Loading judgment…
Facts
The assessee, engaged in the business of Del Credere Agency, filed a return declaring NIL income but paid tax under Section 115JB. The Assessing Officer made an addition of Rs. 30.13 Crs for unexplained loans treated as cash credit under Section 68. The CIT(A) upheld this.
Held
The Tribunal held that the Assessing Officer made the addition without proper verification and consideration of the assessee's and group concerns' replies. Crucial facts regarding the nature and origin of the transactions were not ascertained.
Key Issues
Whether the addition made by the AO under Section 68 for unexplained loans, treated as book entries from group concerns, was justified without proper verification and ascertainment of facts.
Sections Cited
68, 139(1), 115JB, 143(3), 144B, 133(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad ‘ B ‘ Bench, Hyderabad
करदाता का "ितिनिध"/ : Shri M V Prasad, CA Assessee Represented by राज" का "ितिनिध"/ : Smt. M. Narmada, CIT-DR Department Represented by सुनवाई समा" होने की ितिथ/ : 18.03.2025 Date of Conclusion of Hearing घोषणा की तारीख/ : 20.03.2025 Date of Pronouncement O R D E R PER SHRI VIJAY PAL RAO, VICE PRESIDENT:
This appeal by the assessee is directed against the order dated 18/11/2022 of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (in short “CIT(A)”) for the A.Y 2018-19. 2. The assessee has raised the following grounds of appeal:
“1. The Ld. CIT(A) has erred in facts and law while passing the order.
On the facts and circumstances of the case, the Ld. CIT(A) ought to have considered that the provisions of section 68 of the IT Act applies where any sum is found credited in the books of an assessee. In the present case, there is no any sum found credited in the books and it were only book entries. Hence, invoking section 68 is bad in law.
On the facts and circumstances of the case, the Ld. CIT(A) has ignored the relevant details submitted during the course of appellate proceedings and dismissed the appeal which is not justifiable.
On the facts and circumstances of the case, the Ld. CIT(A) has dismissed the appeal of the appellant on surmises and conjectures.
On the facts and circumstances of the case, the Ld. CIT(A) is not justified in concluding that the debit balances in the name of 6 corporates are out of the appellant company’s own fund and also not justified in holding that the appellant company claimed them as genuine credits in the name of REPL.
On the facts and in the circumstances of the case, the Ld. CIT(A) has dismissed the appeal in vague manner without considering the replies submitted.
7. On the facts and circumstances of the case, without prejudice to the above grounds, the Ld. CIT(A) decided the appeal hastily without giving proper opportunity to the appellant to reply to the notices issued dated 27/09/2022 and 13/10/2022 which is against the principles of natural justice.
8. The appellant may add, alter, modify or substitute any other points to the grounds of appeal
at any time before or at the time of hearing of the appeal.”
3. The assessee-company is engaged in the business of Del Credere Agency to some of the distilleries in the State of Andhra Pradesh for marketing their respective Brands of IMFL (Indian Made Foreign Liquor). The assessee filed its return of income U/s. 139(1) of the Income Tax Act, 1961 (“the Act”) declaring NIL income under normal provisions of the Act, but paid tax on the income declared U/s. 115JB of the Act at Rs.3,22,08,467/-. While framing the assessment U/s. 143(3) r.w.s 144B of the Act, the Assessing Officer made an addition of Rs. 30.13 Crs on account of unexplained loan treated as unexplained cash credit U/s. 68 of the Act. The assessee challenged the action of the Assessing Officer before the CIT(A) but could not succeed.
4. Before the Tribunal, the Ld.AR of the assessee has submitted that the Assessing Officer has made an addition on the ground that the assessee has failed to establish the creditworthiness of the investor as well as the genuineness of the transaction. He has referred to para 4.2 and 4.3 of the assessment order and submitted that the Assessing Officer has passed the impugned order without considering the reply filed by the assessee. He has further submitted that due to COVID-19 Pandemic, the Authorized Representative could not represent the assessee before the Assessing Officer and therefore, the Assessing Officer has made this addition in the absence of relevant details and evidence in support of the unsecured loan taken over from its group concerns. The Ld.AR has further submitted that this is not an actual transaction of receiving any cash but the unsecured loan of the group concern already reflected in their books of account was consolidated and taken over by the assessee by way of book entry and hence, the addition made by the Assessing Officer U/s. 68 of the Act is not justified. He has referred to Pages No. 57 and 59 of the paper book and submitted that the assessee has duly filed the reply and the group concern has also uploaded the relevant information and reply in response to notice U/s. 133(6) of the Act issued by the Assessing Officer, but the Assessing Officer has passed the impugned order without considering all these replies of the assessee as well as the group concern. Thus, the Ld.AR has pleaded that since the Assessing Officer has passed the impugned order without considering the relevant details and reply filed by the assessee as well as group concern, the matter may be remanded to the record of the Assessing Officer for fresh adjudication on this issue.
5. On the other hand, the Ld.DR relied upon the orders of the authorities below and submitted that there was no explanation by the assessee regarding taking over the unsecured loans from the group concerns as well as so called book entries claimed by the assessee. Therefore, the Assessing Officer was having no option but to make the addition U/s. 68 of the Act.
6. We have considered the rival submissions as well as the material available on record. The Assessing Officer has made the addition U/s. 68 of the Act in Para 4.2 and 4.3 of his order as under:
4.2 the assessee submitted that it had submitted confirmation of accounts, confirmation, bank statement etc. However, the entries are book entries, and they are not part of the bank account. The creditor may have submitted the details to the assessee, but it never replied to the questions asked by this office. The assessee submitted that “these book entries were necessary because the assessee took over debt of Rs. 29.38 belonging to six corporates from REPL.
The assessee never explained why and how this debit has arisen, how it was acquired and how it has changed the balance sheet of the assessee. In response to the draft notice only that the assessee is claiming to have taken over the debit of companies. The assessee also failed to explain how the assets are related to this liability accounted for.
Thus, neither the assessee has established creditworthiness of the investor nor has established the genuineness of the transactions made. The creditworthiness of the investor is not established for the reason of non-filing of ITR and inability of the investor to reply to the statutory notices and lack of any relevant details that could establish its creditworthiness. Thus, the sum appearing against the name of this investor in the book of the assessee as unsecured loans is nothing but the unexplained cash credits and attracts the provisions of section 68 of the Act.
Cash credits. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to the income tax as the income of the assessee of that previous year. Thus, the assessee failed to explain satisfactorily the sum so credited, they are treated as unexplained cash credits and taxed u/s. 115JB of the Act. 4.3. Considering the facts and circumstances of the case, the assessee unable to establish the genuineness of the transactions as well as capacity of the lenders. The party concerned Raghava Enterprises Pvt Ltd has also not filed ITR nor made response to the notices issued to them. Hence, unsecured loan claimed to have taken from the party amounting to Rs. 30,13,92,515/- is hereby treated as unexplained cash credits U/s. 68 of the IT Act and added back to the total income of the assessee.”
The Assessing Officer has not disputed the fact that the amount of unsecured loan shown by the assessee in the books is only by way of the book entries as the same was taken over by the assessee from the group concerns and one of the group concerns viz., Raghavendra Enterprise Pvt Ltd., is shown as debtor. The Assessing Officer has recorded that the assessee has failed to explain the transactions satisfactorily and therefore, the same is treated as unexplained cash credit. It is pertinent to note that if these unsecured loans are taken over by the assessee from the group concerns which are not introduced in their books during the year under consideration by the group concerns of the assessee, then the addition on this count cannot be made without ascertaining correct facts about the transactions of unsecured loans in the hands of the group concerns. Further, we note that in response to notice U/s. 133(6) of the Act, the group concern has uploaded the reply as reflected in the e-Proceedings Responses Acknowledgement placed at Page 57 of the paper book. However, the Assessing Officer has not considered the said reply filed by the group concern namely Raghava Enterprises Pvt Ltd. Further, the assessee also filed a reply explaining the details about the transactions of taking these unsecured loans by way of book entries, but the Assessing Officer has not considered the said reply of the assessee while passing the impugned order. Thus, it is clear that the addition was made by the Assessing Officer for want of necessary details and supporting evidence to explain the creditworthiness of the loan creditors and genuineness of the transaction but, without ascertaining the crucial facts as to whether these transactions of loan in the books of the group concerns are brought forward from the earlier years or the fresh transaction during the year under consideration. Accordingly, in the facts and circumstances of the case and in the interest of justice, we are of the considered opinion that this issue requires a fresh adjudication after proper verification and examination of the relevant facts of the transactions under consideration. Hence, the matter is remanded to the record of the Assessing Officer for deciding the issue afresh after considering the relevant facts and evidence to be produced by the assessee. Needless to say that the assessee be given an appropriate opportunity of being heard before passing the fresh order.
In the result, appeal of the assessee is allowed for statistical purposes.