2019 (9) TMI 1080 - AT - Income Tax

Addition on account of unexplained loan - addition u/s 68 - HELD THAT - Since the deal could not be materialized, the assessee returned the amount in question in subsequent year. All the transactions are carried out through banking channel and no defects in the books of account have been pointed out. All the creditors are assessed to tax and have disclosed the transactions to the Income Tax Department. The assessee explained that since parties are not in his direct control, therefore, direct enquiry may be made from the creditors, for which, assessee also deposited fees as required for the same. However, no attempt have been made to verify the transactions from the creditors. Since all the creditors were assessed to tax and their PAN were available to the A.O, therefore, A.O. could have examine the source of their income from the income tax record. But the A.O. did not do anything in the matter. Decision of the Hon ble Supreme Court in the case of Orissa Corporation Pvt. Ltd. 1986 (3) TMI 3 - SUPREME COURT would apply. The assessee in these circumstances is able to discharge onus upon it to prove the ingredients of Section 68 . No material has been brought on record that the credit amount introduced by the creditors was actually emanated from the coffers of the assessee so as to enable it to be treated as undisclosed income of the assessee - when it is explained that trading advances were received and when the material could not be supplied, amounts have been returned in subsequent year, same could not be disputed by the authorities below to treat the same as undisclosed income of the assessee - Decided in favour of assessee.

Summary

Issues:
Challenge against addition of ?65 lakhs on account of unexplained loan for A.Y. 2010-2011.

Analysis:

Issue 1: Unexplained Loan Addition
- The Assessee challenged the addition of ?65 lakhs as unexplained investment under section 68 of the I.T. Act, 1961.
- The Assessee maintained books of account audited with better G.P, N.P., and turnover in the assessment year.
- The Assessee received unsecured loans from various parties against the purchase of goods, which were later refunded when goods could not be purchased.
- The Assessing Officer (A.O.) found three unsecured loans/advances questionable as parties did not comply with summons, leading to the addition.
- The Assessee provided detailed documentary evidence to prove the genuineness of the transactions, including ledger accounts, confirmations, ITR, bank statements, and other documents.
- The Assessee requested the A.O. to conduct direct enquiries from the parties, but no action was taken.
- The Assessee cited various legal precedents where loans supported by confirmations and transactions through banking channels were not added under section 68.
- The Tribunal found that the Assessee submitted all necessary documents, and the creditors confirmed the advances. The transactions were through banking channels, and no defects were found in the books of account.
- The A.O. failed to verify transactions from the creditors, even though their PAN details were available, which led to the Assessee discharging the onus under section 68.
- The Tribunal relied on judgments to support the Assessee's case, emphasizing that no adverse inference should be drawn if creditors did not respond to notices.
- It was concluded that the Assessee proved the identity of creditors, creditworthiness, and genuineness of transactions. Hence, the addition was deleted.

In conclusion, the Appellate Tribunal ITAT Delhi allowed the Assessee's appeal, setting aside the addition of ?65 lakhs as unexplained loan for the assessment year 2010-2011. The Tribunal emphasized the Assessee's compliance with providing necessary documentation, transactions through banking channels, and the failure of the A.O. to conduct proper verifications. The Tribunal's decision was based on legal precedents and the Assessee's ability to prove the genuineness of the transactions, resulting in the deletion of the entire addition.