2023 (8) TMI 77 - AT - Income Tax

Unexplained cash credits u/s 68 - assessee is not maintaining the books of accounts - HELD THAT - As noted in case of Smt. Shanta Devi 1987 (10) TMI 26 - PUNJAB AND HARYANA HIGH COURT has categorically mentioned that the assessee when does not maintain any books of accounts the same cannot be considered and cannot be taken into account as unexplained cash credits u/s 68. In the present assessee s case the assessee is not maintaining the books of accounts as this is an admitted position. Thus, merely on the bank statement cannot attract provision of Section 68 - Thus, additional ground taken by the assessee is justifiable and is allowed. Besides this on merit as well the treatment given by the assessee has been clearly set out in respect of loans and the payments of the interest to the depositors. Assessee has given confirmations as well as the genuineness of the transaction. Merely not filing the income tax return cannot debar the genuine transactions of the assessee in respect of this loans which have been repeated and in subsequent year the Revenue has accepted the same. The creditworthiness depends upon the act of both the parties and therefore, on merit as well the addition does not sustain - Appeal of the assessee is allowed.

Summary

Issues:
The judgment involves issues related to unexplained cash credits, disallowance of interest, and excess interest paid.

Unexplained Cash Credits:
The appeal was filed against the order passed by the Ld. Commissioner of Income Tax (Appeals) for A.Y. 2014-15. The grounds of appeal raised by the assessee included challenges to the addition on account of unexplained cash credits under section 68, disallowance of interest for non-providing confirmations, and disallowance of interest as excess interest paid over 12%. The appellant argued that the authorities erred in not considering various replies and contentions regarding the repayment and reacceptance of amounts from creditors, as well as the failure of parties to submit certain details despite correspondence. The appellant contended that the requirements of section 68 were fulfilled by providing details of the creditors and transactions. Additionally, the appellant argued that the difference in interest rates paid was in accordance with past practices and should not result in disallowances. The Tribunal found merit in the appellant's arguments and allowed the appeal, noting that the appellant's genuine transactions were supported by confirmations and documents.

Maintaining Books of Accounts:
The appellant contended that since they had not maintained books of accounts, the invocation of Section 68 of the Income Tax Act was not justifiable. The appellant argued that a credit in the bank account cannot be equated to a credit in the books of accounts. Citing relevant case law, the appellant highlighted that Section 68 presupposes a credit in the books of the assessee. The Tribunal agreed with the appellant's interpretation and allowed the additional ground raised regarding the non-maintenance of books of accounts. The Tribunal emphasized that without proper books of accounts, mere bank statements cannot trigger the provisions of Section 68.

Interest Disallowance:
Regarding the disallowance of interest expenses, the Assessing Officer had not considered the genuineness of the interest expenses linked with the character of the deposits. The appellant argued that the Assessing Officer's treatment of interest expenses was flawed, as the interest paid to depositors was allowed for deposits received from the same depositor after repayment. The appellant contended that the entire interest of unexplained depositors should not have been disallowed without considering the specific interest portion related to unexplained deposits. The Tribunal, considering the appellant's submissions and supporting documents, found that the treatment of interest expenses was incorrect and allowed the appeal.

Decision:
After hearing both parties and examining the material on record, the Tribunal allowed the appeal of the assessee. The Tribunal noted that the appellant's genuine transactions were supported by confirmations and documents, and the absence of maintained books of accounts precluded the application of Section 68. The Tribunal also found the treatment of interest expenses by the Assessing Officer to be flawed and directed the allowance of interest expenses related to explained deposits while disallowing those linked to unexplained deposits. The appeal was allowed in favor of the assessee.