2025 (7) TMI 1371 - AT - Income Tax

Addition u/s 68 - unsecured loans - HELD THAT - As the facts and circumstances of the present case and the observations and allegations made by the AO while making the additions/disallowance in the case of Filatax India Ltd. 2025 (7) TMI 1285 - ITAT DELHI are the same as held assessment cannot be framed only on bare suspicion. The assessment should rest on principles of law and one should avoid presumption of evasion in every matter. The assessee in the instant case has sufficiently demonstrated the genuineness of transaction and creditworthiness of the loan creditors. On a broader reckoning the apprehension raised by the Revenue authorities militates against the tangible material and is thus extraneous. Accordingly we find no infirmity in the order of ld. CIT(A) in deleting the additions made u/s 68 towards the unsecured loans of Rs. 5.90 crores by holding the same as accommodation entries. Further Ld. CIT(A) made similar observations while deleting the additions/disallowances. Addition of commission @ 0.25% on the loans received of INR 78, 00, 000/- as unexplained transactions - As we have already hold these loan transactions as genuine transactions thus question of payment of any commission for obtaining such loan does not arise. In view of these facts we hereby uphold the order of ld. CIT(A) deleting the addition made on account of alleged commission payments. As there is no change in the circumstances which fact is admitted by both the parties during the course of hearing therefore by following the observations made by us while dismissing the appeal of the Revenue in the case of Filatax India Ltd. the Revenue s appeal in the case of the present appellant is also dismissed.

Summary

ISSUES:

Whether unsecured loans received by the assessee from certain entities can be treated as unexplained cash credits under section 68 of the Income-tax Act, 1961.Whether the assessee has satisfactorily proved the identity, creditworthiness, and genuineness of the loan creditors and the transactions.Whether interest paid on such unsecured loans can be disallowed as bogus expenditure under section 37(1) of the Act.Whether alleged commission paid for obtaining accommodation entries can be added as unexplained expenditure under section 69C of the Act.Whether statements recorded under section 132(4) of the Act during search proceedings can be treated as substantive evidence against the assessee without opportunity for cross-examination.Whether the Assessing Officer (AO) was justified in making additions based on suspicion and material seized during search without proper inquiry and application of mind.Whether the amendment to section 68 regarding explanation of "source of source" applies retrospectively to the assessment years under consideration.Whether the principle of natural justice was violated in the assessment proceedings.

RULINGS / HOLDINGS:

The unsecured loans received by the assessee were held to be genuine transactions as the assessee satisfactorily proved the identity and creditworthiness of the creditors by submitting audited financial statements, bank statements, income tax returns, and confirmations, thereby discharging the burden under section 68 of the Act.The interest paid on the unsecured loans was held to be a genuine expense and not disallowable under section 37(1) since the loans themselves were not bogus.The alleged commission paid for obtaining accommodation entries was held not to be payable as the loan transactions were genuine; thus, additions under section 69C were rightly deleted.The statements recorded under section 132(4) during search proceedings were held not to be admissible as substantive evidence against the assessee without affording opportunity of cross-examination, and reliance solely on such statements without corroborative material was rejected.Additions based on suspicion, WhatsApp chats, or material seized during search without direct nexus or incriminating material specific to the assessment year were held unsustainable; suspicion alone cannot replace evidence.The amendment to section 68 requiring explanation of "source of source" applies prospectively from assessment year 2023-24 and was held not applicable to the assessment years under consideration.The AO was held to have failed to conduct necessary inquiries or apply mind properly before making additions; mere non-appearance or lack of investigation into lender parties does not justify additions under section 68.The assessment orders were held not to violate principles of natural justice as the assessee was provided opportunities to respond and produce evidence; objections on this ground were dismissed as academic.

RATIONALE:

The Court relied on the statutory framework of section 68 of the Income-tax Act, which mandates that unexplained cash credits can be taxed as income only if the assessee fails to satisfactorily explain the nature and source of such credits, and the explanation must be objectively assessed based on material on record.Judicial precedents were extensively applied, including rulings that the burden of proof initially lies on the assessee to prove identity and genuineness of creditors, and thereafter shifts to the Revenue to disprove creditworthiness; mere suspicion or uncorroborated statements are insufficient for additions.The Court emphasized the necessity of corroborative evidence beyond statements recorded during search proceedings, noting that such statements require opportunity for cross-examination to be admissible as evidence.The Court recognized that the amendment to section 68 introducing the requirement to explain "source of source" is prospective and does not affect prior assessment years, aligning with coordinate bench decisions.The Court underscored that the AO's failure to conduct further inquiries or investigations into lender parties, despite having the power to do so, weakens the case for additions under section 68.The principle that suspicion cannot substitute proof was reiterated, citing Supreme Court authority that assessment cannot be based on conjecture or surmise but must rest on tangible evidence.The Court noted that repayments of loans during the year and in subsequent years, and transactions through banking channels, further supported the genuineness of the loans.The Court dismissed objections relating to procedural fairness and natural justice as the assessee was afforded adequate opportunity to present evidence and respond to allegations.