2019 (10) TMI 1161 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - HELD THAT - Admittedly the assessee has discharged his onus by furnishing the necessary details such as a copy of PAN bank details etc. in support of identity of the parties. There is also no dispute that all the transactions were carried out through the banking channel. Therefore we are conscious of the fact that the assessee has discharged the onus regarding the identity of the parties. There is no doubt that the transaction of the loan was carried out through the banking channel. Therefore there cannot be any doubt about the genuineness of the transactions. The assessee in the present case has duly explained the source of money received in their hands. The assessee is not answerable to justify the source of the source of the money received by him. See ROHINI BUILDERS. 2001 (3) TMI 9 - GUJARAT HIGH COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of ?6,50,000 on account of unexplained cash credit under Section 68 of the Income Tax Act.
2. Addition of ?50,716 on account of interest paid to unsecured loans.

Issue-wise Detailed Analysis:

1. Disallowance of ?6,50,000 on account of unexplained cash credit under Section 68 of the Income Tax Act:

The primary issue raised by the assessee was the addition of ?6.50 lakhs as unexplained cash credit under Section 68 of the Income Tax Act. The assessee, engaged in the business of trading and processing grey and fabrics cloth, had taken loans from several parties. The Assessing Officer (AO) observed that there were cash/cheque deposits in the bank accounts of these parties immediately before the transfer of funds to the assessee's account, raising questions about the genuineness of these transactions.

The AO noted that the lenders had small bank balances and low incomes, indicating a lack of creditworthiness. For instance, Dinesh Kumar L. Patel had a total income of ?1,60,180 and a bank balance of ?1,899 before issuing the cheque. Similar observations were made for other lenders, such as Mahendra P. Shah, Bhavarlal L. Patel, Niranjan Jain, Ganesh Lumbaram Patel, and Lumbaram Patel, who either had low incomes or did not file returns, and had minimal bank balances.

The AO concluded that the assessee failed to prove the creditworthiness of the parties and added the amount received as unexplained cash credit. The CIT (A) upheld the AO's decision, stating that the assessee did not justify the creditworthiness of the lenders.

However, the Tribunal observed that the assessee had furnished necessary details such as PAN, bank statements, and confirmation of the parties. The Tribunal emphasized that the mere deposit of cash prior to issuing cheques does not render the transactions non-genuine. It was noted that the AO did not conduct proper inquiries from all parties, and the statements recorded were not provided to the assessee for cross-examination.

The Tribunal referred to the case of CIT Vs. Precision Finance (P) Ltd, which established that the assessee must prove the identity, creditworthiness, and genuineness of the transactions. The Tribunal found that the assessee had discharged the onus regarding the identity and genuineness of the transactions, as all transactions were through banking channels.

Regarding creditworthiness, the Tribunal noted that the assessee had explained the source of income for the lenders and was not required to prove the source of the source. The Tribunal cited the case of DCIT Vs. Rohini Builders, which held that the assessee is not expected to prove the genuineness of cash deposited in the lenders' bank accounts.

The Tribunal concluded that the addition on account of loans from Shri Niranjan Jain was unjustified as the assessee had not taken any loan from him. For other lenders, the Tribunal found that the assessee had sufficiently discharged the onus of proving the creditworthiness. Therefore, the Tribunal directed the AO to delete the addition of ?6.50 lakhs.

2. Addition of ?50,716 on account of interest paid to unsecured loans:

The AO disallowed the interest of ?50,716 claimed by the assessee on the loan amount, adding it to the total income. The assessee argued that no interest was paid on the alleged loan from Niranjan Jain and submitted relevant financial statements to support this claim.

The Tribunal noted that the assessee had not taken any loan from Niranjan Jain and had not paid any interest to him. The Tribunal found that the assessee had furnished all necessary details, including the balance sheet and interest account, which did not reflect any loan from Niranjan Jain.

The Tribunal held that the CIT (A) should have cross-verified the facts before disbelieving the assessee's contention. Since the assessee had provided sufficient evidence, the Tribunal directed the AO to delete the addition of ?50,716 on account of interest.

Conclusion:

The Tribunal allowed the appeal of the assessee, directing the AO to delete the additions of ?6.50 lakhs and ?50,716, concluding that the assessee had adequately proved the identity, genuineness, and creditworthiness of the transactions. The order was pronounced in the Court on 01/10/2019 at Ahmedabad.