Loading judgment…
Facts
The assessee filed an income tax return for AY 2017-18, declaring a total income. The case was selected for scrutiny. During assessment, loans amounting to Rs. 1,13,17,466/- were treated as unexplained cash credits under Section 68 of the Income Tax Act, and additions were made to the assessee's income.
Held
The Tribunal held that the assessee was able to prove the creditworthiness of loan creditors for Rs. 70,00,000/-. However, the creditworthiness of the remaining loan creditors (Om Prakash Bahiti and Yashoda Industries) was not established. Accordingly, a part of the addition was deleted.
Key Issues
Whether the addition of loans as unexplained cash credits under Section 68 of the Income Tax Act is justified when the assessee has provided partial evidence of creditworthiness of loan creditors.
Sections Cited
68, 143(2), 142(1), 143(3), 144
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, HYDERABAD BENCHES “B”, HYDERABAD
Before: SHRI LALIET KUMAR & SHRI MADHUSUDAN SAWDIA
O R D E R PER LALIET KUMAR, J.M:
This appeal is filed by the assessee feeling aggrieved by the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 15.03.2024 for the AY 2017-18.
2 ITA 485/Hyd/2024
The grounds raised by the assessee read as under :
“1. The learned CIT(A) has erred in making the addition of loans taken amounting to Rs. 1, 13, 17,466/- u/s 68 of the Income Tax Act, 1961.
2. The learned CIT(A) has failed to note that the assessee has income from salaries, house property and other sources during the year and therefore he is not required to maintain books of accounts, yet the additions have been made u/s 68 of the I.T.Act, 1961.
3. As the assessee does not maintain books of accounts, the provisions of section 68 of the I.T.Act, 1961 are not applicable to the assessee.
4. The learned CIT(A) who has passed the order on the grounds that no response was received by the assessee, has yet passed the order u/s 143(3) and not u/s 144 of the 1.T.Act, 1961.
The learned CIT(A) has not given an opportunity of being heard to the assessee hence the order suffers on the grounds of natural justice 6. None of the notices issued by the income tax department were served on the assessee, hence the assessment order is void-ab-initio. Also, none of the replies given by the assessee has been considered by the assessing officer as can be clearly derived by the e-proceeding website.”
The brief facts of the case are that the assessee is an individual who filed his income tax return for A.Y. 2017-18 on 01- 08-2017, declaring a total income of Rs. 72,41,240/-. The case was selected for scrutiny, and notices were issued under sections 143(2) and 142(1) of the Act. The assessee provided some information, including confirmation letters from 20 out of 25 loan creditors for interest payments, but failed to submit the remaining confirmations despite multiple notices. Furthermore, the assessee was asked to substantiate the identity, creditworthiness, and 3 ITA 485/Hyd/2024 genuineness of fresh loans borrowed during the year, but no response was received. As a result, a show-cause notice was issued by the Assessing Officer proposing to treat the loans as unexplained cash credits under section 68 of the Income Tax Act and disallow the interest paid on those loans. The assessee did not respond to the same. Hence, the Assessing Officer made an addition of Rs. 1,05,00,000 (unexplained loans) and Rs. 8,17,466 (interest paid) under section 68 of the Act, totaling Rs. 1,13,17,466/- to the assessee's income for taxation. Accordingly, Assessing Officer completed the assessment u/s 143(3) of the Act and passed assessment order on 24.08.2019.
Aggrieved with such assessment order, the assessee has filed the appeal, before the LD.CIT(A), who granted part relief to the assessee.
5. Aggrieved with the order of LD.CIT(A), the assessee is now in appeal before us.
Before us, ld.AR has submitted that during the appellate proceedings, the Ld.CIT(A) has called for a remand report from the Assessing Officer on the documents filed by the assessee. In the remand report, the Assessing Officer acknowledged that the assessee submitted various documents, including PAN, bank statements, and income tax returns (ITR). The remand report,
4 ITA 485/Hyd/2024 reproduced on page 11 of the order of the Ld. CIT(A), indicated that the genuineness and creditworthiness of the creditors is beyond doubt. However, despite this finding, the Ld. CIT(A) confirmed the additions, stating that the funds were credited to the assessee’s account shortly before or on the date of their transfer. Therefore, the creditworthiness of the of the loan creditors has not established.
Per contra, the ld. DR submitted that the remand report submitted by the Assessing Officer clearly cast doubt on the creditworthiness of the creditors. The ld. DR referred to the tabular remarks provided on pages 13 and 14 of the Ld. CIT(A)'s order, which supported the view that the Ld. CIT(A) was justified in confirming the additions. The ld. Ld.DR further submitted that that the findings of the Assessing Officer in the remand report, when considered as a whole, supported the decision made by the Ld. CIT(A).
In rebuttal, the ld.AR has submitted that there was no requirement of verifying about the source of the source with respect to the loan creditors. Once the assessee was able to show identity, genuineness and creditworthiness of the person, no addition could be made in the hands of the assessee.
5 ITA 485/Hyd/2024
We have heard the rival submissions and perused the material on record. The core issue in the present case revolves around the loans taken by the assessee, which were treated as unexplained cash credits under section 68 of the Income Tax Act. At the assessment stage, the assessee failed to provide satisfactory explanations and supporting documents regarding the loans, leading to the Assessing Officer making an addition of Rs. 1,13,17,466/- to the assessee's income. During the appellate proceedings, the Ld. CIT(A) called for a remand report from the Assessing Officer, who acknowledged the submission of several documents, such as PAN, bank statements, and ITRs, but still raised concerns about the creditworthiness of the creditors. Before us, the ld.AR contended that although the assessee had provided adequate evidence to establish the identity, genuineness, and creditworthiness of the creditors, the LD.CIT(A) upheld the addition made by the Assessing Officer. In light of the arguments and the fact that the Assessing Officer’s remand report at Page 13 of the order of ld.CIT(A), wherein Assessing Officer had made the following comments / observations :
Sl.No. Name of the loan Amount of Remarks Creditor (Sri /Smt) loan 1 Chandra Mohan 10,00,000 As could be seen from the bank account Ahuja of Andhra Bank. 020510025002453 the A/c No received an amount of Rs. 10,00,000 was received from Ms Shilpa Jain and the same transferred to assessee. However, the said bank account was also produced in the case of 6 ITA 485/Hyd/2024
Seema Ahuja. Thus, the credit worthiness of loan creditor is beyond doubt. 2 Nisha Golcha 15,00,000 As could be seen from the bank account of SB A/C No. 62410861644 the assessee received am amount of Rs 15.00.000 from other account and the same has been transferred to assessee. in the same bank account the assessee deposited cash deposit of Rs. 5,00,000 on 12.04.2016 and an amount of Rs. 10,00,000 received on transfer and the same transferred to Moolchand Golcha Thus, the credit worthiness of loan creditor is beyond doubt. 3 'Omprakash Baheti 15,00,000 On 16.04.2016 the loan creditor received an amount of Rs. 12.37.840 and out of which an amount of Rs 10,00,000 was transferred to Mr. Sanjay Kumar Agarwal 4 Raj Kumar Tater 15,00,000 As could be seen from the bank account of Maheh Bank, A/c No.02001100007798 on 12.04.2016 the loan creditor made cash deposit of Rs. 8,00,000 Thus, the source of loan creditor creditworthiness is beyond doubt. 5 Seema Ahuja 15,00,000 As could be seen from the bank account of Andhra Bank, A/c NO.020510025002453, the assessee received RTGS from Shilpa Jain the same transferred to Mr. Sanjay Kumar Agarwal. Expect this entry, no further entries were found in the said bank account. Therefore, the credit worthiness of Ms Seema Ahjua is beyond doubt 6 Shermik Golcha 15,00,000 As could be seen from the bank account of Shemik Golcha an amount of Rs. 15,00,000 was transferred to Mr Sanjay Kumar agarwal. But no bank account copy was produced by the said loan creditor Thus the credit worthiness of Shernik Glocha is beyond doubt
7 ITA 485/Hyd/2024
7 Yashoda Industries 20,00,000 No details were furnished by the assessee towards this loan creditor. Total 1,05,00,000
From perusal of the above table, it is clear that the Assessing Officer had confirmed the creditworthiness in respect of loan creditors at Sl.Nos.1, 2, 4, 5 and 6 namely, Chandra Mohan Ahuja, Nisha Golcha, Raj Kumar Tater, Seema Ahuja and Shermic Golcha, respectively, for Rs.10,00,000/-, Rs.15,00,000/-, Rs.15,00,000/-, Rs.15,00,000/- and Rs.15,00,000/-, totaling to Rs.70,00,000/-. However, for the remaining loan creditors i.e., Om Prakash Baheti and Yashoda Industries, the Assessing Officer has not made any comments about their creditworthiness. Thus, the report of the Assessing Officer was specific, as he has confirmed the creditworthiness in respect of 5 individuals and with respect to the other two loan creditors, the Assessing Officer had not confirmed the creditworthiness.
In our considered opinion, the comments made by the Assessing Officer, as noted at the bottom of the tabulation at page 14 of the order of ld.CIT(A), are required to be interpreted in line with the specific comments provided for each individual loan creditor. In view of the above, it is clear that the assessee was able to prove the creditworthiness of loan creditors for an amount of Rs.70,00,000/- only. The ld.CIT(A) has not brought any evidence or arguments to dispute the creditworthiness of these five individuals. However, the ld.CIT(A) has made a general
8 ITA 485/Hyd/2024 observation suggesting that the assessee has failed to substantiate the creditworthiness of all the loan creditors. In light of the above, we delete the addition to the extent of Rs. 70,00,000/- and confirm the remaining amount of Rs. 35,00,000/-, as the assessee failed to establish the creditworthiness of the loan creditor, i.e., Om Prakash Bahiti, and also failed to furnish the necessary PAN details and supporting documents pertaining to Yashoda Industries. Accordingly, the appeal of the assessee is partly allowed.
In the result, the appeal of the assessee is partly allowed.