2023 (1) TMI 1435 - AT - Income Tax

Addition u/s 68 - share capital/ share premium treated as unexplained cash credits - CIT(A) deleted addition - HELD THAT - CIT(A) did not quantify the cash amount deposited in the Lenders bank accounts before giving loan to the assessee company. The said source of cash deposit is from assessee company or from Lenders has not been explained by CIT(A) in his order. Just to say that 2 or 3 credits followed by equivalent debit is not sufficient. CIT(A) has to examine that such cash deposit is from genuine sources and it is not the cash of the assessee-company. Therefore we note that source has not been explained properly. CIT(A) has given combined findings in respect of share capital/share premium and unsecured loans. Therefore we are of the view that this issue should also be remitted back to the file of the assessing officer to examine the source of cash deposit in respect of unsecured loan. The scope of Section 68 is not confined to the issue of deposits or loan credit but encompasses of all such credits whose nature remains unexplained. Therefore we deem it fit and proper to set aside the order of the CIT(A) and remit the matter back to the file of the assessing officer to adjudicate the issue afresh on merits and the assessee is also directed to furnish relevant documents and evidences to prove the source of cash deposit. For statistical purposes ground no.2 raised by the Revenue is treated as allowed.

Issues Involved:
1. Deletion of addition of Rs. 54,90,000/- on account of share capital/share premium treated as unexplained cash credits under Section 68 of the Income Tax Act.
2. Deletion of addition of Rs. 2,30,05,000/- on account of unsecured loans treated as unexplained cash credits under Section 68 of the Income Tax Act.
3. Application of the amended provisions of Section 68, effective from 01.04.2013, requiring the assessee to prove the "Source of the Source" for share capital/share premium.
4. Non-adjudication of protective addition under Section 56(2)(viib) amounting to Rs. 1,54,452/-.

Detailed Analysis:

1. Share Capital/Share Premium Addition (Rs. 54,90,000/-):
The Revenue challenged the deletion of the addition of Rs. 54,90,000/- by the CIT(A), which was initially treated as unexplained cash credits under Section 68. The Assessing Officer found repetitive patterns of credit and debit entries in the bank accounts of the share applicants, suggesting that the accounts were used for channeling unaccounted money. The CIT(A) deleted the addition, finding that the assessee had provided sufficient evidence, such as bank statements and income tax returns, to substantiate the transactions. However, the Tribunal noted that the amended provisions of Section 68, effective from 01.04.2013, required the assessee to prove the "Source of the Source," which was not adequately addressed by the lower authorities. The Tribunal set aside the CIT(A)'s order and remitted the matter back to the Assessing Officer to examine the "Source of the Source" and adjudicate the issue afresh.

2. Unsecured Loans Addition (Rs. 2,30,05,000/-):
The Revenue also contested the deletion of the addition of Rs. 2,30,05,000/- related to unsecured loans. The Assessing Officer observed similar patterns in the bank accounts of the lenders, indicating possible non-genuine transactions. The CIT(A) deleted the addition, stating that the credit patterns alone could not disprove the genuineness of the loans, especially since the lenders were directors and their family members. The Tribunal noted that the amended provisions of Section 68, requiring the proof of "Source of the Source," did not apply to loan transactions for the assessment year 2013-14. However, the Tribunal found that the source of cash deposits in the lenders' accounts was not properly examined. Consequently, the Tribunal remitted the issue back to the Assessing Officer to verify the source of the cash deposits and adjudicate the matter afresh.

3. Application of Amended Provisions of Section 68:
The Tribunal emphasized the applicability of the amended provisions of Section 68, effective from 01.04.2013, which necessitate proving the "Source of the Source" for share capital/share premium. The Tribunal found that neither the Assessing Officer nor the CIT(A) had adequately considered these provisions in determining the tax liability of the assessee. The Tribunal directed the Assessing Officer to reassess the case in light of the amended provisions.

4. Protective Addition under Section 56(2)(viib):
The Revenue highlighted that the CIT(A) did not address the protective addition of Rs. 1,54,452/- under Section 56(2)(viib), which was part of the share capital/share premium addition. This addition was based on the excess amount received over the fair market value of the shares. The Tribunal noted the omission and included this aspect in its directive to the Assessing Officer for re-examination.

Conclusion:
The Tribunal allowed the Revenue's appeal for statistical purposes, remitting the issues back to the Assessing Officer for fresh adjudication in accordance with the amended provisions of Section 68 and to verify the sources of cash deposits related to unsecured loans. The Tribunal emphasized the need for the assessee to furnish relevant documents and evidence to substantiate the "Source of the Source" for share capital/share premium and the genuineness of unsecured loan transactions.

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