2024 (12) TMI 1326 - AT - Income Tax

Bogus unsecured loans - HELD THAT - The monies have been received in regular banking channels and duly reflected in the balance sheet of the lender company. The lender company had also furnished confirmation before the AO directly in response to notice u/s 133(6) along with other requisite details that were called for by the AO. Even the statement of Director of lender company appeared before the AO and a statement on oath was recorded from him wherein he had duly confirmed all the loan transactions with the assessee company. Hence the genuineness of transactions could not be doubted at all. The notice issued u/s 133(6) of the Act behind the back of the assessee stood directly served on the lender company and the same was also duly responded by the lender company directly before the ld AO by furnishing the requisite details. Hence the identity of the lender company cannot be doubted at all. Assessee was also subjected to search u/s 132 of the Act and nothing incriminating was found during the course of search to support the allegations of the ld AO. Hence nothing was found to substantiate the allegations of the AO to allege that the unsecured loan received by the assessee was in the nature of accommodation entry from the lender company. It is not in dispute that the assessee company is having running account with the lender company which is evident from the ledger account for the period 1.4.2015 to 31.3.2021 containing loans received in various years (which stood accepted by the revenue u/s 143(3) of the Act except AY 2017-18 as detailed supra) and loans being repaid in various years by the assessee company. Source of source of funds of the lender company is also proved by the assessee in the instant case. Hence there is absolutely no case for the revenue to justify an addition u/s 68 - Decided in favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal question in this case was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the addition of Rs 31,22,50,000/- made by the Assessing Officer (AO) on account of bogus unsecured loans allegedly received by the assessee company from M/s Dreamland Buildshoppe Pvt Ltd.

2. ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents:

The primary legal provision in question was Section 68 of the Income-tax Act, 1961, which deals with unexplained cash credits. Under this section, any sum found credited in the books of an assessee for which no satisfactory explanation is provided may be charged to income tax as the income of the assessee.

Court's Interpretation and Reasoning:

The Tribunal examined whether the three essential ingredients of Section 68-identity of the creditor, genuineness of the transaction, and creditworthiness of the creditor-were satisfied. The Tribunal noted that the CIT(A) had found these conditions to be met, and thus, deleted the addition made by the AO.

Key Evidence and Findings:

• The assessee provided bank statements, confirmation from the lender company, ledger accounts, financials, and income tax returns of the lender company.
• The lender company, M/s Dreamland Buildshoppe Pvt Ltd, was claimed to be engaged in the real estate business, similar to the assessee company.
• The AO's investigation included a physical enquiry, which found the lender company's premises locked, suggesting it was a paper company.
• The Director of the lender company, who was also an employee of the assessee company, confirmed the loan transactions but admitted the lender company had not conducted real estate business since its incorporation in 2008.

Application of Law to Facts:

The Tribunal found that the assessee had adequately demonstrated the source of funds, as the lender company received funds from other group companies, which were regular income tax assessees. The Tribunal noted that the AO did not dispute the creditworthiness of these group companies.

Treatment of Competing Arguments:

The AO argued that the lender company was a shell company used for routing unaccounted income. However, the Tribunal found that the assessee had provided sufficient evidence to prove the genuineness of the transactions and the creditworthiness of the lender company.

Conclusions:

The Tribunal concluded that the CIT(A) was correct in deleting the addition made by the AO, as the assessee had satisfied the requirements of Section 68. The appeal by the revenue was dismissed.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning:

The Tribunal noted, "The case laws relied upon by the AO are not applicable in this case as facts are entirely different. Accordingly, addition made by the AO u/s 68 of the Act amounting to Rs31,22,50,000/ is deleted."

Core Principles Established:

• The identity of the creditor, genuineness of the transaction, and creditworthiness of the creditor are crucial in determining the applicability of Section 68.
• Evidence such as bank statements, confirmations, and financial records can substantiate the genuineness and creditworthiness of transactions.
• Previous acceptance of similar transactions in scrutiny assessments can support the assessee's case.

Final Determinations on Each Issue:

The Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO, confirming that the assessee had satisfactorily explained the unsecured loans under Section 68. The appeal by the revenue was dismissed, affirming the CIT(A)'s findings.