2025 (6) TMI 1077 - AT - Income Tax

Addition u/s 68 - unsecured loan taken by holding the same as unexplained credits by AO - HELD THAT - At the outset it is seen that the assessee has failed to discharge the burden casted upon it of proving the identity and creditworthiness of the loan creditors despite of ample opportunities provided. Out of the total loans held as unexplained assessee has been able to demonstrate before us that a sum of Rs. 2 crores stated to have been received from M/s Fucon Technologies Ltd. were never received and the cheques received were returned back / dishonoured on the same day for the reason Insufficient Funds . Thus the addition of Rs. 2 crore for the amount which was never received by the assessee company could not be made and therefore we directed to delete the addition. With regard to the remaining addition received from four loan creditors it is seen that during the remand proceedings the certain loan creditors had filed the details which are produced before us in the paper book filed by the assessee. Thus in the interest of justice we hereby accepted the prayer of the assessee and remand back this issue to the file of the AO for making necessary verifications of the remaining four creditors. Grounds taken by the assessee are partly allowed.

Summary

The core legal questions considered by the Tribunal in this appeal pertain primarily to the validity and justification of additions made under section 68 of the Income Tax Act, 1961, relating to unexplained credits in the form of unsecured loans. Specifically, the issues include:

1. Whether the additions made under section 68 on account of unsecured loans are justified in light of the evidence and documents submitted by the assessee to establish the identity and creditworthiness of the loan creditors.

2. Whether the assessee was accorded proper and reasonable opportunity of hearing, including the opportunity to rebut the remand report obtained by the Commissioner of Income Tax (Appeals).

3. Whether the Assessing Officer erred in not considering the documents filed by the creditors during remand proceedings.

4. Whether interest under sections 234B and 234C was rightly levied and whether the calculations of such interest were excessive.

Regarding the additions under section 68, the Tribunal analyzed the legal framework which places the burden on the assessee to prove the identity, genuineness, and creditworthiness of the parties from whom unsecured loans are received. The statutory provision mandates that if the assessee fails to discharge this burden, the unexplained credits can be added to income. The Tribunal noted that the Assessing Officer had provided multiple opportunities to the assessee to furnish evidence but the assessee failed to satisfy the requirements fully.

The Tribunal carefully examined the evidence presented by the assessee, particularly the claim concerning a sum of Rs. 2 crores allegedly received from one creditor, M/s Fucon Technologies Ltd. The assessee produced bank statements and ledger accounts indicating that although the amounts were credited to the bank account, the corresponding cheques bounced on the same day due to insufficient funds. This factual matrix was crucial in determining that the amount was never truly received by the assessee. The Tribunal held that additions under section 68 could not be sustained for amounts not actually received and accordingly deleted the addition of Rs. 2 crores related to this creditor.

For the remaining loan credits totaling Rs. 2,99,49,080/-, the Tribunal observed that during remand proceedings, some creditors had submitted details, but the Assessing Officer noted that notices issued under section 133(6) to certain creditors were returned unserved, casting doubt on their existence and creditworthiness. The assessee contended that if the matter was remanded, it could facilitate proper verification of the creditors. The Tribunal accepted this submission in the interest of justice and remanded the matter back to the Assessing Officer for fresh verification, directing the assessee to cooperate and submit all necessary evidence. This approach balanced the need to uphold the burden of proof on the assessee with the opportunity to establish the genuineness of the loans.

On the issue of procedural fairness, including whether the assessee was given proper opportunity to rebut the remand report and whether documents filed by creditors were considered, the Tribunal noted the assessee's grievances but found that the Assessing Officer had provided ample chances. However, the remand and directions to the AO implied recognition of the need for further procedural compliance and verification.

Regarding the levy of interest under sections 234B and 234C, the Tribunal did not elaborate extensively but included the ground raised by the assessee. Since the appeal was partly allowed on the substantive issue of additions, the interest-related contentions were not separately adjudicated in detail, implying no interference with the levy as per the facts on record.

The Tribunal's conclusions were as follows:

- The addition of Rs. 2 crores under section 68 related to the unsecured loan from M/s Fucon Technologies Ltd. was deleted as the amount was never actually received.

- The balance addition of Rs. 2,99,49,080/- under section 68 was remanded to the Assessing Officer for fresh verification of the loan creditors, with directions to the assessee to cooperate and submit evidence.

- The appeal was partly allowed accordingly, with the rest of the additions and procedural aspects upheld.

Significant holdings include the Tribunal's recognition that mere credit entries in bank accounts are insufficient to sustain additions under section 68 if the amounts were not genuinely received, especially where cheques were dishonoured on the same day. This underscores the principle that the burden lies on the assessee to prove actual receipt and genuineness of loans. The Tribunal also emphasized that unexplained credits cannot be added without proper verification of the creditors' identity and creditworthiness, and that procedural fairness requires providing adequate opportunity to the assessee to substantiate claims, including during remand proceedings.

In its reasoning, the Tribunal stated: "Thus, the addition of Rs. 2 crore for the amount which was never received by the assessee company could not be made and therefore, we directed to delete the addition of Rs. 2 crores towards the loan taken from M/s Fucon Technologies Ltd." Furthermore, it held: "In the interest of justice, we hereby accepted the prayer of the assessee and remand back this issue to the file of the AO for making necessary verifications of the remaining four creditors from whom loans of Rs. 2,99,49,080/- were received and decide as per law."

These determinations preserve the core principles governing unexplained credit additions under section 68, namely the requirement of proving identity, creditworthiness, and actual receipt, and the necessity of a fair and thorough verification process by the tax authorities.