2019 (9) TMI 756 - AT - Income Tax

Addition made towards unsecured loans u/s 68 - unexplained cash credit - HELD THAT - The gross revenue from operations for the year ended 31.3.2013 itself proves the creditworthiness of all the loan creditors beyond doubt. Hence all the allegations leveled by the lower authorities with regard to creditworthiness is devoid of any merits and deserves to be dismissed. We find that all the parties are duly assessed to income tax and assessments are framed on them by the income tax department. Hence the identity of the loan creditors stood clearly established. All the transactions are routed through regular banking channels without having any cash deposits in their respective bank accounts. Infact the AO himself had stated in his order that the sale proceeds of diamond business were credited in the bank accounts of the loan creditors which were utilized for advancing loan to the assessee. This itself goes to prove the genuineness of transactions and creditworthiness of parties beyond doubt. Hence we hold that all the three necessary ingredients of section 68 of the Act had been duly established by the assessee in the instant case. Once the assessee has furnished the complete details about the loan creditors together with their latest addresses and affidavits from directors duly notarized and confirmation from them for the loans advanced to the assessee, the onus cast on the assessee u/s 68 had been duly discharged and no addition could be made in its hands merely because the lenders fail to appear before the AO or the assessee failing to produce them before the ld AO. We hold that no addition could be made on mere presumption that the assessee routed its own cash in the form of unsecured loans without any concrete evidence to this effect We find that the directors of the lending companies had filed affidavits confirming the loan transactions before the AO which had not been disputed. Once the averments made in an affidavit are not disputed or refuted, the same are to be construed as true and correct, as held by the Hon ble Supreme Court in the case of Mehta Parikh Co. vs CIT 1956 (5) TMI 4 - SUPREME COURT . We hold that the ld CIT-A erred in confirming the addition made u/s 68 of the Act in the instant case. Gross revenue from operations for the year ended 31.3.2014 itself proves the creditworthiness of all the loan creditors beyond doubt. Hence all the allegations leveled by the lower authorities with regard to creditworthiness is devoid of any merits and deserves to be dismissed.

Summary

Issues Involved:
1. Estimation of Profits.
2. Addition towards unsecured loans under Section 68 of the Income Tax Act.

Issue-Wise Analysis:

1. Estimation of Profits:
Facts:
The assessee, a partnership firm engaged in the construction of residential flats, filed its income for the assessment year 2013-14 declaring a total income of ?28,20,200. The firm was involved in a project named 'Shree Shankar Heights' and followed the Work in Progress method of accounting, estimating profit at 10% of the work carried out each year. The Assessing Officer (AO) estimated the profit at ?92,34,017, which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].

Tribunal's Findings:
- The assessee consistently followed the Work in Progress method, which was accepted in earlier years.
- The AO applied Accounting Standard 7 (AS-7) for contractors to the assessee, which is not applicable to builders/developers.
- The AO's estimation was based on hypothetical income, not actual sales or transfer of risks and rewards.
- The project was completed in the assessment year 2014-15, and the entire profit was offered for tax in that year, making the estimation for the assessment year 2013-14 revenue-neutral.
- The Tribunal directed the AO to delete the addition of ?92,34,017 towards the estimation of profits.

Conclusion:
The Tribunal allowed the grounds raised by the assessee for the assessment year 2013-14, making the adjudication for the assessment year 2014-15 academic in nature.

2. Addition towards Unsecured Loans under Section 68:
Facts:
The AO observed that the assessee had taken loans from various parties amounting to ?2,22,00,000 in the assessment year 2013-14 and ?1,43,00,000 in the assessment year 2014-15. The AO doubted the genuineness of these loans, as some notices sent to the loan creditors returned unserved, and the creditors were alleged to be involved in providing accommodation entries. The AO made additions under Section 68, which were upheld by the CIT(A).

Tribunal's Findings:
- The assessee provided detailed documentation, including confirmation of balances, income tax returns, audited accounts, bank statements, and affidavits from directors of the loan creditors.
- The AO did not conduct further inquiries at the new addresses provided by the assessee.
- The loan creditors had substantial revenue from operations, proving their creditworthiness.
- The Tribunal noted that the AO allowed the interest paid on these loans as a deduction, indicating the acceptance of the loan transactions.
- The Tribunal held that the assessee discharged its burden of proof under Section 68 by providing sufficient documentation.
- The Tribunal found that the lower authorities' allegations regarding creditworthiness were without merit and directed the deletion of the additions made under Section 68 for both assessment years.

Conclusion:
The Tribunal allowed the grounds raised by the assessee for both assessment years, holding that the additions under Section 68 were not justified.

Final Order:
The appeals of the assessee were partly allowed, with the Tribunal directing the deletion of the additions made towards the estimation of profits and unsecured loans under Section 68. The order was pronounced in the open court on 17/07/2019.