2022 (8) TMI 1074 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - liability on the assessee to provide the identity of the lenders, establish the genuineness of the transactions and creditworthiness of the parties - HELD THAT - Undisputed fact that the majority 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. The majority amount of loan has been repaid by the assessee in the year under consideration itself except a sum of Rs. 1,05,05,000.00. Therefore, 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. We hold that the amount of loan received by the assessee represents the unexplained cash credit in its books of accounts. Accordingly, we set aside the finding of the CIT-A and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is allowed. Addition income from accommodation entries - HELD THAT - There is no dispute to the fact that the assessee was engaged in providing the accommodation entries and this fact was admitted by the authorities below. Accordingly, the assessee has offered an income on estimated basis for Rs.53,22,075.00 being 0.5% of the total bank deposits in the bank which was also accepted by the revenue - addition was made by the AO on the basis of the admission made by the assessee during the assessment proceedings - assessee in the ground of appeal before us has challenged the impugned addition. To our understanding, the ground raised by the assessee is not sustainable for the reason that the addition was made on the concession of the assessee which is evident from the assessment order - AR has not brought out anything based on the documentary evidence that the income offered during the assessment proceedings was wrong. Accordingly, we do not find any merit in the ground raised by the assessee. Disallowance of bogus loss - As alleged by the authorities below that such loss was set off of against the income derived by the assessee from the sale purchase of property whereas there was no income added by the authorities below on account of sale purchase of the property. In fact the discussion was made about the profit which the assessee has earned on the transaction of sale purchase of the property but no addition was made. Thus it is clear that such loss was not set off against the profit from the sale purchase of the property - no addition can be made holding that the impugned loss is a bogus loss. Besides the above, once it has been admitted by the authorities below that the assessee has been engaged in providing the accommodation entries and accordingly the profit has been estimated based on the bank deposits of the assessee, thus, the impugned transaction of purchase and sale of the property on the same day is nothing but a part of accommodation entry at this was also accepted by the revenue. Accordingly, the question of making the addition on account of impugned loss does not arise. Thus the ground of appeal of the assessee is allowed.

Summary

Issues Involved:
1. Addition under Section 68 of the Income Tax Act for the assessment year 2013-14.
2. Addition of income from accommodation entries and disallowance of bogus loss for the assessment year 2014-15.

Issue-wise Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act for the assessment year 2013-14:

The primary issue raised by the assessee was the addition of Rs. 1,05,05,000/- as unexplained cash credit under Section 68 of the Income Tax Act. The assessee, a private limited company engaged in trading shares and securities, received a loan of Rs. 4,08,01,000/- from M/s Ken Securities Limited, repaying Rs. 3,02,96,000/-. The outstanding loan of Rs. 1,05,05,000/- was shown under unsecured loans. The Assessing Officer (AO) made the addition due to the lack of requisite details substantiating the loan, such as identity, creditworthiness, and confirmation from the lender. A notice issued under Section 133(6) to M/s Ken Securities Limited was returned unserved, leading to the addition.

Upon appeal, the Commissioner of Income Tax (Appeals) [CIT-A] upheld the AO's addition, citing the lender's loss in its income tax return as evidence of insufficient creditworthiness. The assessee argued that it had provided all necessary documents, including confirmation from the lender and bank statements, and that part of the transactions had been accepted as genuine by the revenue.

The Tribunal noted that the assessee had filed confirmations, income tax returns, and ledger copies supporting the transactions. It found no infirmity in the documents provided and emphasized that the revenue cannot selectively treat some transactions as genuine and others as bogus. The Tribunal concluded that the non-response to the notice under Section 133(6) could not be a basis for adverse inference against the assessee, especially when the documents provided were not disputed. The Tribunal held that the loss reported by the lender did not necessarily imply a lack of creditworthiness and that the majority of the loan had been repaid, indicating genuine business transactions. Consequently, the Tribunal directed the AO to delete the addition, allowing the assessee's appeal for the assessment year 2013-14.

2. Addition of income from accommodation entries and disallowance of bogus loss for the assessment year 2014-15:

For the assessment year 2014-15, the interconnected issue involved the addition of Rs. 53,22,075/- as income from accommodation entries and the disallowance of Rs. 12,66,98,547/- as bogus loss. The assessee admitted to providing accommodation entries through bogus purchase and sales bills, calculating an income of Rs. 53,22,075/- as 0.5% of total bank deposits of Rs. 106,44,14,927/-. The AO accepted this calculation and made the addition.

Additionally, the AO found that the assessee had shown transactions involving the purchase and sale of properties, with a purchase price of Rs. 2 crores and a sale price of Rs. 18 crores. The profit from these transactions was set off against losses from securities trading amounting to Rs. 12,66,98,547/-, which the AO disallowed as bogus.

The CIT-A confirmed the AO's addition, noting that the assessee's entries were accommodation entries and disallowing the claimed loss while accepting the paper gain.

On appeal, the Tribunal noted that the assessee had admitted to providing accommodation entries and accepted the addition of Rs. 53,22,075/-. However, it found that no income was determined from the property transactions, and thus, the question of setting off losses did not arise. The Tribunal concluded that the loss could not be disallowed as bogus since the transactions were part of the accommodation entries already accepted by the revenue. Therefore, the Tribunal allowed the appeal regarding the disallowance of the loss, resulting in a partial allowance of the assessee's appeal for the assessment year 2014-15.

Combined Result:
The appeal for the assessment year 2013-14 was allowed, and the appeal for the assessment year 2014-15 was partly allowed.