2021 (1) TMI 319 - AT - Income Tax

Addition u/s 68 - AO treating the loan as unsecured cash credit - HELD THAT - Admittedly, in the case on hand, the assessee has discharged its primary onus by furnishing the necessary details such as copy of PAN, confirmation of the parties, Bank extracts etc. to support the transactions. The necessary details of the parties in support of the transactions are available in the Paper Book. Similarly, there is also no dispute to the fact that all the transactions were carried out through the banking channel. Thus the inference that flows from a cumulative consideration of all the aforesaid contending facts is that the assessee has discharged its onus imposed under Section 68 of the Act. The details filed by the assessee was not cross verified by the Revenue from the respective parties despite having the necessary details in its possession. Thus, we are of the view, Revenue cannot go to hold the addition under Section 68 of the Act in the given facts and circumstances. See CHANAKYA DEVELOPERS 2013 (10) TMI 7 - GUJARAT HIGH COURT . Creditworthiness of the lender was justified by the assessee. Once the cash credit gets explained within the parameters of the provisions of section 68 of the Act, then the question of disallowing the interest expenses does not arise in the given facts and circumstances. In view of the above, we are not impressed with the finding of the ld. CIT-A and direct the AO to delete the addition - Decided in favour of assessee.

Summary

Issues involved:
Interconnected issue of treating a loan as unsecured cash credit under section 68 of the Income Tax Act and disallowing interest on the loan.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the treatment of a loan as unsecured cash credit under section 68 of the Income Tax Act. The Assessee, a private limited company engaged in software development, had taken a loan of ?22 lakhs from various parties. The Assessing Officer (AO) disallowed the loan amount and corresponding interest of ?1,48,665, as the Assessee failed to establish the creditworthiness of the parties providing the loan. The Commissioner of Income Tax (Appeals) confirmed the AO's order, leading to the Assessee's appeal before the Appellate Tribunal.

During the proceedings, the Assessee presented necessary details such as confirmation, PAN, and bank statements to establish the legitimacy of the transactions. The Assessee argued that it fulfilled the requirements under section 68 of the Act and was not obligated to justify the source of the source in the hands of the parties. The Revenue, however, supported the lower authorities' decision.

The Tribunal highlighted that the Assessee must establish the identity of investors, their creditworthiness, and the genuineness of the transaction to comply with section 68. Once the Assessee provides these details, the onus shifts to the AO to investigate further. In this case, the Assessee submitted necessary documents, and all transactions were conducted through the banking channel. The Tribunal emphasized that the Revenue did not cross-verify the details despite having access to them. Referring to a judgment, the Tribunal held that the Assessee had fulfilled its onus, and the addition under section 68 was unwarranted.

Regarding specific loans, the Tribunal noted that the Assessee's submissions were not refuted by the AO, indicating the Assessee's compliance with section 68 requirements. The Tribunal directed the AO to delete the addition, as once the cash credit is explained within section 68 parameters, disallowing interest does not apply. Consequently, the Assessee's appeal was allowed, and the order was pronounced in January 2021 at Ahmedabad.