2024 (6) TMI 1371 - HC - Income Tax

Unexplained cash credit u/s 68 - income of the assessee on account of unsecured loan - tax was charged at special rates as per section 115BBE - AR pointed out that the impugned advances have been re- paid by assessee company within the financial year(mostly within 30 days). HELD THAT - As undisputed fact with regard to repayment of loan, at this juncture, it would be pertinent to take note of decision of this Court in case of Dy. CIT v. Rohini Builders 2001 (3) TMI 9 - GUJARAT HIGH COURT phraseology of section 68 is clear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In this, case the legislative mandate is not in terms of the words shall be charged to income- tax as the income of the assessee of that previous year . The Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word may and not shall . Thus the unsatisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee as held by the Supreme Court in the case of CIT v. Smt. P. K. Noorjahan 1997 (1) TMI 6 - SUPREME COURT Thus, no merit in the appeal and therefore, same deserves to be dismissed.

Summary

Issues Involved:
1. Justification of the Tribunal in upholding the deduction of addition caused on account of unexplained cash credit under section 68 of the Income Tax Act, 1961.
2. Justification of the Tribunal in upholding the deduction of addition under section 68 despite detailed inquiry revealing the non-existence of the creditor.

Issue-wise Detailed Analysis:

1. Justification of the Tribunal in upholding the deduction of addition caused on account of unexplained cash credit under section 68 of the Income Tax Act, 1961:

The Revenue challenged the Tribunal's order which upheld the deduction of an addition amounting to Rs. 11,57,00,000/- under section 68 of the Income Tax Act, 1961. The assessee, a company engaged in trading rough and polished diamonds, had shown a Gross Profit (GP) rate of 0.82% on a turnover of Rs. 83,61,61,111/- for the Assessment Year 2016-2017. The return of income was filed declaring total income at Rs. 56,54,590/-. The assessment proceedings under section 143(3) of the Act resulted in an addition of Rs. 11,57,00,000/- to the total income of the assessee on account of unsecured loans treated as unexplained cash credit under section 68.

The Commissioner of Income Tax (Appeals) [CIT(A)], Surat, allowed the assessee's appeal, noting that the advances had been repaid within the financial year, mostly within 30 days. The repayment was supported by ledger accounts, bank statements, and affidavits from lenders. The Assessing Officer (AO) did not question the repayments or their sources. The Tribunal, in its order, noted that the CIT(A) had verified the repayments and relied on the jurisdictional High Court's decision in Ayachi Chandrasekhar Narsangji, which held that no addition under section 68 can be made if the loan amount is repaid in the subsequent year and the Department has accepted the repayment.

2. Justification of the Tribunal in upholding the deduction of addition under section 68 despite detailed inquiry revealing the non-existence of the creditor:

The Tribunal found that the assessee had refunded the entire deposits either within a day or a week in seven transactions, and within a maximum period of five months in six transactions. No amount was left at the end of the financial year, and the repayment was not doubted by the AO. The Tribunal cited the Gujarat High Court's decision in CIT Vs Ayachi Chandrashekhar Narsangji, which held that if the Department has accepted the repayment of a loan in the subsequent financial year, no addition can be made in the current year on account of cash loans.

The Tribunal also referred to the Gujarat High Court's decision in Dy. CIT v. Rohini Builders, which emphasized that the assessee had discharged the initial onus under section 68 by proving the identity and capacity of the creditors and the genuineness of the transactions. The assessee provided complete addresses, GIR numbers, permanent account numbers, and copies of assessment orders or returns filed by the creditors. The loans were received and repaid by account payee cheques, and interest was paid after deduction of tax at source. The Tribunal noted that the AO did not make any addition on account of interest claimed/paid by the assessee in relation to the cash credits, which were allowed as business expenditure.

The Tribunal concluded that the unsatisfactoriness of the explanation under section 68 does not automatically result in deeming the amount credited in the books as the income of the assessee. The Tribunal, therefore, dismissed the Revenue's appeal, finding no merit in it.

Conclusion:

The High Court, after considering the submissions of the learned advocates and the orders impugned in the appeal, found that the amount of loan received by the assessee was returned within the same financial year, mostly within 30 days. The repayment was verified from the Ledger Account and the Bank Statement. The Court upheld the Tribunal's decision, noting the ratio laid down in the case of Dy. CIT v. Rohini Builders, and dismissed the Revenue's appeal with no order as to costs.