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2023 (11) TMI 494 - AT - Income TaxAddition u/s 68 - unexplained credit - absence of supporting evidences i.e. source of income of the person who provided the loan to the assessee, creditworthiness of the person cannot be verified - CIT(A) deleted addition - HELD THAT - CIT(A) has deleted the addition by adopting a very casual approach and without dislodging and controverting the allegations of the AO based on logical analysis of the facts and circumstances of the case. CIT(A) has only considered the passport and bank statement of assessee which establish the identity of creditor. We are unable to see any evidence substantiating the financial capacity and position of lender who, as per assessee has undertaken transactions of more than Rs. 334 crore during relevant financial period we are unable to see any balance sheet or any audited or unaudited accounts of the creditor establishing his financial capacity and creditworthiness to extend interest free loan which has not been repaid till date. It is worth to mention that on being asked by the bench the ld. AR could not show us any documentary evidence or prove regarding payment of interest to the creditor and repayment of loan by the assessee to the creditor till date and he fairly accepted that the assessee has neither paid any interest on the unsecured loans nor has repaid the loan till date. Therefore, we hold that the ld. CIT(A) has granted relief to the assessee without controverting and dislodging the basis and allegation of the AO thus, we are not in agreement with the basis and conclusion drawn by the ld. CIT(A) and hence, we reverse the same by restoring the assessment order and addition made therein. Accordingly, grounds of revenue are allowed.
Issues Involved:
1. Deletion of addition made under Section 68 of the Income Tax Act, 1961. 2. Verification of the creditworthiness of the person providing the loan. 3. Genuineness of the transaction and unexplained credits in the books of the assessee. Issue 1: Deletion of Addition Made Under Section 68 of the Income Tax Act, 1961 The Assessing Officer (AO) made an addition of Rs. 4,50,68,325/- under Section 68 of the Income Tax Act, 1961, on the grounds that the assessee failed to provide supporting documents such as a loan agreement, financials of the lender entity (Modern Lotus General Trading LLC, Dubai), and details of interest paid or repayment of the loan. The AO observed that there were various cash deposits in the lender's bank account immediately prior to the transfer of the amount to the assessee, raising suspicion about the genuineness of the transaction. Issue 2: Verification of the Creditworthiness of the Person Providing the LoanThe assessee submitted a certificate of confirmation of the loan, bank account statements, a commercial license issued by the Dubai Government, and the passport of the lender's proprietor. However, the AO noted that the assessee did not provide any financials of the lender entity to establish its creditworthiness. The AO concluded that the assessee failed to discharge the onus of proving the creditworthiness of the lender and the genuineness of the transaction as required under Section 68 of the Act. Issue 3: Genuineness of the Transaction and Unexplained Credits in the Books of the AssesseeThe CIT(A) deleted the addition made by the AO, holding that the assessee had discharged the onus of proving the identity, creditworthiness, and genuineness of the transaction. The CIT(A) noted that the cash deposits in the lender's bank account were made from cash withdrawals from the same bank account or business receipts, and there was no restriction under Dubai law on dealing in cash. The CIT(A) relied on various judicial pronouncements to support the conclusion that the assessee had discharged the initial onus laid on it under Section 68 of the Act. Conclusion:The Appellate Tribunal found that the CIT(A) had adopted a casual approach and failed to dislodge the AO's allegations. The Tribunal noted the absence of documentary evidence substantiating the financial capacity and position of the lender and the lack of repayment of the loan or payment of interest by the assessee. Consequently, the Tribunal reversed the CIT(A)'s order and restored the AO's addition, allowing the revenue's appeal. Order:The appeal of the revenue is allowed. Order pronounced in the open court on 31.07.2023.
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