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2020 (7) TMI 619 - AT - Income TaxUnexplained cash credits u/s 68 - unsecured loans - parties have not responded to notice issued u/s 133(6) - HELD THAT - Assessee has discharged its initial burden cast upon, it under the provisions of 68 - Once initial burden cast upon on the assessee has been discharged by filing necessary evidences, then the burden shifts to the revenue to prove that the credits found in the books of accounts of the assessee is income earned from undisclosed source of income. AO has primarily relied upon the fact that the parties have not responded to notice issued u/s 133(6) to draw a conclusion against the assessee that the purported loans taken from those parties are non genuine in nature, ignoring legal position that non appearance of the parties to the proceedings before the Ld. AO cannot be a sole ground for taking adverse inference against the assessee, more particularly, when the assessee has filed necessary evidences to prove loans taken from above parties. This legal position is supported in the case of CIT vs Lovely Exports Pvt.Ltd. 2008 (1) TMI 575 - SC ORDER held that if, the share application money is received by the assessee company from alleged bogus shareholders, the names are given to the Ld. AO, then the department is free to proceed to reopen their individual assessment in accordance with law, but the sum found credited in its books cannot be regarded as undisclosed income of the assessee. - Decided in favour of assessee.
Issues Involved:
1. Addition of unsecured loans as unexplained cash credits under Section 68 of the IT Act. 2. Addition of the difference in the loan amount as cash credits under Section 68 of the IT Act. 3. Disallowance of interest expense claimed by the assessee. 4. Disallowance of all interest paid considering it as interest on loans disallowed under Section 68. Issue-wise Detailed Analysis: 1. Addition of Unsecured Loans as Unexplained Cash Credits under Section 68 of the IT Act: The assessee company, engaged in manufacturing nylon products, filed its return of income for AY 2016-17. During scrutiny, the AO noticed unsecured loans from four parties amounting to ?2.58 crores. Despite providing basic details and confirmation letters from creditors, the AO added ?1.23 crores as unexplained cash credits due to non-response or insufficient documentation from three parties. The AO relied on an investigation report indicating one creditor as a shell company providing accommodation entries. The CIT(A) upheld this addition, emphasizing the assessee's failure to prove the identity, capacity, and genuineness of the transactions. The Tribunal, however, found that the assessee had discharged its initial burden by filing necessary evidences, including confirmation letters and bank statements, and held that non-response to notices under Section 133(6) alone cannot justify the addition. The Tribunal directed the AO to delete the addition. 2. Addition of the Difference in the Loan Amount as Cash Credits under Section 68 of the IT Act: The AO noted a discrepancy of ?15 lakhs between the loan amount recorded by the assessee and the confirmation from M/s Garware Finance Corporation Ltd. The CIT(A) upheld this addition, citing the assessee's failure to reconcile the discrepancy. The Tribunal observed that the assessee had a running account with the creditor, and all transactions were through banking channels. It concluded that the AO's reliance on the bank statement alone was insufficient and directed the deletion of this addition as well. 3. Disallowance of Interest Expense Claimed by the Assessee: The AO disallowed ?13,83,200/- claimed as interest expense on the grounds that the corresponding loans were non-genuine. The CIT(A) upheld this disallowance, reasoning that if the loan itself is disallowed under Section 68, the related interest expense must also be disallowed. The Tribunal, however, found that since the loans were genuine, the interest expense should also be allowed, and directed the deletion of this disallowance. 4. Disallowance of All Interest Paid Considering it as Interest on Loans Disallowed under Section 68: The AO disallowed all interest paid, considering it as related to the disallowed loans. The CIT(A) upheld this, but the Tribunal directed the deletion of the disallowance, aligning with its decision on the genuineness of the loans. Conclusion: The Tribunal allowed the assessee's appeal, directing the AO to delete the additions of ?1.38 crores and the disallowance of ?13,83,200/- in interest payments. The Tribunal emphasized that the assessee had discharged its initial burden of proof and that non-response to notices does not automatically render the transactions non-genuine. The judgment underscores the importance of evaluating the totality of evidence rather than relying solely on procedural non-compliance by third parties.
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