- made by the Assessing Officer (AO) concerning cash deposits during the demonetization period. The AO observed that the assessee had made substantial cash deposits during the demonetization period and questioned the source of these deposits. The assessee explained that the cash deposits were sourced from income declared under the Income Declaration Scheme (IDS) and on-money received from customers, both of which were offered to tax.

The AO, however, was not satisfied with the explanation, noting discrepancies such as the substantial gap between the income offered during survey proceedings and subsequent cash deposits, and the lack of detailed customer information. The AO concluded that the cash deposits were unexplained and taxed them under Section 68 of the Income Tax Act at the rate prescribed under Section 115BBE.

The CIT(A) upheld the AO's decision. However, the Tribunal found that the assessee had sufficient cash balance from the declared income under IDS and on-money received, which was reflected in the cash book and profit and loss account. The Tribunal concluded that the cash deposits were properly explained and directed the AO to delete the addition of Rs 10,20,38,500/-.

2. Addition of Rs 43,27,42,916/- in respect of unsecured loans under Section 68 of the Income Tax Act:

The assessee received unsecured loans from four parties, which the AO treated as unexplained cash credits under Section 68. The AO questioned the identity, genuineness, and creditworthiness of the lenders, despite the assessee providing confirmations, bank statements, income tax returns, and financial statements of the lenders.

(i) Kundan Tieup Pvt. Ltd.:
The Tribunal noted that the lender had sufficient shareholder funds and that the assessee had repaid the loan in the subsequent year. The identity, genuineness, and creditworthiness of the lender were established, and the Tribunal directed the AO to delete the addition.

(ii) Astute Advisors Pvt. Ltd.:
The Tribunal found that the lender had sufficient shareholder funds and that the transactions were routed through regular banking channels. The AO did not verify the evidence through notices under Section 133(6). The Tribunal concluded that the assessee had discharged its onus and directed the AO to delete the addition.

(iii) RG BJ Traders Pvt. Ltd.:
The Tribunal observed that the lender had sufficient funds and that the transactions were genuine. The AO's allegation of related-party transactions was not substantiated. The Tribunal directed the AO to delete the addition.

(iv) Dhanteras Tradewing Pvt. Ltd. (DTPL):
The AO relied on an order under the Prohibition of Benami Property Transactions Act, which was later reversed by the Adjudicating Authority. The Tribunal found that DTPL had sufficient funds from earlier investments and that the transactions were genuine. The Tribunal directed the AO to delete the addition.

Interest under Sections 234A, 234B, and 234C:
The Tribunal noted that the issue of interest was consequential and did not require specific adjudication.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing the deletion of additions made by the AO concerning cash deposits and unsecured loans. The Tribunal emphasized the importance of verifying the evidence provided by the assessee and ensuring that additions under Section 68 are substantiated with proper reasoning and evidence.