TMI Blog2022 (11) TMI 721X X X X Extracts X X X X X X X X Extracts X X X X ..... e fund in its books of account. The capacity to advance loan can be established by the showing sufficient income, capital and reserve or other fund in the hand of creditor. It is required by the AO to find out the financial strength of the creditor to advance loan with judicious approach and in accordance with materials available on record but not in arbitrary and mechanical manner. We proceed to adjudicate the issue in hand. With respect to the identity of the party, we find that the AO in his order has given categorical finding that the assessee has furnished the details such as copy of ledger confirmation along with the copy of PAN except one party namely Smt. Kalpanaben Desai from whom the assessee has taken the loan of Rs. 2,50,000.00 only. The ledger copies contain the name and address of the loan parties. From the above, there remains no doubt that the identity of the loan parties has been established by the assessee beyond doubt. Genuineness of transaction - The undisputed fact that the assessee paid interest on loan after deducting TDS which was not doubted except one party namely Smt. Kalpanaben Desai from whom the assessee has taken the loan of Rs. 2,50,000.00 on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of the assessee. Unexplained advances from customers and unexplained liabilities - HELD THAT:- As considering the minuscule amount involved in the dispute and the fact that the amount was received through banking channel, the same cannot be assumed as unexplained cash credit under section 68 of the Act. It is for the reason that the assessee has furnished the name and address of the party, therefore the identity cannot be doubted without necessary verification which has not been done by the AO in the instant case. Likewise, the transaction was carried out through the banking channel and therefore genuineness of the transaction cannot be doubted in the instant case. Similarly, the amount of advance is of negligible value and therefore the question of creditworthiness of the party does not arise. Thus, in the given facts and circumstances, considering the minuscule amount involved in the dispute, we do not find any reason to disturb the finding of the learned CIT-A. Hence the ground of appeal of the revenue is hereby dismissed. Addition u/s 41(1) - remission and cessation of liability for expenses, admittedly the assessee has not written back the impugned liabilities in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning the addition of Rs. 3,44,07,768/- made by the AO under section 68 of the Act. 4. Brief facts of the case are that the assessee is a private company and engaged in the business of trading in pure ghee and food products. During the year under consideration, the assessee company received unsecured loan aggregating to Rs. 3,44,07,768/- from 18 persons detailed as under: Sr.No. Name of Investor/Depositor Type of Investment received Amount Received (Rs.) 1. Anand G Keswani Un-Secured loan 2238250 2 Anand G Keswani HUF Un-Secured loan 953750 3. Hardev Das Tejpal Un-Secured loan 5344812 4. Jyoti R Punjabi Un-Secured loan 631560 5. Kalpanaben R Desai Un-Secured loan 250000 6. Kar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire amount of credit of Rs. 3,44,07,768/- from the above mentioned parties as unexplained cash credit under section 68 of the Act, and added to the total income of the assessee by holding that own unaccounted money has been received by the assesse in the guise of loan. 6. Aggrieved assessee preferred an appeal before the learned CIT (A) who partly allowed the appeal of the assessee by observing as under: 4.2 1 have considered the assessment order, facts of the case and the submissions made by the appellant. A perusal of the assessment order shows that in view of limited compliance by the assessee during the assessment proceedings, the AO was not able to verify the genuineness of the transactions and identity and the creditworthiness of the depositors, in respect of the unsecured loans taken during the year. It is also seen that the appellant did not produce the required documentary evidences before the AO all through the assessment proceedings, but as late as March 2015, requested the AO to call for the required information himself u/s. 133(6) of the Act. In view of the fact that the case was getting time-barred in March and the fact that the assessee had not furnishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omplied with by furnishing required details. As per the learned AR, the onus cast under section 68 of the Act was duly discharged by the assessee by furnishing the details as discussed above. Accordingly, no addition of whatsoever is warranted in the hands of the assessee in the given facts and circumstances. 9. The learned DR before us vehemently supported the stand of the AO by reiterating the findings contained in the assessment order which we have already adverted to in the preceding paragraph. Therefore, we are not repeating the same for the sake of brevity. 10. We have heard the rival contentions of both the parties and perused the materials available on record. The provision of section 68 of the Act fastens the liability on the assessee to provide the identity of the lenders, establish the genuineness of the transactions and creditworthiness of the parties. These liabilities on the assessee were imposed to justify the cash credit entries under section 68 of the Act by the Hon ble Calcutta High Court in the case of CIT Vs. Precision finance (p) Ltd reported in 208 ITR 465 wherein it was held as under: It was for the assessee to prove the identity of the creditors, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the creditworthiness of the parties. The term creditworthiness as per Black Law Dictionary refers as: creditworthy, adj. (1924) (Of a borrower) financially sound enough that a lender will extend credit in the belief default is unlikely; fiscally healthy-creditworthiness. 10.4 Similarly in The New Lexicon Webster's Dictionary, the word creditworthy has been defined as under:- creditworthy, adj. of one who is a good risk as a borrower. 10.5 It the duty of the assessee to establish that creditor party has capacity to advance such loan and having requisite fund in its books of account. The capacity to advance loan can be established by the showing sufficient income, capital and reserve or other fund in the hand of creditor. It is required by the AO to find out the financial strength of the creditor to advance loan with judicious approach and in accordance with materials available on record but not in arbitrary and mechanical manner. 10.6 In the light of the above discussion, we proceed to adjudicate the issue in hand. With respect to the identity of the party, we find that the AO in his order has given categorical finding that the assessee has furnished th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts on record. Thus, we can assume that the impugned transaction was the business transactions between the assessee and the loan parties. We also feel pertinent to refer the judgment of the Hon ble Gujarat high court in case of the CIT Vs. Rohini builders reported in 256 ITR 360 wherein it was held as under: The genuineness of the transaction is proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques. 10.9 In view of the above and after considering the facts in totality, we are of the view that the assessee has discharged its onus cast under section 68 of the Act, therefore, we direct the AO to delete the addition made by him except one party namely Smt. Kalpanaben Desai from whom the assessee has taken the loan of Rs. 2,50,000.00 only. Hence, the ground of appeal of the assessee is hereby allowed whereas the ground of appeal of the Revenue is hereby partly allowed. 11. The next issued raised by the assessee is that the learned CIT(A) erred in confirming the addition of Rs. 50,040/- made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... back is that the same was not claimed in the year to which it pertains. However, we also note that there was no change in the rate of tax under the Act. Thus, there cannot be any loss to the revenue even if the assessee claimed such expenses in the year under consideration. In this regard we find support and guidance from the judgment of Hon ble Bombay High Court in the case of CIT v. Nagri Mills Co. Ltd.[1958] 33 ITR 681 has held as under: 3. We have often wondered why the Income-tax authorities, in a matter such as this where the deduction is obviously a permissible deduction under the Income-tax Act, raise disputes as to the year in which the deduction should be allowed. The question as to the year in which a deduction is allowable may be material when the rate of tax chargeable on the assessee in two different years is different; but in the case of income of a company, tax is attracted at a uniform rate, and whether the deduction in respect of bonus was granted in the assessment year 1952-53 or in the assessment year corresponding to the accounting year 1952, that is in the assessment year 1953- 54, should be a matter of no consequence to the Department; and one should hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Ld.CIT(Appeals) is right in law and on facts in deleting the addition of Rs.8,46,289/- made account of on account of unexplained liabilities. 26. The first issue raised by the Revenue is that the learned CIT (A) erred in deleting the addition of Rs. 3,44,07,768/- made under section 68 of the Act. 27. At the outset we note the issue raised by the Revenue has been adjudicated with the assessee s ground of appeal in ITA No. 478/Ahd/2017. The issue on hand has been decided by us vide paragraph no. 11 of this order in favour of the assessee and partly in favour of the Revenue. Thus, the ground of appeal raised by the Revenue is hereby partly allowed. 28. The next issue raised by the Revenue is that the learned CIT (A) erred in deleting the addition of Rs. 3,00,821/- and Rs. 8,46,289/- made by the AO on account of unexplained advances from customers and unexplained liabilities. 29. The AO during the assessment proceedings found that the assessee in the financial statement has shown advances from customers as detailed below: Sr.No. Name of the party Credit Balance/Advance 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the preceding discussion, we note that the AO has treated the advances from 6 parties, shown by the assessee, as unexplained cash credit under section 68 of the Act. The details of such advances from 6 parties have been detailed somewhere in the preceding paragraph. Out of the submissions made by the assessee before the learned CIT-A, we note that the assessee with respect to three parties has also shown opening credit balance in its financial statement. Likewise, there were 4 parties (including three parties as discussed above) with whom the assessee has shown regular transactions. As such, the assessee has also debited the ledgers accounts of these 4 parties on account of sales made to them but the same was not doubted by the AO. Thus, it is implied that the AO has doubted only the closing balance shown by the assessee in its financial statement as on 31st of March 2012 and believed all other transactions as genuine. Accordingly, we are of the view that the stand taken by the AO is unsustainable by treating the closing credit balance as unexplained and treating the transaction carried out by the assessee during the year as genuine. It is not expected from the AO to give differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame and address of the party, therefore the identity cannot be doubted without necessary verification which has not been done by the AO in the instant case. Likewise, the transaction was carried out through the banking channel and therefore genuineness of the transaction cannot be doubted in the instant case. Similarly, the amount of advance is of negligible value and therefore the question of creditworthiness of the party does not arise. Thus, in the given facts and circumstances, considering the minuscule amount involved in the dispute, we do not find any reason to disturb the finding of the learned CIT-A. Hence the ground of appeal of the revenue is hereby dismissed. 35.3 Coming to the next issue for the remission and cessation of liability for expenses, admittedly the assessee has not written back the impugned liabilities in the books of accounts. To attract the provisions of section 41(1) of the Act, the features of section 41(1) are given below: (i) It is applicable in respect of an allowance or deduction which has been allowed in any earlier assessment year. (ii) In any subsequent year, if the assessee obtains some benefit, whether in cash or in any other manner in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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