2024 (5) TMI 769 - HC - Income Tax

Unexplained credits u/s 68 - assessee had failed to discharge its onus of establishing the sources of the impugned receipts - Tribunal reached a finding that the loans obtained by the assessee were interest bearing. Interest was actually paid. Second, the Tribunal found that the AO had not been able to doubt the identity and existence of the creditors - HELD THAT - Once the deposits were credited in the bank account of the assessee through banking channel, prima facie evidence existed of genuine transactions. In any case, the AO was not successful in establishing that the money deposited by the creditors was not theirs but that it had been routed through the creditors by the assessee. In that regard, the Tribunal has categorically observed that there was no proof to establish that such money had been received by the creditors through cash deposits made by the assessee. Merely because the Directors of the two companies were common may have given rise to suspicion that the deposits received by the assessee company from the other, was bogus. Yet, the Tribunal has found, there is no material or evidence on record to establish that the creditors were shell companies. The observation made by the Assessing Officer in that regard is described as unfounded. Besides the above, the Tribunal has taken note of the loan confirmation, Certificate of Incorporation, PAN registration, copy of the ITR, balance sheet, profit loss account, bank statement of the creditors, to reach a conclusion that the transactions of deposit received by the assessee company were genuine. In face of such findings recorded by the Tribunal based on material and evidence on record, no question of law arises, as proposed.

Summary

Issues Involved:
The judgment involves the issue of alleged unexplained credits under section 68 of the Income Tax Act, 1961.

Details of the Judgment:

Issue 1: Alleged unexplained credits
The appellant challenged the order of the Income Tax Appellate Tribunal regarding the addition made on account of bogus unsecured loans received by the assessee. The Tribunal partly allowed the appeal by dismissing the appeal of the revenue on this issue. The appellant raised questions of law regarding the genuineness of the transactions and the onus of proving the identity and creditworthiness of the lender lying on the assessee. The Tribunal examined the evidence provided, including loan confirmations, certificates of incorporation, PAN numbers, and bank statements of the creditors, to establish the genuineness of the transactions. The Tribunal found that the loans were interest-bearing, and the related interest income was reflected in the creditor companies' tax returns. It was concluded that the Assessing Officer failed to establish that the money deposited by the creditors was not theirs but had been routed through them by the assessee. The Tribunal held that the deposits received by the assessee were genuine transactions, and no question of law arose.

Issue 2: Treatment of undisclosed investment
The assessee disclosed receiving unsecured interest-bearing loans from three corporate entities. The Assessing Officer disallowed the loan amounts, treating them as undisclosed investment and added them to the assessee's income. Upon appeal, the CIT (Appeals) ruled in favor of the assessee. The Tribunal found that the Assessing Officer had not conducted adequate inquiries to doubt the claim made by the assessee regarding the source of the loans. The Tribunal noted the evidence provided by the assessee, including loan confirmations, certificates of incorporation, PAN numbers, and bank statements of the creditors, to establish the identity and creditworthiness of the lenders. It was emphasized that once the deposits were credited through the banking channel, prima facie evidence existed of genuine transactions. The Tribunal concluded that the transactions of deposits received by the assessee were genuine based on the evidence on record. Therefore, the appeal lacked merit and was dismissed.

Conclusion:
The High Court dismissed the appeal as the Tribunal's findings supported the genuineness of the transactions and the failure of the Assessing Officer to establish any wrongdoing by the assessee in relation to the alleged unexplained credits and undisclosed investment.