2025 (3) TMI 1050 - AT - Income Tax

Addition u/s 68 - loans taken from friends and relatives - HELD THAT - On perusal of the returns of income filed by the brother of the assessee in our view the creditworthiness of Assessee s brother stands duly established. Assessee s brother also filed confirmation before the AO giving details of his business PAN number and Income Tax Return filing details. Accordingly in our view in the case of Shri Piyush B. Rajput the assessee has been able to established the identity and creditworthiness of the said party. Assessee has been able to duly establish the source of the loan amount taken from the parties and has also established their creditworthiness. Therefore in our considered view this is a fit case where no addition is called for u/s 69A. Accordingly addition is hereby directed to be deleted. Addition u/s 68 - cash deposits unexplained - HELD THAT - Assessee has not filed certain details like return of income filed by the assessee before the relevant Tax Authorities in Angola declaring income from such incentives. The assessee did not file details of passport before the AO/ CIT(A) for the impugned year under consideration and the assessee has also not furnished copy of bank statement before the Tax Authorities for their perusal. However we also note that the assessee had furnished name and address of the concerned person who had exchanged the USD received by the assessee into INR however despite this is no independent enquiry was made by the AO to verify the genuineness of such party. Accordingly as assessee had furnished employment letter from his employer based out of Angola letter of confirmation that the assessee had received a sum of Rs. USD 20, 190 from his employer and also the details of the person who had exchanged the USD into INR we are of the considered view that in the interest of justice the matter may be restored to the file of AO for fresh appreciation of evidence placed on record by the assessee - Ground allowed for statistical purposes.

ISSUES PRESENTED and CONSIDERED

The Tribunal considered two core legal issues:

Whether the addition of Rs. 9,92,000/- made by the Assessing Officer under Section 68 of the Income Tax Act, 1961, for loans taken from friends and relatives, was justified.
Whether the addition of Rs. 14,40,000/- made by the Assessing Officer under Section 68 of the Income Tax Act, 1961, for cash deposited in the NRO account, was justified.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Addition of Rs. 9,92,000/- under Section 68 of the Act

Relevant legal framework and precedents: Section 68 of the Income Tax Act, 1961, deals with unexplained cash credits and allows the Assessing Officer to add such credits to the income of the assessee unless satisfactory explanations are provided.
Court's interpretation and reasoning: The Tribunal examined the identity and creditworthiness of the parties from whom the loans were claimed to have been received. It emphasized the importance of proving both the identity and creditworthiness of the lenders.
Key evidence and findings: The Tribunal noted that the assessee provided income tax returns and confirmations from the lenders, indicating their creditworthiness. The Tribunal found that the lenders had sufficient declared income to support the loans given to the assessee.
Application of law to facts: The Tribunal applied Section 68 by assessing the evidence of creditworthiness and identity provided by the assessee. It concluded that the assessee had satisfactorily explained the source of the loans.
Treatment of competing arguments: The Tribunal considered the Assessing Officer's argument regarding the lack of complete bank statements and the pattern of cash deposits but found the assessee's evidence sufficient to establish the creditworthiness of the lenders.
Conclusions: The Tribunal directed the deletion of the addition of Rs. 9,92,000/- as the assessee successfully demonstrated the source and creditworthiness of the loans.

Issue 2: Addition of Rs. 14,40,000/- under Section 68 of the Act

Relevant legal framework and precedents: Similar to Issue 1, Section 68 of the Income Tax Act, 1961, applies to unexplained cash deposits.
Court's interpretation and reasoning: The Tribunal examined the evidence provided by the assessee regarding the source of cash deposits, which included commissions earned in Angola and converted to INR.
Key evidence and findings: The Tribunal noted the employment letter and confirmation of commission payments from the employer in Angola. However, it also observed the lack of documentary evidence for currency conversion and declaration to customs.
Application of law to facts: The Tribunal applied the law by considering the evidence of commission income and the lack of corroborating evidence for currency conversion and customs declaration.
Treatment of competing arguments: The Tribunal considered the Assessing Officer's concerns about the absence of documentary proof for currency conversion and customs declaration but also noted the employer's confirmation of commission payments.
Conclusions: The Tribunal remanded the matter to the Assessing Officer for fresh consideration, emphasizing the need for a thorough examination of the evidence and providing the assessee an opportunity to present additional documentation.

SIGNIFICANT HOLDINGS

Core principles established: The Tribunal underscored the necessity of proving the identity and creditworthiness of lenders under Section 68 and the importance of documentary evidence for currency conversion and customs declaration.
Final determinations on each issue:
- For the first issue, the Tribunal directed the deletion of the addition of Rs. 9,92,000/-.
- For the second issue, the Tribunal remanded the case back to the Assessing Officer for reevaluation, allowing the assessee to provide further evidence.
Verbatim quotes of crucial legal reasoning: "In our considered view, the assessee has been able to duly establish the source of the loan amount taken from the parties and has also established their creditworthiness." For the second issue, "we are of the considered view that in the interest of justice, the matter may be restored to the file of Assessing Officer for fresh appreciation of evidence placed on record by the assessee."