2025 (6) TMI 1139 - AT - Income Tax

Assessment u/s 153C - Addition u/s 68 on account of alleged cash loan received by the assessee - HELD THAT - We find that there is absence of corroborative evidence in regard to the impugned original receipt found during the course of search at Gurvinder Singh Duggal. The assessing officer had not recorded a finding that the amount was the income of the assessee because it was neither any loan nor a deposit. The admissions alone if to be relied are only with regard to the execution of document but there is no admission in statements about the transaction being completed and any money actually exchanged hands. No addition can be made on the basis of assessee not being able to establish a negative fact of not receiving back any cash. Presumption u/s 132(4A) r.w.s 292C of the Act only gets attracted in the case of searched person and not the third person in absence of any corroborative evidence. Cash loans - Loan per se cannot be considered to be income and therefore the same cannot be treated to be income of the assessee to be added u/s 69A of the Act as unexplained money. Assessee as borrower cannot be said to have been found to be the owner of money not recorded in the books of account. At the same time source of loan transaction stood duly explained by the content of alleged incriminating document itself. Reliance is rightly placed by AR on the decision of Vatika Greenfield (p) Ltd 2009 (1) TMI 312 - ITAT DELHI-H wherein it is held that the AO cannot be permitted to treat the amount of loan as income for the purpose of assessing tax thereon while framing the assessment. Thus the ground addition deserves to be deleted. Addition on account of introduction of cash by a partner - Capital introduced by way of directly bearing petty expenditure by a partner cannot be considered to be unexplained money u/s 69A of the Act as not recorded in his books if same is duly reflected in capital account of the partner. Assessee has filed cash book entry of 1.7.2017 of the himself showing capital introduced in partnership of firm. The opening balance is shown to be Rs. 3, 63, 383/- as on 1.7.2017. That was sufficient explanation of source of cash in the hands of the assessee for making capital contribution to meet out petty expenditure of the firm. Further this amount is duly reflected in capital account of the assessee as partner in the books of firm also. In view of these facts in our considered opinion when necessary entries are found recorded in the books of account of both the entities no addition could be made u/s 69A. Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

• Whether the addition of Rs. 22,50,000/- made under section 68 of the Income Tax Act, 1961 (the Act) on account of an alleged cash loan received by the assessee from Shri Shamik Chokshi, based on a loan receipt document found during search and seizure operations, is justified.
• Whether the addition of Rs. 25,000/- under section 68 on account of capital introduced in cash by the assessee in a partnership firm (Atom Corporation) is justified.
• Whether the Assessing Officer (AO) correctly invoked section 153C of the Act to make additions based on incriminating documents found during search and seizure operations conducted in the premises of third parties.
• Whether the assessee's explanations and documentary evidence submitted in response to show cause notices were duly considered and whether the additions made are sustainable in law and on facts.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Addition of Rs. 22,50,000/- as unexplained cash loan under section 68

Relevant legal framework and precedents: Section 68 of the Income Tax Act deals with unexplained cash credits and permits the AO to treat such credits as income if the assessee fails to satisfactorily explain the nature and source of the credit. Section 153C allows assessment of a person other than the searched person if incriminating material is found during search relating to such person. The presumption under section 132(4A) read with section 292C applies to the searched person, not third parties, unless corroborative evidence exists. The Tribunal relied on the coordinate bench decision in ACIT vs Vatika Greenfield (P) Ltd [2009] 121 TTJ, which held that a loan amount cannot be treated as income for tax assessment purposes.

Court's interpretation and reasoning: The AO relied on a loan receipt document dated 30.09.2017, found during search at the premises of the father of the assessee, which stated that the assessee had received Rs. 22,50,000/- as a loan from Shri Shamik Chokshi. The assessee denied receipt of any loan and stated the document was executed in anticipation of receiving a loan. Statements recorded under sections 132(4) and 131(1A) of the Act from the father and the assessee respectively denied actual receipt of money. The AO treated the amount as unexplained money and added it to income under section 68.

The Tribunal observed that there was no corroborative evidence that the loan transaction was completed or that any money actually changed hands. The mere execution of the loan receipt document without admission of receipt of money is insufficient to treat the amount as income. The presumption under section 132(4A) and 292C applies only to the searched person, not the assessee who was a third party in this case. Moreover, a loan per se is not income and cannot be treated as such under section 68. The Tribunal emphasized that the source of the loan was explained by the document itself and no addition could be made merely on the basis of non-establishment of a negative fact (i.e., non-return of money).

Key evidence and findings: The incriminating document (loan receipt), statements of the assessee and his father denying receipt of loan money, absence of corroborative evidence of actual receipt, and the ledger and balance sheet of the company to which loans were given.

Application of law to facts: The Tribunal applied the principle that unexplained cash credits under section 68 require the assessee to fail to satisfactorily explain the source. Here, the assessee explained the nature of the transaction, and there was no evidence of actual receipt of money. The document was executed but did not establish income. The presumption under section 132(4A) was inapplicable to the assessee as he was not the searched person.

Treatment of competing arguments: The AO and First Appellate Authority (FAA) relied on the document and statements to treat the amount as unexplained income. The assessee argued that the document was anticipatory and no loan was actually received. The Tribunal accepted the assessee's submissions and rejected the AO's approach.

Conclusion: The addition of Rs. 22,50,000/- under section 68 is not sustainable and is deleted.

Issue 2: Addition of Rs. 25,000/- as unexplained capital introduced in partnership firm under section 68

Relevant legal framework and precedents: Section 68 applies to unexplained cash credits, including capital introduced. The assessee's explanation and books of accounts are relevant to determine if the amount is unexplained. The Tribunal considered that capital introduced by a partner to meet petty expenses, supported by accounting entries, cannot be treated as unexplained money.

Court's interpretation and reasoning: The AO added Rs. 25,000/- as unexplained cash introduced as capital in the partnership firm Atom Corporation, as the assessee could not conclusively prove that the cash originated from regular books of account. The CIT(A) upheld this addition.

The Tribunal examined the facts that the firm had no bank account initially and the cash was introduced to meet day-to-day expenses. The assessee filed ledger accounts and bank statements showing the capital contribution and cash book entries. The opening cash balance of Rs. 3,63,383/- as on 1.7.2017 was shown in the cash book of the assessee, which was sufficient to establish the source of the cash.

The Tribunal held that capital introduced by way of directly bearing petty expenditure by a partner, duly reflected in the capital account, cannot be treated as unexplained money under section 68. Since necessary entries were recorded in the books of both the assessee and the firm, the addition was unwarranted.

Key evidence and findings: Cash book entries of the assessee, ledger accounts and bank statements of the partnership firm, showing capital contribution and source of cash.

Application of law to facts: The Tribunal applied the principle that a partner's capital contribution, especially to meet petty expenses, supported by accounting records, is a legitimate source and not unexplained. The AO's addition was based on inability to conclusively prove source, but the Tribunal found the explanation sufficient.

Treatment of competing arguments: The AO and CIT(A) took a strict view due to lack of conclusive evidence of source. The assessee provided documentary evidence which the Tribunal accepted as adequate explanation.

Conclusion: The addition of Rs. 25,000/- under section 68 is deleted.

Issue 3: Validity of assessment under section 153C based on incriminating documents found during search

Relevant legal framework and precedents: Section 153C allows assessment of a person other than the searched person if incriminating material is found during search relating to such person. However, presumption under section 132(4A) and 292C applies only to the searched person. For third parties, corroborative evidence is necessary to make additions.

Court's interpretation and reasoning: The Tribunal noted that the incriminating document relied upon by the AO was found in the premises of the father of the assessee (searched person). The assessee was a third party. The AO did not record any finding that the amount was the income of the assessee. The statements of the searched person and the assessee did not admit receipt of any loan money. The Tribunal held that in absence of corroborative evidence, no addition could be made against the assessee merely on the basis of the document found during search.

Key evidence and findings: Location of documents, statements recorded under sections 132(4) and 131(1A), absence of corroborative evidence.

Application of law to facts: The Tribunal applied the statutory scheme and judicial precedents to hold that the presumption applies only to the searched person, and additions against third parties require independent evidence. The AO failed to establish such evidence.

Treatment of competing arguments: The Revenue argued that the document itself was sufficient incriminating material. The Tribunal rejected this, emphasizing the need for corroboration.

Conclusion: The assessment under section 153C against the assessee on this basis is not sustainable.

Issue 4: Consideration of replies and submissions filed by the assessee

Court's interpretation and reasoning: The Tribunal noted that the assessee had filed detailed replies, ledger accounts, balance sheets, and other documentary evidence explaining the transactions and source of funds. The AO and CIT(A) did not adequately consider these submissions, particularly in relation to the Rs. 22,50,000/- loan and Rs. 25,000/- capital contribution.

Conclusion: The Tribunal emphasized the importance of considering the assessee's explanations and documentary evidence before making additions.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"There is absence of corroborative evidence in regard to the impugned original receipt found during the course of search at Gurvinder Singh Duggal. The assessing officer had not recorded a finding that the amount of Rs. 22,50,000/- was the income of the assessee because it was neither any loan nor a deposit. The admissions alone, if to be relied, are only with regard to the execution of document but there is no admission in statements about the transaction being completed and any money actually exchanged hands. No addition can be made on the basis of assessee not being able to establish a negative fact of not receiving back any cash. Presumption u/s 132(4A) r.w.s 292C of the Act only gets attracted in the case of searched person and not the third person in absence of any corroborative evidence."

"Even otherwise loan per se cannot be considered to be income and, therefore, the same cannot be treated to be income of the assessee to be added u/s 69A of the Act as unexplained money."

"Capital introduced by way of directly bearing petty expenditure by a partner cannot be considered to be unexplained money u/s 69A of the Act, as not recorded in his books if same is duly reflected in capital account of the partner."

Core principles established include:

• Additions under section 68 require the amount to be unexplained and treated as income; mere execution of a loan receipt without actual receipt of money does not amount to income.
• Presumption under section 132(4A) applies only to the searched person; third parties require corroborative evidence for additions based on incriminating documents found during search.
• Capital introduced by a partner to meet petty expenses, supported by accounting records, is not unexplained money.
• The AO and appellate authorities must consider the assessee's explanations and documentary evidence before making additions.

Final determinations:

• The addition of Rs. 22,50,000/- under section 68 is deleted.
• The addition of Rs. 25,000/- under section 68 is deleted.
• The appeal is allowed accordingly.