2025 (5) TMI 2146 - AT - Income Tax

Unexplained cash credit u/s 68 - unsecured loans from two parties HELD THAT - As the bank statement of Supreme Gold was never submitted at all. Even the additional evidence submitted before us does not include the bank statement of the said lender. DR also could not satisfactorily explain how the CIT(A) based on the remand report arrived at the conclusion that the bank statement of Supreme Gold was on record and that there were cash deposits of identical amounts just before the remittances. As evident from the records that the bank statement of Supreme Gold was never submitted at any stage of the proceedings. Despite this the CIT(A) proceeded to make adverse inferences regarding the genuineness of the transaction based on purported cash deposits without verifying whether such details were actually available before the AO. Given this inconsistency and the fact that crucial evidence remains unverified we find it appropriate to remand the matter back to the AO for a fresh examination of the lender s identity creditworthiness and genuineness after considering all relevant documents including the bank statement of Supreme Gold. Appeal of the assessee is partly allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Appellate Tribunal (AT) in this appeal are:

• Whether the addition of Rs. 17,00,000/- under Section 68 of the Income Tax Act, 1961 ("the Act") on account of unexplained cash credits relating to unsecured loans from two parties is justified, considering the identity, creditworthiness of the lenders, and genuineness of the transactions.
• Whether the disallowance of Rs. 1,06,269/- under Section 40(a)(ia) for non-deduction of TDS on financial charges paid to a Non-Banking Financial Company (NBFC) is justified.
• Whether additional evidence submitted by the assessee regarding the loan from Supreme Gold should be admitted and considered.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Addition under Section 68 of the Act relating to Rs. 17,00,000/- unsecured loans

Relevant legal framework and precedents:

Section 68 of the Act empowers the Assessing Officer (AO) to treat any sum credited in the books of an assessee as unexplained cash credit if the assessee fails to satisfactorily explain the nature and source of the credit. The burden lies on the assessee to establish the identity and creditworthiness of the lender and the genuineness of the transaction. Judicial precedents, including those from the jurisdictional Gujarat High Court, have held that once the identity and creditworthiness of the lender are established and the loan is repaid through proper banking channels, the addition under Section 68 cannot be sustained.

Court's interpretation and reasoning:

The AT examined the two loans separately:

• Loan of Rs. 7,00,000/- from Shri Narayan P. Ahuja: The AO and CIT(A) had doubted the genuineness due to initial inconsistency in the lender's name (initially recorded as Neelam Ahuja, later corrected to Narayan P. Ahuja) and a cash deposit of Rs. 10,00,000/- in the lender's bank account prior to issuance of the cheque. The assessee clarified that the loan was received in two parts via cheque payments and that the initial misreporting was rectified through accounting entries. The bank account analysis showed the loan was disbursed through an overdraft facility ("OD IVP/KVP (STAFF)") rather than cash deposits, supporting the genuineness of the transaction. The assessee also submitted ledger accounts showing subsequent repayment of the loan.
• Loan of Rs. 10,00,000/- from Supreme Gold: The AO and CIT(A) found the assessee failed to furnish complete documentation, including an unsigned confirmation letter and no bank statement or ITR of Supreme Gold. The CIT(A) noted cash deposits in the lender's account immediately before remittances, suggesting accommodation entries. The assessee sought to admit additional evidence before the AT, including documents previously not uploaded.

Key evidence and findings:

• For the Rs. 7,00,000/- loan, the AT found the assessee satisfactorily established the identity and creditworthiness of Shri Narayan P. Ahuja, a retired senior bank officer, and the genuineness of the loan transaction supported by bank statements and ledger accounts.
• For the Rs. 10,00,000/- loan, the AT noted the absence of crucial documents such as the lender's bank statement and ITR at all stages of the proceedings. The CIT(A)'s adverse findings on cash deposits were based on a presumed bank statement that was never submitted or verified.

Application of law to facts:

Applying the principles under Section 68, the AT held that the addition relating to Rs. 7,00,000/- loan was unjustified as the identity, creditworthiness, and genuineness were established, and the loan was repaid, thus negating the presumption of unexplained cash credit. This aligns with judicial precedents that repayment and proper banking transactions negate additions under Section 68.

Regarding the Rs. 10,00,000/- loan, the AT found that the CIT(A) erred in drawing adverse inferences without verifying the existence of the bank statement or other crucial evidence. Given the incomplete record and the submission of additional evidence before the AT, the matter was remanded to the AO for a fresh examination after affording the assessee adequate opportunity to present its case.

Treatment of competing arguments:

The Departmental Representative (DR) argued against admitting additional evidence and maintained that inconsistencies regarding the lender's identity and financial difficulties of Supreme Gold raised doubts on creditworthiness. The AT, however, found that the CIT(A) and AO had sufficient opportunity to consider evidence and that adverse inferences were drawn without verifying whether such evidence was on record. The AT thus allowed additional evidence and remanded the matter for fresh adjudication.

Conclusions:

• The addition of Rs. 7,00,000/- under Section 68 was deleted as the assessee proved the genuineness of the loan transaction.
• The addition of Rs. 10,00,000/- was remanded to the AO for fresh consideration after admitting additional evidence and affording the assessee a fair opportunity.

Issue 2: Disallowance under Section 40(a)(ia) of Rs. 1,06,269/- on account of non-deduction of TDS on financial charges

Relevant legal framework:

Section 40(a)(ia) of the Act mandates disallowance of expenses where tax deduction at source (TDS) is not made or deposited as required under the Act.

Court's interpretation and reasoning:

The assessee challenged the disallowance, contending that submissions and facts were not properly considered. However, the AT's order does not elaborate on detailed reasoning on this issue, and the appeal on this ground was raised but no specific relief or modification was recorded in the final order.

Conclusions:

The AT's order primarily focuses on the Section 68 addition and partly allows the appeal. The disallowance under Section 40(a)(ia) remains unaltered as the appeal was only partly allowed for statistical purposes.

Issue 3: Admission of additional evidence

Legal framework:

Admission of additional evidence at the appellate stage is discretionary and generally allowed if the evidence is relevant, was not available despite due diligence earlier, and its admission does not cause prejudice to the other party.

Court's reasoning:

The assessee sought to admit additional evidence concerning the loan from Supreme Gold, which could not be uploaded before the CIT(A). The DR opposed the admission, citing sufficient opportunities already given. The AT, however, noted that the CIT(A) had drawn adverse conclusions based on evidence (bank statement of Supreme Gold) that was never submitted or verified. Given this inconsistency and the importance of the evidence to the genuineness of the transaction, the AT admitted the additional evidence and remanded the matter for fresh adjudication.

Conclusion:

The AT admitted the additional evidence and remanded the matter to the AO for fresh consideration.

3. SIGNIFICANT HOLDINGS

"We find merit in the assessee's submission regarding the loan of Rs. 7,00,000/- received from Shri Narayan P. Ahuja. The assessee has satisfactorily established the identity and creditworthiness of the lender... The bank account analysis further supports the contention that the loan was not sourced from any recent cash deposits but was disbursed through an overdraft facility... Additionally, the assessee has rectified the initial misreporting of the lender's name and has submitted sufficient corroborative evidence to establish the genuineness of the transaction."

"We also take cognizance of various judicial precedents... which establish that when a loan has been subsequently repaid through proper banking channels, the addition under Section 68 of the Act cannot be sustained... Accordingly, the addition of Rs. 7,00,000/- under Section 68 of the Act is deleted."

"In our opinion, this conclusion of the CIT(A) is factually incorrect, as the bank statement of Supreme Gold was never submitted at all... Despite this, the CIT(A) proceeded to make adverse inferences regarding the genuineness of the transaction based on purported cash deposits without verifying whether such details were actually available before the AO."

"Given this inconsistency, and the fact that crucial evidence remains unverified, we find it appropriate to remand the matter back to the AO for a fresh examination of the lender's identity, creditworthiness, and genuineness after considering all relevant documents, including the bank statement of Supreme Gold. The AO shall decide the issue afresh after affording the assessee an adequate opportunity to present its case."

Core principles established include:

• The identity, creditworthiness, and genuineness of loans under Section 68 must be established by the assessee to avoid additions.
• Subsequent repayment of the loan through proper banking channels negates the presumption of unexplained cash credit.
• Adverse inferences cannot be drawn without verifying the existence and availability of evidence on record.
• Additional evidence may be admitted at the appellate stage if it is relevant and was not available earlier, especially where prior adverse findings were based on incomplete records.

Final determinations:

• The addition of Rs. 7,00,000/- under Section 68 is deleted.
• The addition of Rs. 10,00,000/- under Section 68 is remanded to the AO for fresh adjudication.
• The disallowance under Section 40(a)(ia) remains unaltered.