2024 (5) TMI 1093 - AT - Income Tax

Addition u/s 68 - assessee does not maintain books of accounts - whether assessee had proved identity, creditworthiness of lender and genuineness of transaction? - HELD THAT - As assessee does not maintain books of accounts, hence Section 68 of Income Tax Act perse is not applicable. Appellant / assessee got interest free loans from Shri Anil Kumar Singh through normal banking transactions. The assessee filed documents showing creditworthiness of Shri Anil Kumar Singh as observed by the CIT(A). Shri Anil Kumar Singh, lender is an income tax assessee. Assessee filed balance sheets and tax audit reports of lender. Tax audit balance sheets for year ending 31.3.2017 and 31.3.2018 under head loan and advances mentions Smt. Alka Singh Rs. 25,00,000/-. Tax audit balance sheet for year ending 31.3.2019 mentions Smt. Alka Singh Rs. 20,00,000/- and tax audit balance sheet for year ending on 31.3.2020 does not mention name of Smt. Alka Singh as the amount reflected was refunded back. Source of source need not be proved for unsecured loan for the year under consideration. Further the lender had made cash deposits out of available cash balances. No adverse comments were given by Tax Auditor of the lender in the tax audit report in this regard. The loan given to assessee is duly reflected in audited balance sheet of the lender. In view of the above, genuineness of transaction and credit worthiness of the lender stands established. Therefore the appellant / assessee had proved identity, creditworthiness of lender and genuineness of transaction to show that the case comes within the purview of provisions of section 68 of the Income Tax Act, 1961. Assessee appeal allowed.

Summary

Issues Involved:
The appeal challenges the addition of Rs. 25,00,000/- and Rs. 6,96,700/- made by the Assessing Officer, confirmed by the Commissioner of Income Tax (Appeals), under sections 68 and 127 of the Income Tax Act, 1961.

Issue 1: Unexplained Cash Credit of Rs. 6,96,700/-
The case involved unexplained cash credit of Rs. 6,96,700/- as per the auditor's report under section 142(2A). The assessee failed to provide any explanation for the amount, leading to its addition under section 68 of the Income Tax Act, 1961.

Issue 2: Addition of Unsecured Loan of Rs. 25,00,000/-
The appellant raised an unsecured loan of Rs. 25,00,000/- and was asked to establish the identity, creditworthiness, and genuineness of the transaction. However, discrepancies in the lender's bank account transactions and income tax return led to the conclusion that the amount was an unexplained credit under section 68.

Judgment:
The Commissioner of Income Tax (Appeals) partly allowed the appeal, setting aside the addition of Rs. 6,96,700/- and confirming the addition of Rs. 25,00,000/-.

Appellant's Argument:
The appellant contended that the addition of Rs. 25,00,000/- lacked incriminating documents, providing evidence of the lender's creditworthiness and genuineness. The appellant maintained that the loan was interest-free and proved the transaction's legitimacy.

Department's Argument:
The department argued that the appellant failed to prove the transaction's compliance with section 68, citing discrepancies in cash deposits and loan repayments. The department contended that the appellant received an interest-free loan despite the lender paying interest on other loans.

Court's Decision:
Upon review, it was found that the appellant received interest-free loans through normal banking transactions, supported by documents demonstrating the lender's creditworthiness. The court emphasized that the appellant had established the identity, creditworthiness of the lender, and the genuineness of the transaction, falling within the purview of section 68.

Legal Precedent:
Citing the case of Roshan Di Hatti v. CIT [1977] 107 ITR 938 (SC), the court reiterated the burden of proof on the assessee to explain the source of income. In the absence of satisfactory explanations, the revenue can treat the income as taxable.

Conclusion:
The court allowed the appeal, setting aside both the additions of Rs. 6,96,700/- and Rs. 25,00,000/-, as the appellant successfully demonstrated the legitimacy of the transactions. The judgment was pronounced on 21st May, 2024.