2023 (6) TMI 875 - AT - Income Tax

Unexplained cash credits - onus to prove creditworthiness of creditors - HELD THAT - Since, the identity of loan creditor stands established as he attended proceedings before the AO and the appeal proceedings as well and the genuineness of transaction is established as the loan was given through banking channel and that credit worthiness to pay advance to the appellant is established as discussed above and hence the addition has been rightly deleted by the Ld. CIT(A). Disallowance of interest paid to the two loan creditors on account of unexplained credits - HELD THAT - It is evident from the record that the appellant was paying interest to the loan creditors @ 12% PA on the borrowings and since the interest amount was paid to them after deducting TDS, therefore the addition on account of interest paid/payable to the said creditors is also required to be deleted. Since, the interest expenses paid to the loan creditors are subject to TDS and hence, interest paid/payable to the said creditors is genuine and stands explained accordingly. CIT(A) was justified in deleting the addition on account of interest paid by the assessee to the loan creditors. Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition of Rs. 1,75,00,000/- on account of unexplained cash credits.
2. Deletion of disallowance of Rs. 11,82,945/- on account of interest claimed on unexplained cash credits.

Summary:

Issue 1: Deletion of Addition of Rs. 1,75,00,000/- on Account of Unexplained Cash Credits
The Revenue challenged the deletion of Rs. 1,75,00,000/- added by the Assessing Officer (AO) as unexplained cash credits. The AO contended that the assessee failed to prove the creditworthiness of creditors, Shri Amandeep Singh and Shri Sukhdeep Singh, and the genuineness of the transactions. The AO noted that large sums were deposited in the creditors' bank accounts shortly before issuing cheques to the assessee, suggesting money laundering.

The CIT(A) examined the facts, including the creditors' agricultural income and cash flow statements, and concluded that both creditors had sufficient cash available from previous withdrawals and agricultural income to justify the deposits. The CIT(A) found that:
- Sh. Amandeep Singh had sufficient cash from agricultural income and previous withdrawals to deposit Rs. 1 crore in his KCC account.
- Sh. Sukhdeep Singh had sufficient cash from agricultural income and previous withdrawals to deposit Rs. 75 lakh in his KCC account.

The Tribunal upheld the CIT(A)'s findings, noting that the identity, creditworthiness, and genuineness of the transactions were established. The Tribunal rejected the AO's reliance on the Delhi High Court's decision in CIT v. Navodaya Castles Pvt Ltd, finding it distinguishable. The Tribunal concluded that the addition of Rs. 1,75,00,000/- was not justified.

Issue 2: Deletion of Disallowance of Rs. 11,82,945/- on Account of Interest Claimed on Unexplained Cash Credits
The AO disallowed Rs. 11,82,945/- claimed as interest on the alleged unexplained cash credits. The CIT(A) deleted this disallowance, noting that since the loans were found genuine, the interest paid on these loans was also genuine. The Tribunal upheld this decision, confirming that the interest expenses were legitimate and subject to TDS, thus rejecting the department's appeal on this issue.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of the addition of Rs. 1,75,00,000/- and the disallowance of Rs. 11,82,945/-. The Tribunal found that the identity, creditworthiness, and genuineness of the loan transactions were satisfactorily established.