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2019 (12) TMI 988 - HC - Income TaxAddition u/s 68 - Reason for taking cash loan - HELD THAT:- From the record of the Assessing authority, we do not find any kind of examination of Affidavits or cross examination by the Assessing authority of these persons. The Affidavit of Mr.N.Rajagopalan, inter alia states that he is a retired employee of the Southern Railways and out of his retirement benefits received, he advanced a sum of ₹ 3,00,000/- (Rupees three lakhs only) to his brother's son who is the Managing Director of the Assessee Company. The other Affidavit of Ms.Dhanam shows that she has advanced a sum of ₹ 1,00,000/- (Rupees one lakh only) as loan to the Managing Director of the Assessee Company, from the amount received out of the business carried out by her husband and agreed to take interest at the time of final settlement. In the absence of any cross examination or rebuttal or controverting of these Affidavits, the learned Assessing Authority could not have concluded that the Assessee has failed to adduce the evidence to prove the identity of the creditor, genuineness of the transaction and creditworthiness of the creditor. The Managing Director who was drawing a sum of ₹ 60,000/- p.a. as salary had advanced only a sum of ₹ 10,000/- out of the sum of ₹ 4,10,000/-. He has also stated in his Affidavit dated 05.09.2007 about the adverse legal consequences under Section 58A of the Companies Act, 1956, as the direct cash deposits will tantamount to the acceptance of Deposits, in violation of Section 58A of the Companies Act. Therefore, the Managing Director, for obtaining the required unsecured loan, had chosen the route of taking cash loans from his own relative and friend and had given the same to the Assessee Company without attracting Section 58A of the Companies Act. About the non- mentioning of the said fact in his own return of income, the said Managing Director has explained that since he was not maintaining the Books of Accounts and nor he furnished any Balance Sheet, he was not bound to give any note for the same in his Return of Income, as there was no statutory requirement for disclosing the personal cash loan taken by Managing Director in the Return of Income, where only income earned during the year is required to be disclosed and not the loan taken during the year. In the absence of maintaining of the Books of accounts, there was no question of producing the Balance sheet with the Return of Income, which was a reasonable explanation and these explanations of the Managing Director at least required the consideration on the part of the Assessing Authority as the said Assessing Authority enjoyed the powers of a Civil Court but he has not undertaken the exercise of cross examination in respect of the Affidavits filed by the Managing Director and two other persons as aforesaid. Without undertaking this exercise, the conclusions drawn by him in the Appeal proves that he has failed to discharge his duty and therefore such foundation less findings cannot be sustained, as they are perverse. The power to make additions under Section 68 of the Act of the un-explained cash credit, requires such an exercise to be undertaken by the authorities in a diligent, just and fair manner. But we do not find any such solemn exercise undertaken by the Authorities in the present case. The affirmation of findings without undertaking similar exercise also cannot be sustained. They just glossed over and mechanically affirmed the findings of Assessing Authority. Therefore, we are inclined to remit the case back to the Assessing Authority for the limited purpose of holding enquiry on the issue of additions made under Section 68 of the Act in the present case. We allow this Appeal filed by Assessee only for this limited purpose and remand the case back to the Assessing Authority without answering the Substantial Questions of Law at this stage and grant six months time to the Assessing authority to complete the said exercise.
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