2024 (3) TMI 524 - AT - Income Tax

Addition u/s 68 - Loan obtained during earlier years - assessee has not furnished any explanation to prove the identity, creditworthiness and the genuineness of the transactions - first contention of the ld AR is that the opening balance of loan creditors cannot be added under section 68 holding it as non genuine, since the loan is not obtained during the year under consideration - HELD THAT - From the plain reading of the provisions of Section 68 it is clear that the AO is required to make addition of unexplained cash credit only in the previous year in which such cash credit has been made and the assessee is not in a position to offer satisfactory explanation relating thereto. The law is well settled in this regard that the addition under section 68 could be made only during the year in which such credit has been received and that if the credit balance appearing in the account of the assessee is not pertaining to the year under consideration, the AO cannot make addition under section 68 in the subsequent previous year i.e. the year under consideration. Accordingly we hold that the AO is not correct in making addition which pertains to the loan obtained during earlier years. Loans taken during the year under consideration - We notice that the assessee has submitted before the CIT(A), the PAN, the statement of accounts of proprietary concern, capital account, personal balance sheet etc in the case of Smt Nikita V Daveand PAN, confirmations, Income Tax returns, statement of income, bank statements etc. for the others. The assessee has also furnished ledger accounts and bank statements to substantiate that all the loans have been repaid subsequently through banking channel. AO it is noticed that, in the remand report has not given any adverse finding with regard to the various documents submitted by the assessee as additional evidence, but has stated that the credit worthiness and genuineness are not substantiated for want of some more documents. It is also relevant to mention that the assessee has repaid the part of the loan during the year under consideration and the balance in subsequent financial years. Considering all AO is not correct in adding the outstanding loan balance as unexplained, without recording any adverse finding with regard to the various documentary evidences submitted by the assessee and without bringing any other material against the claim of the assessee. Accordingly we direct the AO to delete the addition made towards outstanding balance of loans and the interest. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Addition of Rs. 79,44,162/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961.
2. Disallowance of interest paid amounting to Rs. 13,633/-.
3. Decision on the initiation of penalty proceedings under Section 271(1)(c).

Summary of Judgment:

Issue 1: Addition of Rs. 79,44,162/- as Unexplained Cash Credit
The assessee, a manufacturer of aluminium ingots and related products, filed a return of income for AY 2012-13 declaring a total income of Rs. 15,27,319. The case was selected for scrutiny, and the Assessing Officer (AO) noticed an outstanding unsecured loan of Rs. 79,44,162/-. The AO added the entire amount as income under Section 68 of the Income Tax Act, 1961, citing a lack of details regarding the identity, creditworthiness, and genuineness of the loan creditors. The assessee provided additional evidence, including confirmation letters, bank statements, and other financial documents, but the AO and the Commissioner of Income-tax (Appeals) [CIT(A)] upheld the addition.

The Tribunal noted that the AO's findings were contradictory and that the assessee had furnished substantial evidence to prove the genuineness of the loan transactions. The Tribunal held that the AO is not correct in making the addition, especially since the loans were not obtained during the year under consideration. It was emphasized that under Section 68, unexplained cash credits should be added only in the year they are received. The Tribunal directed the AO to delete the addition of Rs. 79,44,162/-.

Issue 2: Disallowance of Interest Paid
The AO disallowed the interest paid amounting to Rs. 13,633/- on the grounds that the loan was not genuine. The Tribunal, considering the evidence provided by the assessee and the lack of adverse findings from the AO regarding the documentary evidence, directed the deletion of the disallowance of interest.

Issue 3: Initiation of Penalty Proceedings under Section 271(1)(c)
The AO had initiated penalty proceedings based on observations made during the assessment. The Tribunal noted that penalty proceedings are separate and since the penalty was not decided by the AO, there could be no grievance against its initiation.

Conclusion
The appeal of the assessee was allowed, and the AO was directed to delete the addition of Rs. 79,44,162/- and the disallowance of interest amounting to Rs. 13,633/-. The penalty proceedings under Section 271(1)(c) were noted but not adjudicated upon in this judgment.