2012 (10) TMI 1119 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 24,90,000/- as unexplained unsecured loan u/s 68.
2. Whether the CIT (A) erred in deleting the addition made by the AO.

Summary:

Issue 1: Addition of Rs. 24,90,000/- as unexplained unsecured loan u/s 68

The assessee, engaged in civil construction, filed a return of income declaring Rs. 6,18,060/-. During scrutiny, the AO found Rs. 24,90,000/- credited in the assessee's books as cash credit from 8 creditors. The AO treated these cash credits as unexplained u/s 68, citing lack of credible evidence regarding the creditors' capacity and genuineness of transactions. For instance, Sonalben Vajubhai Kanani deposited Rs. 3,50,000/- in her bank account but failed to provide proof of such accumulation of cash or credible evidence of her business activities. Similar observations were made for other creditors, leading the AO to add the total amount to the assessee's income.

Issue 2: Whether the CIT (A) erred in deleting the addition made by the AO

The CIT (A) deleted the addition, reasoning that the creditors had sufficient land holdings and were income tax assessees, thus presumed to have the capacity to advance loans. The CIT (A) argued that the source of source need not be explained unless there is close association between the assessee and creditors. The CIT (A) found the identity, capacity, and genuineness of transactions to be proved by the assessee.

Tribunal's Findings:

The Tribunal disagreed with the CIT (A), emphasizing that the creditworthiness of creditors is not a matter of presumption but must be established with evidence. The Tribunal noted that significant cash deposits were made in the creditors' bank accounts just before issuing cheques to the assessee, indicating a well-calculated design to create a facade of genuine transactions. The Tribunal found the AO's findings, which showed the impugned cash credits were not genuine, to be sufficient and confirmed the AO's order.

Conclusion:

The Tribunal reversed the CIT (A)'s order and restored the AO's addition of Rs. 24,90,000/- u/s 68, allowing the Department's appeal.