2025 (1) TMI 1336 - AT - Income Tax

Unexplained cash credits - addition being loan taken from the Directors of the assessee company u/s.68 - Onus to prove - HELD THAT - One very important fact here in this case which proves the genuineness of the loan is that these are not direct loan given to the assessee company but payment was made to various persons on behalf of the company in respect of the property to be purchased in the name of the company. These details of payments made to 169 people were filed alongwith their confirmations. Thus it is not a case of direct loan been given to the assessee company albeit all the Directors have made payment to various persons for the purchase of the property to start the project of the company and the company has shown this as liability in the balance sheet in the name of the Directors. Accordingly it cannot be said that the onus cast upon the assessee has not been discharged. Once all these facts have been brought on record then simply because these Directors have taken unsecured loan for making payments to various parties for purchase of land in the name of the company cannot be added u/s.68 once all these documents have been furnished. Accordingly addition made by the ld. AO and as confirmed by the ld. CIT (A) is deleted. Decided in favour of assessee.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment were:

Whether the reopening of assessment under Sections 147/148 of the Income Tax Act was valid.
Whether the addition of Rs. 3,01,48,500/- as unexplained cash credits under Section 68 of the Income Tax Act was justified.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Reopening under Sections 147/148

Relevant Legal Framework and Precedents: The reopening of an assessment is governed by Section 147 of the Income Tax Act, which allows for reassessment if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment. Section 148 outlines the procedure for issuing a notice for reassessment.
Court's Interpretation and Reasoning: The Tribunal noted that the reopening was based on the discovery of unsecured loans received by the assessee from its directors, which were not sufficiently explained in terms of creditworthiness and source of funds.
Conclusions: The Tribunal deemed the issue of reopening as academic since the addition on merits was deleted. Therefore, the validity of reopening was not further contested.

2. Addition of Rs. 3,01,48,500/- under Section 68

Relevant Legal Framework and Precedents: Section 68 of the Income Tax Act deals with unexplained cash credits, allowing the addition of such credits to the income of the assessee if they fail to satisfactorily explain the nature and source of the credits.
Court's Interpretation and Reasoning: The Tribunal focused on whether the assessee had discharged the onus of proving the creditworthiness of the directors and the genuineness of the transactions.
Key Evidence and Findings:
- The assessee provided income tax returns, bank statements, and confirmations from the directors.
- For one director, Shri Karunakar Menka Shetty, the addition was deleted by the CIT (A) based on his substantial income and funds reflected in his balance sheet.
- For the other directors, Shaikh Sajid Aziz and Rajesh Chintaman Wade, the CIT (A) upheld the addition, noting that the loans were advanced from borrowings made by them, without sufficient details of the lenders.
Application of Law to Facts: The Tribunal observed that the directors had declared their sources of funds in their balance sheets, and the loans were shown as liabilities in the company's balance sheet. The Tribunal emphasized that the requirement to prove the source of the source was not applicable for the assessment year in question.
Treatment of Competing Arguments: The Tribunal considered the Department's argument that the assessee needed to prove the source of funds for the directors. However, it concluded that the assessee had provided sufficient documentation to discharge its burden under Section 68.
Conclusions: The Tribunal found that the assessee had adequately explained the transactions and deleted the additions for the loans received from all three directors.

SIGNIFICANT HOLDINGS

Core Principles Established: The Tribunal reiterated that under Section 68, the assessee is required to prove the identity, creditworthiness, and genuineness of the transaction. However, the requirement to prove the source of the source is not applicable for the assessment year 2014-15.
Final Determinations on Each Issue:
- The addition of Rs. 3,01,48,500/- under Section 68 was deleted, as the assessee had discharged its onus by providing necessary documentation.
- The question of the validity of reopening under Sections 147/148 was rendered academic since the addition on merits was deleted.
Verbatim Quotes of Crucial Legal Reasoning: "Once all these facts have been brought on record, then simply because these Directors have taken unsecured loan for making payments to various parties for purchase of land in the name of the company cannot be added u/s.68 once all these documents have been furnished."