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2014 (10) TMI 352 - AT - Income TaxAddition u/s 68 and interest disallowed u/s 14A - Held that:- The AO is bound to issue notice to the assessee to furnish returns for each assessment year falling within the svc assessment years immediately preceding the assessment year relevant to the previous year In which the search or requisition was made - the AO asked the assessee to establish identity, genuineness and creditworthiness of these creditors. It was submitted that M/s. K.K.Patel Finance Limited, Indore, is being regularly assessed to tax and engaged in the finance activities and they have given the deposits on interest basis to other also – the AO asked to explain the genuineness of the credits as well as identity and creditworthiness of the creditors - the AO did not agree with the assessee's contention and added the amount u/s 68 of the Income-tax Act, 1961 - CIT(A) deleted the addition by following his order in another assessee, wherein similar additions were deleted by observing that these additions were not warranted in the hands of the assessee but in the hands of the lenders - no cash was deposited in the Bank prior to issuance of cheque moreover there is no cash transaction in the bank statement and we found that all the amounts are received and paid through account payee cheques. AO has not made any efforts by calling information u/s 133(6) or by issuing summon u/s 131 to any of the creditors which is evident from the assessment order itself. Moreover, it is also clear from the assessment order that the Assessing Officer had never asked the assessee to produce the creditors - as per requirement of Section 68 the sum credited in the books of accounts can be considered to be the income of the assessee in a case where the assessee does not offer any explanation or the explanation offered by him, in the opinion of AO is not satisfactory - The explanation of the assessee in the present case is that all these creditors are income tax assessees and their PANs have given alongwith their copy of bank account as well as preceding years. By filing these evidences, it can be said that the assessee had discharged the initial burden laid upon him under Section 68. All the parties from whom loan was taken were having substantial funds available with them to advance the money – merely on the basis of returned income, the AO jumped to the conclusion that these lenders were not having sufficient funds to advance the money to the assessee. The ld. AP without going through the audited accounts unnecessarily gone on the fact that these creditors are not having sufficient income to advance the money - It is settled law that the financial worth of a company could not be judged with its income but one has to see that how many funds is available with it in the bank account at the time of advancing loan. All the loan transactions were through account payee cheques, confirmations were given, creditworthiness were also proved from the balance sheet. Furthermore, all the loans were also repaid by cheques, there was no merit in the action of AO for making any addition in respect of these loan transactions - as the addition made u/s 68 is held to be not justified, the order of CIT(A) is upheld for deleting the disallowance of interest, which was based on the addition of cash credit u/s 68 – Decided against revenue.
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