2019 (3) TMI 1258 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - AO disbelieving the genuineness of the loan transactions treated them as unexplained cash credit - in the bank account of the lenders there are cash deposits prior to issuance of cheque to the assessee - Addition based on doubt of creditworthiness of the lenders - statements given under oath by the lenders - assessee has not paid interest on the loan to the lenders - HELD THAT - Both the lenders have appeared before the Assessing Officer in the course of assessment proceedings and have categorically stated on oath that they have advanced the loans to the assessee. The aforesaid statements given under oath by the lenders have not been proved to be false by the Assessing Officer. Merely because in the bank account of the lenders there are cash deposits prior to issuance of cheque to the assessee and further the income returned by the lenders are not substantial it cannot be presumed that the lenders did not have the creditworthiness to advance the loans to the assessee. The assessee has filed the balance sheet of the creditors to demonstrate availability of fund. Further the lenders are income tax assessees and filing their return of income regularly. The loan transactions have also been reflected in their return of income for the concerned assessment year. Nothing has been brought to our notice by the Department to indicate that the loan transactions have been disallowed or doubted in case of the lenders. Therefore merely on presumption and surmises it cannot be held that the lenders did not have the creditworthiness. The assessee has not paid interest on the loan to the lenders is factually incorrect. On a perusal of the bank account copy furnished in the paper book we have noticed that the assessee has regularly paid interest on the loan advanced. Merely because the lenders have not shown the interest income in their return of income does not mean the assessee has not paid interest. It is also seen that the assessee has repaid the loan amount to the lender though subsequent to the date o the assessment order - assessee has discharged the primary onus cast upon him to prove the genuineness of loan transaction as contemplated under section 68 - Decided in favour of assessee.

Summary

Issues:
- Addition of Rs. 10 lakh under section 68 of the Income Tax Act, 1961.

Analysis:
The judgment pertains to an appeal challenging the addition of Rs. 10 lakh under section 68 of the Income Tax Act, 1961. The appellant, a reseller of fabrics, had received unsecured loans of Rs. 5 lakh each from two individuals. The Assessing Officer raised concerns about the creditworthiness of the lenders due to cash deposits before issuing the cheques and insufficient income shown in their tax returns. The lenders were produced before the Assessing Officer, confirming the loans, but failed to provide bank statements. The Assessing Officer treated the loans as unexplained cash credit, which was upheld by the Commissioner (Appeals).

The appellant contended that all necessary documents were provided, including loan confirmations, and the lenders confirmed the transactions. The appellant regularly paid interest on the loans, which was reflected in bank statements. The loans were also repaid. The Departmental Representative argued that the addition was justified due to the failure to prove the creditworthiness of the lenders.

Upon review, it was noted that the lenders had confirmed the loans under oath, and the necessary documents were submitted, including PAN cards, income tax returns, and balance sheets. The lenders were regular taxpayers, and the loan transactions were reflected in their returns. The appellant had paid interest on the loans and repaid them post the assessment order. The Tribunal found that the appellant had fulfilled the onus to prove the genuineness of the transactions under section 68, leading to the deletion of the Rs. 10 lakh addition. The Tribunal emphasized that the lenders' creditworthiness could not be doubted based on presumptions and surmises, especially when the necessary documentation and lender statements were provided.

In conclusion, the Tribunal allowed the appeal, ruling in favor of the appellant and deleting the addition of Rs. 10 lakh under section 68 of the Income Tax Act, 1961.