2020 (11) TMI 870 - AT - Income Tax

Addition u/s 68 - Unexplained cash credit - assessee argued that he has repaid the loan taken - HELD THAT - CIT(A) has analysed entire facts relating to the case, considered the arguments of the assessee and has estimated the agricultural income in a meticulous way. We notice that no material was placed before us to show that the estimate made by Ld CIT(A) is not correct. Instead, the assessee is placing reliance on the returns of income filed by Shri Prabhulingappa subsequent to passing of assessment order, which has been held to be an afterthought by Ld CIT(A). We are of the view that the Ld CIT(A) was justified in taking the above said view in the facts and circumstances of the case. A.R submitted that the assessee has repaid the loan taken from Shri Prabhulingappa subsequently. It is well settled principle that the repayment of cash credit would not prove the genuineness of cash credit. It is the responsibility of the assessee to prove three main ingredients, viz., identity of the creditor, credit worthiness of creditor and genuineness of the transaction. In the instant case, the assessee has failed to prove the credit worthiness fully and also the genuineness of the transactions. Accordingly, in the facts and circumstances of the case, we are of the view that the Ld CIT(A) has taken a reasonable view of the matter - Decided against assessee.

Summary

Issues:
1. Assessment of unsecured loans under section 68 of the Income-tax Act, 1961.
2. Dispute regarding the source of funds for unsecured loans received.
3. Allocation of agricultural income among related parties.
4. Justification for cash transactions and non-filing of income tax returns.
5. Evaluation of repayment of loans as proof of genuineness.

Issue 1: Assessment of unsecured loans under section 68 of the Income-tax Act, 1961:
The appeal pertains to the assessment year 2014-15, where the assessee, engaged in an advertisement agency business, contested the addition of unsecured loans under section 68 of the Act. The Assessing Officer (AO) disallowed a loan of ?19.50 lakhs from Shri Prabhulingappa due to inconsistencies in the confirmation letter and rejected it as income of the assessee. The CIT(A) partially confirmed the addition, leading to the appeal.

Issue 2: Dispute regarding the source of funds for unsecured loans received:
During the appellate proceedings, the assessee claimed that the loan from Shri Prabhulingappa was sourced from agricultural income. The CIT(A) analyzed the agricultural holdings of Shri Prabhulingappa, his wife, and brother, estimating the agricultural income and allocating it based on land ownership. Despite explanations, only a portion of the loan was considered explained, resulting in a sustained addition of ?12.98 lakhs.

Issue 3: Allocation of agricultural income among related parties:
The CIT(A) meticulously examined the agricultural income derived from areca nut cultivation on the shared land, verifying the claimed receipts and expenses. The allocation of income among the related parties was detailed based on land ownership and verified agricultural yields, leading to a specific determination of income attributable to each party.

Issue 4: Justification for cash transactions and non-filing of income tax returns:
The assessee's argument of business expediency for cash transactions and subsequent filing of income tax returns by Shri Prabhulingappa were scrutinized. The CIT(A) deemed the explanations inadequate, considering the delay in filing returns, lack of clarity in transactions, and the necessity for banking channels for such significant transactions.

Issue 5: Evaluation of repayment of loans as proof of genuineness:
The argument that subsequent repayment of the loan to Shri Prabhulingappa validated its genuineness was dismissed. The Tribunal emphasized the assessee's burden to establish the creditor's identity, creditworthiness, and transaction genuineness, which remained unproven. The repayment alone did not suffice as evidence, leading to the dismissal of the appeal.

In conclusion, the Tribunal upheld the CIT(A)'s decision, emphasizing the need for thorough proof of transaction genuineness and income sources, dismissing the appeal filed by the assessee on 25th November 2020.