2021 (4) TMI 204 - AT - Income Tax

Addition u/s 68 - treating the unsecured loan as unexplained cash credit - CIT(A) has allowed the assessee to submit the additional evidences under rule 46A of the Act - HELD THAT - The comments of the Assessing Officer at the remand proceeding reported that assessee has furnished details and documents which prima-facie show the source of funds in the hands of the lender Sh. Romi Patel who is also the director of the assessee company. AO has only expressed his observation to the source of funds to the amount of only ₹ 49,000/- claimed out of cash withdrawn almost two and a half months prior to the deposit and also stated that lender (director of the assessee company) has failed to make compliance with the summon issued under section 131 of the Act. It was also reported loan transactions were reflected in the copy of bank statement of the lender as well as the receiver. Without specifically considering the aforesaid facts and material, the ld. CIT(A) has held in a general manner that the assessee has failed to establish the genuineness and creditworthiness of the loan creditors. As elaborated above in this order, the assessee has furnished additional evidences duly admitted under 46A by the Ld. CIT(A) demonstrating that the depositor Shri Romi P. Patel has received an amount of ₹ 5 lacs from A.M. Enterprises and on 12th May, 2011, the depositor had also received ₹ 5 lacs from M/s. Manilal Prabhudas Sons a partnership firm and balance of ₹ 49,000/- was out of cash withdrawal of ₹ 1 lacs from his bank account maintained with HDFC Bank. It is noticed that these additional evidences has not been disproved by the Assessing Officer by making further investigation and verification. In the light of the above facts and circumstances, we consider that ld. CIT(A) is not justified in sustaining the addition, therefore, the appeal of the assessee is allowed.

Summary

Issues:
Appeal against addition of unsecured loan as unexplained cash credit.

Analysis:
The case involved an appeal by the assessee against the addition of an unsecured loan of ?10,49,000 as unexplained cash credit for the assessment year 2012-13. The Assessing Officer observed that the assessee failed to provide adequate details to prove the genuineness and creditworthiness of the loan amount received from a certain individual. Despite the assessee's submissions during the assessment proceedings, the Assessing Officer treated the unsecured loan as unexplained under section 68 of the Income Tax Act and added it to the total income of the assessee.

The assessee then appealed to the CIT(A), who upheld the addition stating that the assessee could not establish the genuineness of the transaction and the creditworthiness of the lender based on the discrepancies pointed out by the Assessing Officer. However, during the appellate proceedings, the assessee was allowed to submit additional evidence under rule 46A of the Act. The additional evidence included the ledger account of the lender, bank statements, and balance confirmation of related parties involved in the transaction.

Upon review of the additional evidence, the Assessing Officer reported that the source of the unsecured loan was explained, with amounts received from different entities and a portion claimed to be paid in cash from a bank account withdrawal. The Assessing Officer also noted that the lender, who was also a director of the assessee company, failed to comply with summons issued during the remand proceedings. The CIT(A), however, without specifically addressing these facts, had held that the assessee failed to establish the genuineness and creditworthiness of the loan creditors.

The ITAT, in its judgment, found that the additional evidence provided by the assessee was not disproved by the Assessing Officer through further investigation and verification. Therefore, the ITAT concluded that the CIT(A) was not justified in sustaining the addition of the unsecured loan as unexplained cash credit. Consequently, the appeal of the assessee was allowed, and the addition was set aside.