2017 (2) TMI 1096 - AT - Income Tax

Unexplained cash credits u/s. 68 - Held that - No hesitation in holding that the assessee has successfully discharged the initial onus cast upon it by the provisions of Section 68 of the Act. We, therefore, do not find any merit in the impugned additions made by the A.O. We, accordingly, set aside the findings of the ld. CIT(A) and direct the A.O. to delete the addition Disallowance of interest paid to the cash creditors on the ground that the cash credits were held as non genuine - Held that - Since, we have directed the A.O. to delete the additions made on account of unexplained cash credits, there remains no reason why the interest paid on such cash credits should be disallowed. We, therefore, direct the A.O. to allow the claim of interest paid to such cash creditors. This ground is also allowed in favour of assessee.

Summary

Issues Involved:
1. Addition of ?42.20 lacs on account of alleged unexplained cash credits under Section 68 of the Income Tax Act.
2. Disallowance of interest paid to cash creditors amounting to ?1,83,878/-.
3. Levy of interest under Sections 234A, 234B, and 234C of the Income Tax Act.
4. Initiation of penalty under Section 271(1)(c) of the Income Tax Act.

Detailed Analysis:

1. Addition of ?42.20 lacs on account of alleged unexplained cash credits under Section 68 of the Income Tax Act:

The Assessee challenged the addition of ?42.20 lacs made by the Assessing Officer (A.O.) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the cash credits were genuine. The A.O. had introduced fresh loans of ?48.18 lacs from 19 cash creditors and questioned the genuineness and creditworthiness of these transactions. The Assessee provided confirmations and Income Tax returns for all creditors, but the A.O. found the creditors non-genuine after recording their statements under oath.

The Assessee contended that the creditors were uneducated and from villages, often unable to understand the A.O.'s questions, leading to potentially inaccurate statements. The Assessee argued that the creditors were genuine and had provided financial support during a critical period, and that the loans were given through cheques.

The A.O. concluded that the Assessee failed to prove the creditworthiness of the creditors and added ?48.18 lacs as unexplained cash credits. The CIT(A) allowed relief for ?3.98 lacs but confirmed the balance.

The Tribunal, after considering the facts and relevant documentary evidence, found that all creditors had appeared before the A.O. and confirmed the loan transactions. Referring to the judgments of the Hon’ble Gujarat High Court in Ranchhod Jivabhai Nakhava and Rohini Builders, and the Hon’ble Supreme Court in Orissa Corporation Ltd., the Tribunal held that the Assessee had successfully discharged the initial onus under Section 68. Consequently, the Tribunal directed the A.O. to delete the addition of ?42.20 lacs.

2. Disallowance of interest paid to cash creditors amounting to ?1,83,878/-:

Since the Tribunal directed the deletion of the additions made on account of unexplained cash credits, there was no reason to disallow the interest paid on such credits. The Tribunal, therefore, directed the A.O. to allow the claim of interest paid to the cash creditors.

3. Levy of interest under Sections 234A, 234B, and 234C of the Income Tax Act:

The Tribunal noted that the charge of interest under these sections is mandatory, though consequential. Therefore, the A.O. was directed to levy interest as per the provisions of law.

4. Initiation of penalty under Section 271(1)(c) of the Income Tax Act:

The Tribunal considered this grievance premature and did not entertain it.

Conclusion:

The appeal filed by the Assessee was allowed in its entirety. The Tribunal directed the deletion of the addition of ?42.20 lacs and allowed the interest claim. The levy of interest under Sections 234A, 234B, and 234C was to be done as per law, and the initiation of penalty under Section 271(1)(c) was deemed premature. The order was pronounced in Open Court on 16-02-2017.