2022 (1) TMI 1209 - AT - Income Tax

Addition u/s 68 - unexplained Cash Credit - CIT- A deleted the addition - HELD THAT - With respect to the identity of the party, we find that the AO in his order has given categorical finding that the assessee has furnished the details such as copy of ledger account, bank statements, income tax return, balance sheet etc. It is also pertinent to note that based on such information notice under Section 133(6) of the Act was issued to the above parties which was duly responded by them. From the above, there remains no doubt that the identity of the loan parties is not in disputed, as it has been proved beyond doubt. With respect to the genuineness of transaction, we note that the assessee has submitted that all the transaction are carried out through banking channel and in support has furnished the copy of bank statement showing the transaction and the same were transferred out of fund received by those company as share capital. However, it is important to highlight that in the assessment of the loan parties, genuineness of the fund received by them were not established. As such these companies were acting as a conduit to convert the unaccounted money into accounting form. In the given facts and circumstances the genuineness of the transactions is not free from doubts. Once the genuineness of the transaction is not free from doubt, it is implied that the creditworthiness of the parties was not satisfactory so as to advance the loan to the assessee. The undisputed fact that the amount of loan received by the assessee was refunded to the loan parties. It implies that the assessee was not the beneficiary of the loan received by it as alleged by the AO. Though the loan has been repaid by the assessee in the subsequent year, but it is difficult to hold that the assessee was the ultimate beneficiary of the impugned amount. Thus, we can assume that the impugned transaction was the business transactions between the assessee and the loan parties. There was a response from the loan parties in response to the notice issued under Section 133(6) of the Act wherein it was confirmed that these companies have advanced loan to the assessee. This reply of the loan parties cannot be brushed aside merely on the ground that the directors were not produced by the assessee during the assessment proceedings. It was the revenue which wanted to verify the directors of the loan companies. For this purpose, lot of powers were available with the revenue such as issuing notice under Section 131 of the Act for inviting the personal attendance of the directors. But the AO has not exercised such power in the given facts and circumstances. Though the transactions of the loan received by the assessee are not free from any doubt but in either of the case, once repayment of the loan has been established based on the documentary evidence, the credit entries cannot be looked into isolation after ignoring the debit entries despite the debit entries were carried out in the later years. Thus, in the given facts and circumstances, we hold that there is no infirmity in the order of the Ld. CIT-A. Hence, the ground of appeal of the revenue is hereby dismissed. - Decided in favour of assessee.

Issues Involved:
1. Deletion of addition made under Section 68 of the Income Tax Act on account of unexplained cash credit.
2. Compliance with the provisions of Section 68 regarding identity, creditworthiness, and genuineness of transactions.
3. Treatment of repayment of loans in subsequent years.
4. Adequacy of evidence provided by the assessee to support the loan transactions.
5. Double addition of the same money in the hands of the lender and the borrower.

Detailed Analysis:

1. Deletion of Addition Made Under Section 68:
The Revenue challenged the deletion of an addition of ?32,20,00,000/- made under Section 68 of the Income Tax Act, which pertains to unexplained cash credit. The Assessing Officer (AO) had added this amount to the assessee's income, treating it as unexplained cash credit, based on the assessment of the lender companies and statements from a search operation.

2. Compliance with Provisions of Section 68:
The AO argued that the assessee failed to justify the identity, creditworthiness, and genuineness of the loan transactions. The assessee provided documents such as ledger accounts, bank statements, income tax returns, and balance sheets of the lender companies. The AO noted that the lender companies had weak financial statuses and were involved in accommodation entries. However, the CIT-A found that the assessee had provided sufficient evidence to establish the identity, creditworthiness, and genuineness of the transactions, including responses to notices under Section 133(6) from the lender companies.

3. Treatment of Repayment of Loans:
The AO contended that the repayment of loans in subsequent years does not absolve the assessee from explaining the credit entries in the year of receipt. The CIT-A, however, noted that the loans were repaid, which indicated that the assessee was not the ultimate beneficiary of the funds. The Tribunal agreed, stating that the repayment of loans should be considered and that the debit entries cannot be ignored when determining the income of the assessee.

4. Adequacy of Evidence Provided by the Assessee:
The assessee argued that all necessary documents were provided to establish the genuineness of the transactions, including bank statements showing the transactions carried out through banking channels. The CIT-A observed that the AO did not point out any defects in the documents provided by the assessee. The Tribunal noted that the AO should have used available powers to verify the directors of the loan companies but failed to do so.

5. Double Addition of the Same Money:
The CIT-A highlighted that the AO made double additions by treating the same money as unexplained cash credit in the hands of both the lender companies and the assessee. The Tribunal agreed, stating that this approach is not tenable in law.

Conclusion:
The Tribunal upheld the CIT-A's decision to delete the addition made under Section 68, concluding that the assessee had provided sufficient evidence to establish the identity, creditworthiness, and genuineness of the loan transactions. The Tribunal also noted that the repayment of loans in subsequent years should be considered and that double addition of the same money is not permissible. Consequently, the appeal filed by the Revenue was dismissed, and the cross-objection filed by the assessee was also dismissed as infructuous.

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