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2021 (3) TMI 397 - AT - Income TaxAddition u/s 68 - Unexplained cash credit - proof of identity as well as credit worthiness of the creditor and genuineness of the transaction - HELD THAT - In the present case it is not in dispute that the assessee received the loan from M/s Vastech Solution through banking channel, copy of the details of loan received through cheques of Axis Bank of the assessee's compilation which is copy of the ledger account of M/s Vastech Solution in the books of the assessee company, the said ledger account reveals that the assessee company not only received the amount through cheques but also made the payments. The A.O. as well as the Ld. CIT(A) doubted the amount received by the assessee but no eyebrow was raised on the payments made by the assessee to M/s Vastech Solution during the year relevant to the Assessment Year under consideration. It is also noticed that the firm M/s Vastech Solution was filing the returns of income and copy of the receipt of income tax return for the assessment year under consideration i.e A.Y. 2013-14 is placed at page no. 13 of the assessee's paper book wherein the total taxable income was declared at ₹ 1,69,080/- and the tax payable was ₹ 52,246/-. The said return was signed by one Shri Nitendra Tiwari in capacity of the partner on 31/03/2014, therefore the identity of the firm M/s Vastech Solution cannot be doubted. The said firm also confirmed the loan given to the assessee to the A.O. copy of the said confirmation is placed at page no. 19 of the assessee's compilation. We therefore considering the peculiar facts of the present case, are of the view that the addition made by the A.O. and enhanced by the Ld. CIT(A) was not justified, accordingly the same is deleted.
Issues Involved:
1. Legality of the addition of ?14,50,000 under Section 68 of the Income Tax Act. 2. Procedural fairness regarding the enhancement of the addition without a show-cause notice. 3. The validity of a dissolved firm extending a loan. 4. The relevance of the source of the loan in the context of the dissolved firm. Issue-wise Detailed Analysis: 1. Legality of the Addition under Section 68: The primary grievance of the assessee was the sustenance of the addition of ?14,50,000 under Section 68 of the Income Tax Act. The Assessing Officer (A.O.) observed that the assessee received ?40,93,524 as a loan from M/s Vastech Solutions, a firm that was dissolved on 20/01/2011. The A.O. contended that a dissolved entity could not have advanced money and made an addition of ?12,20,510, treating it as the assessee's income. The CIT(A) enhanced this amount to ?14,50,000 based on additional evidence, which included bank statements and ledger accounts showing the loan transactions. The Tribunal found that the firm M/s Vastech Solutions was still filing returns and maintaining books of accounts, thus confirming its identity and capacity to advance the loan. Therefore, the addition made by the A.O. and enhanced by the CIT(A) was deemed unjustified and deleted. 2. Procedural Fairness Regarding Enhancement without Show-Cause Notice: The assessee argued that the CIT(A) erred in enhancing the addition without issuing a show-cause notice. The Tribunal noted that the CIT(A) admitted additional evidence under Rule 46A of the Income Tax Rules, 1962, and provided the A.O. with an opportunity to submit a remand report. The CIT(A) justified the admission of additional evidence, citing the principles laid down by the Bombay High Court in the case of Smt. Prabhavati S. Shah, which emphasized the quasi-judicial nature of the appellate authority's powers. The Tribunal upheld the CIT(A)'s decision to admit additional evidence but found the enhancement of the addition without a show-cause notice to be procedurally unfair. 3. Validity of a Dissolved Firm Extending a Loan: The A.O. and CIT(A) both held that a dissolved firm could not extend a loan. The CIT(A) referred to Section 39 of the Indian Partnership Act, 1932, which states that a dissolved firm ceases to exist and can only realize assets and pay liabilities. However, the Tribunal found that M/s Vastech Solutions continued to file returns and maintain books of accounts, indicating ongoing operations despite the dissolution. The Tribunal concluded that the firm’s identity and capacity to advance the loan were verifiable, thus allowing the loan transaction. 4. Relevance of the Source of the Loan: The CIT(A) deemed the explanation of the loan source immaterial, citing that a dissolved firm could not extend a loan. The Tribunal, however, found that the assessee provided sufficient evidence, including bank statements and ledger accounts, to substantiate the source and genuineness of the loan. The Tribunal emphasized that the firm’s ongoing financial activities and tax filings validated the loan's authenticity. Conclusion: The Tribunal concluded that the addition of ?14,50,000 under Section 68 was unjustified, given the evidence provided by the assessee. The procedural lapse of enhancing the addition without a show-cause notice was noted, and the Tribunal ultimately deleted the addition, allowing the assessee's appeal. Order Pronounced: The appeal of the assessee was allowed, and the addition of ?14,50,000 was deleted.
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