If Identity, Credit Worthiness, And Genuineness Of Transaction Established, Loan Can't Be Treated As Unexplained U/s 68: Ahmedabad ITAT
On finding that the Revenue has grossly erred by treating the element of interest on the alleged loan as bogus in nature, the Ahmedabad ITAT held that the loan amount cannot be made subject to addition under the provisions of section 68 of the Income tax Act, 1961, since loan was taken through banking channel and was repaid in the next year along with interest through banking channel and TDS...
On finding that the Revenue has grossly erred by treating the element of interest on the alleged loan as bogus in nature, the Ahmedabad ITAT held that the loan amount cannot be made subject to addition under the provisions of section 68 of the Income tax Act, 1961, since loan was taken through banking channel and was repaid in the next year along with interest through banking channel and TDS was deducted on the interest.
The Member of the ITAT comprising Siddhartha Nautiyal (Judicial Member) and Waseem Ahmed (Accountant Member) observed that “once the assessee submits primary evidence with regard to identity and credit worthiness of creditor and the genuineness of the transaction the onus shifts on the AO to consider the material provided and make independent inquiry in order to find out genuineness of the evidence or bring material contrary to fact explained by the assessee. The AO cannot reject the primary evidence furnished by the assessee without appreciating the facts available on record or without bringing contrary material to form the belief that primary document or explanation furnished by the assessee is not satisfactory”. (Para 9.2)
As per the brief facts of the case, the Assessee's company has accepted unsecured loans from certain parties. It was alleged by the AO that the parties from whom unsecured loans were accepted by the assessee are paper/shell companies and managed by the entry provider. The basis of such an allegation was certain evidence which were found and statement recorded under section 132(4). The paper/shell companies were not found on their given addresses after the search proceedings. On analysis of the bank statements of those companies, it was noticed that huge amounts of cash were withdrawn from their bank accounts. Further, based on analysis of bank statements, various beneficiaries of accommodation entries were identified, and the present assessee company was one of them. The AO found that the assessee company has taken unsecured loan from six companies. Accordingly, the AO proposes to treat the impugned unsecured loans as unexplained cash credit under the provision of section 6. The CIT(A) after considering the facts in totality deleted the addition made by the AO.
The Coram noted that the CIT(A) has given categorical finding that the search materials and statement relied upon by the AO for making addition against the assessee were neither supplied to the assessee for rebuttal nor the opportunity of cross examination.
The Bench stated that it is settled position of law that not providing the material used against the assessee for rebuttable and opportunity of cross examination of the statement relied upon by the AO will vitiate the validity of the assessment.
The Bench observed that the AO without pointing out any infirmity and application of mind on those documentary evidence, treated the loan amount as unexplained cash credit by relying upon the statement recorded and material collected during the search at third party premises and that too without providing the opportunity of rebuttal and cross examination.
Referring the Supreme Court's decision in case CIT vs. P. Mohanakala while dealing with scope of provision of the section 68, the Bench reiterated that “the opinion of the AO that the explanation furnished by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion.”
The Coram emphasized that the provision of section 68 suggests that if there is any sum credited in books of account maintained for the any previous year, then the assessee is required to offer proper and reasonable explanation regarding nature and sources of such credit to the satisfaction of the AO.
Thus, the primary onus lies with the assessee to explain the source of credit in the books, added the Coram.
Hence, the ITAT confirmed the finding of the CIT(A) and directed the AO to delete the addition made by him on account of Section 68, thereby dismissing the revenue's appeal.
Counsel for Appellant/ Department: Darsi Suman Ratnam
Counsel for Respondent/ Taxpayer: S.N Soparkar
Case Title: Income-tax Officer verses M/s Aashna Developers Pvt Ltd.
Case Number: ITA No. 417/AHD/2022