2020 (2) TMI 923 - AT - Income Tax

Unexplained cash credit u/s 68 - HELD THAT - Assessee has filed complete set of documents with regard to each and every amount of loan given to assessee right from 03/01/2012 to 02/11/2012 and also explained corresponding source of income for amount transferred to the assessee. We further noted that the loan creditor has explained the source of income out of encashment of mutual funds investments, sale of listed equity shares for which necessary contract notes from brokers and bank statement has been filed. Similarly, in respect of an amount of ₹ 20 Lacs transferred on 16/04/2012, the source has been explained from amount received from Saritha Barshikar wife of lender, for which necessary bank statement has been enclosed. The assessee has also filed income tax copy of loan creditors for the relevant financial year. From the above, it is very clear that the identity, genuineness of transactions and creditworthiness of the loan creditor has been explained with necessary evidences. CIT(A) after considering relevant facts has rightly came to the conclusion that the assessee has discharged onus cast upon u/s 68 in respect of unsecured loans taken from Mr. Ajeet N. Barshikar. No contrary evidence has been borught on record to prove findings of facts recorded by the ld. CIT(A) are incorrect. Additions towards interest paid on unsecured loans as unexplained expenditure - Once loan transactions between the assessee and the creditor has been found to be genuine transactions, which satisfies the conditions prescribed u/s 68, then interest paid thereon cannot be considered as unexplained expenditure. Accordingly, we do not find any error the findings of the Ld.CIT(A). Additions made towards cash deposits in ICICI banks and amount received from Gartner India Research, we find that the ld.CIT(A) has recorded categorical findings, in light of evidences filed by the assessee that said information has been reconciled with reference to return of income filed for the year. Hence, we are inclined to uphold the findings of the Ld. AO and reject ground taken by the revenue.

Summary

Issues Involved:
1. Deletion of addition on account of unexplained cash credit under Section 68 of the Income Tax Act, 1961.
2. Deletion of addition on account of unexplained expenditure under Section 69C of the Income Tax Act, 1961.
3. Deletion of addition on account of cash deposits reflected in AIR/26AS.
4. Deletion of addition on account of contract income reflected in AIR/26AS.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Unexplained Cash Credit under Section 68:
The primary issue pertains to the addition of ?1.75 crores as unexplained cash credit under Section 68 of the Income Tax Act, 1961. The Assessing Officer (AO) had concluded that the assessee failed to prove the identity, genuineness, and creditworthiness of the lender, Mr. Ajeet N. Barshikar. The AO noted discrepancies such as the lender not filing Income Tax Returns (ITR) despite receiving taxable income and the bank statement not showing receipt of foreign remittances.

The Commissioner of Income Tax (Appeals) [CIT(A)] admitted additional evidences under Rule 46A(1) and found that the assessee provided complete details and evidences regarding the loan transactions, including the source of funds of Mr. Barshikar. The CIT(A) observed that errors pointed out by the AO related to the loan creditor and not the assessee. The loan transactions were routed through banking channels, and discrepancies in confirmation letters and ledger extracts were reconciled during appellate proceedings. The CIT(A) concluded that the assessee satisfactorily explained the nature and source of the loan transactions, thus deleting the addition.

2. Deletion of Addition on Account of Unexplained Expenditure under Section 69C:
The AO had added ?12,85,151 as unexplained expenditure being interest paid on the unsecured loan from Mr. Barshikar, arguing that since the loan transaction was not genuine, the interest paid could not be allowed as a deduction. The CIT(A) held that since the loan transaction was genuine, the consequent interest paid could not be disallowed as unexplained expenditure. The AO was directed to delete the addition.

3. Deletion of Addition on Account of Cash Deposits Reflected in AIR/26AS:
The AO added ?56,535 based on AIR/26AS information regarding cash deposits found in the ICICI Bank account. The CIT(A) noted that the assessee provided necessary details during remand proceedings, and the AO did not find any discrepancies in the documents. Consequently, the CIT(A) directed the AO to delete the addition.

4. Deletion of Addition on Account of Contract Income Reflected in AIR/26AS:
The AO added ?98,250 as unexplained cash credit in respect of the amount received from Gartner India Research. The CIT(A) found that the assessee explained the transactions with supporting evidence and directed the AO to delete the addition.

Conclusion:
The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s findings, noting that the assessee provided comprehensive evidence to establish the identity, genuineness, and creditworthiness of the loan creditor. The ITAT confirmed that the loan transactions were genuine, and subsequent interest payments could not be considered unexplained expenditure. The ITAT also upheld the deletion of additions related to cash deposits and contract income, as the assessee reconciled these with the return of income filed for the year. Consequently, the appeal filed by the revenue was dismissed.