2022 (6) TMI 265 - AT - Income Tax

Addition u/s 68 - failure of the assessee to prove the genuineness of unsecured loan taken - identity of loan creditors - assessee contended that it was clear that the documents filed before the authorities below clearly substantiated the explanation of the assessee that the amounts received by the assessee from M/s. Makhija Infrastructure Pvt. Ltd. related to the amounts given by customers of M/s. Makhija Infrastructure Pvt. Ltd. as booking advance mentioning the names of the parties also from whom it was received - HELD THAT - The confirmation of the said party reflects names of individuals, which individuals are found reflected as members/customers of Makhija enterprises in its financial statements, the accounts of the said individuals /members in the books of Makhija enterprises reflects the transaction of amounts advanced by them deposited in the bank account of the assessee. No infirmity in the above documents have been pointed out by the Revenue. Therefore for all purposes the assessee has established the fact that the amount has been received from M/s Makhija Infrastructure through banking channels though not directly through its bank account but by way of cheques of advances paid by its members, deposited in its account. The Ld.CIT(A) does not dispute these facts. The identity of the loan depositor M/s Makhija Infrastructure, its creditworthiness as being its customers /members money, as also genuineness of the transaction stands duly and satisfactorily established. The assessee onus was only with respect to establishing the aforestated ingredients of the transaction, i.e identity, creditworthiness and genuineness of the transaction. These facts having been admittedly duly established, why the advances of members were so paid to the assessee, is not relevant for the genuineness of the transaction. There may be any number of reason for doing so. The amount advanced by members/customers of Makhija Infrastructure is primarily credited in the Books of Makhija Infrastructure. Any question regarding the genuineness of the sources should impact the nature of the credit in the hands of Makhija Infrastructure. The assessee being forwarded these amounts by Makhija Infrastructure questioning the genuineness of the customers/members tantamounts to questioning the source of the source which cannot be the basis for making additions u/s 68. - Decided in favour of assessee. Unsecured loan received from Shri Ramesh Parmar as ingenuine - As noted from the explanation and documents filed by the assessee to the lower authorities that it had been established by Shri Ramesh Parmar that it had received certain amount from M/s. Makhija Infrastructure Pvt. Ltd. which was withdrawn in cash, that subsequently cash was deposited in another bank account of Shri Ramesh Parmar which was advanced as unsecured loan to the assessee. All these transactions happened within a span of few days. Revenue authorities have not disputed the fact of cheque received by Ramesh Parmar from Makhija Infrastructure and withdrawn subsequently by him in cash but has doubted the cash withdrawn as being redeposited and advanced as loan to the assessee in the absence of nexus being established between the amount withdrawn in cash and subsequently redeposited. As long as the transactions have happened within a very short span of time and the Revenue has been unable to establish the usage/application of the amounts withdrawn in cash for any other purposes, we see no reason to hold the explanation of the assessee as totally unbelievable. Further the fact that out of the total loan of Rs. 10,75,000/- received from Shri Ramesh Parmar, an amount of Rs. 6,25,000/- stands returned by the assessee as is clearly reflected in the bank account of Shri Ramesh Parmar filed before us, the explanation of the assessee is further strengthened from the same. Therefore we are not in agreement with the ld. CIT(A) that the genuineness of unsecured loan received from Shri Ramesh Parmar was not satisfactorily explained by the assessee. Addition to be deleted. Appeal decided in favour of assessee.

Summary

Issues Involved:
1. Addition of Rs. 21,00,000/- as unexplained cash credit from M/s. Makhija Infrastructure Pvt. Ltd.
2. Addition of Rs. 10,75,000/- as unexplained cash credit from Shri Ramesh K. Parmar.

Issue-Wise Detailed Analysis:

1. Addition of Rs. 21,00,000/- as unexplained cash credit from M/s. Makhija Infrastructure Pvt. Ltd.:

The Assessing Officer (A.O.) added Rs. 21,00,000/- to the income of the assessee under Section 68 of the Income Tax Act, 1961, due to the failure of the assessee to provide the bank statement of M/s. Makhija Infrastructure Pvt. Ltd. and prove the genuineness of the unsecured loan. The assessee had submitted confirmation of the party and other documentary evidence but failed to provide the bank statement, leading the A.O. to conclude that the loan was not satisfactorily proved to be genuine.

Before the Commissioner of Income Tax (Appeals) [CIT(A)], the assessee explained that the amount was received through cheques from the members of M/s. Makhija Infrastructure Pvt. Ltd. against bookings made, which were deposited directly into the assessee's bank account. The CIT(A) rejected this explanation, noting that the nature of the transactions, the membership of the depositors, and their creditworthiness were not explained. No confirmations from the depositors were provided, leading the CIT(A) to uphold the addition.

On appeal, the Income Tax Appellate Tribunal (ITAT) found that the assessee had sufficiently discharged its onus of proving the genuineness of the loan. The confirmation from M/s. Makhija Infrastructure Pvt. Ltd. and the financial statements of the company reflected the transactions and the names of the individuals from whom the cheques were received. The ITAT noted that the identity, creditworthiness, and genuineness of the transaction were satisfactorily established and that questioning the source of the source was not relevant for making additions under Section 68. Therefore, the ITAT directed the deletion of the addition of Rs. 21,00,000/-.

2. Addition of Rs. 10,75,000/- as unexplained cash credit from Shri Ramesh K. Parmar:

The A.O. added Rs. 10,75,000/- to the income of the assessee, citing the lack of creditworthiness of Shri Ramesh K. Parmar, an agriculturist who did not file income tax returns. The A.O. noted that the bank account of Shri Ramesh K. Parmar showed cash deposits immediately before issuing cheques to the assessee, raising doubts about the genuineness of the loan.

Before the CIT(A), the assessee explained that the source of the loan was amounts received by Shri Ramesh K. Parmar from M/s. Makhija Infrastructure Pvt. Ltd. on account of a development agreement, which were withdrawn in cash and subsequently redeposited in another bank account before being given to the assessee. The CIT(A) found no merit in this explanation, noting the lack of a clear nexus between the amounts received and the amounts advanced as loans. The CIT(A) also doubted the explanation regarding the development agreement, as no capital gains were reported by Shri Ramesh K. Parmar.

On appeal, the ITAT considered the explanation and documents provided by the assessee, noting that the transactions happened within a short span of time and that the Revenue had not established any other usage of the withdrawn amounts. The ITAT also noted that Rs. 6,25,000/- out of the total loan had been returned by the assessee, which further strengthened the explanation. The ITAT concluded that the assessee had satisfactorily explained the genuineness of the loan and directed the deletion of the addition of Rs. 10,75,000/-.

Conclusion:

The ITAT allowed the appeal of the assessee, directing the deletion of the additions of Rs. 21,00,000/- and Rs. 10,75,000/- made by the A.O. under Section 68 of the Income Tax Act, 1961. The ITAT held that the assessee had sufficiently discharged its onus of proving the genuineness of the unsecured loans received from M/s. Makhija Infrastructure Pvt. Ltd. and Shri Ramesh K. Parmar.