2024 (7) TMI 888 - AT - Income Tax

Addition u/s 68 - assessee is found to have obtained loan from the bogus accommodation entry provider - HELD THAT - In this case, the assessee was directed to produce the lender but no efforts were made by the assessee to produce the lender. Thus, the enquiry by AO was prevented by the assessee. It is rather unusual that a company which gives loan to the assessee from year to year of huge sum and assessee fails to produce that party in each of the year and still gets away from the rigors of section 68 of the Act. The decision of the Hon'ble Bombay High Court reported in Mr. Gaurav Triyugi Singh Versus The Income Tax Officer-24 (3) (1) , Mumbai 2020 (1) TMI 1153 - BOMBAY HIGH COURT is in favor of the Revenue which categorically says that assessee is duty bound to explain the identity of the creditor, genuineness of the transaction and creditworthiness of the creditor. AO did not ask the assessee to prove the source of source but asked the assessee to prove the source of credit in the books of the assessee. In view of this the facts in this case of the assessee for A.Y. 2013-14 are distinguishable and does not apply for this year. In view of this, we restore this appeal back to the file of the AO with a direction to the assessee to produce the directors of Nazar Impex Pvt. Ltd. before the AO. AO may examine the same and after detail enquiry decide the issue about the loan from Nazar Impex Pvt. Ltd. We also clarify that there is no requirement for cross examination of the assessee because the assessee is required to prove the three ingredients of cash credit independently. AO is also directed to not to get swayed by the statement of confession and subsequent retraction of several accommodation entry providers but as to independently examine these transactions according to the parameters of Section 68 of the Act. In view of this, the appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues:
- Appeal against assessment order under Section 143(3) read with section 147 of the Income Tax Act, 1961.
- Treatment of unsecured loan as unexplained cash credit under section 68 of the Act.
- Denial of liability to pay interest under sections 234A, 234B, and 234C of the Act.

Analysis:
1. The case involves an appeal by the assessee against the assessment order passed by the National Faceless Appeal Centre, Delhi, upholding the action of the Income Tax Officer in treating an unsecured loan as unexplained cash credit under section 68 of the Income Tax Act, 1961. The appellant contested the addition of Rs. 40,75,000, arguing that the provisions of section 68 were not applicable, and provided documentary evidence to prove the identity, capacity, and genuineness of the loan transactions. The appellant also highlighted that the loan was obtained and repaid through banking channels, challenging the justification for treating it as unexplained cash credit.

2. The Appellate Tribunal considered the previous year's case where a similar addition was made but later deleted by a Single Member Bench, emphasizing that the issue was favorably decided for the assessee. However, the Departmental Representative argued that the repayment of the loan by cheque does not absolve the assessee from proving the creditworthiness and genuineness of the transaction as required under Section 68 of the Act. The Tribunal examined the facts and arguments presented by both parties.

3. The Tribunal noted that while the assessee provided certain documents like PAN card, IT return, and bank statements, the crucial aspect of producing the lender for examination to establish creditworthiness and genuineness was not fulfilled. The Tribunal emphasized that the nature and source of the credit must be explained by the assessee at the time of credit, and subsequent events like repayment do not automatically validate the original transaction. It was highlighted that failure to produce the lender hindered the assessment process, and the Tribunal directed the assessee to produce the directors of the lending company for detailed examination by the Assessing Officer.

4. The Tribunal differentiated the current case from the previous year's decision, emphasizing the importance of independently proving the three elements of cash credit under Section 68. It clarified that the assessee's duty to explain the identity of the creditor, genuineness of the transaction, and creditworthiness remains paramount. The Tribunal allowed the appeal for statistical purposes, instructing the Assessing Officer to conduct a thorough inquiry into the loan transaction and not be influenced by retracted statements of accommodation entry providers.

5. In conclusion, the Tribunal allowed the appeal, sending the case back to the Assessing Officer for further examination and emphasizing the necessity for the assessee to fulfill the requirements of Section 68 regarding cash credits.

Judgment Summary:
The Appellate Tribunal allowed the assessee's appeal against the assessment order, directing a detailed examination of the loan transaction under Section 68 of the Income Tax Act, emphasizing the importance of independently proving the creditworthiness and genuineness of the transaction. The Tribunal highlighted the necessity of producing the lender for examination and clarified that subsequent events like repayment do not absolve the assessee from fulfilling the requirements of Section 68. The case was differentiated from a previous year's decision, and the appeal was allowed for statistical purposes, with instructions for a thorough inquiry into the loan transaction.