AO Can Make Addition Of Unexplained Cash Credit U/s 68 Only In Previous Year In Which Such Cash Credit Was Made And Assessee Fails To Explain Same: Mumbai ITAT

The Bench of Vikas Awasthy (Judicial Member) and Padmavathy S. (Accountant Member) observed that “the addition under section 68 could be made only during the year in which such credit has been received and that if the credit balance appearing in the account of the assessee is not pertaining to the year under consideration, the Assessing Officer cannot make addition under section 68 in the subsequent previous year i.e. the year under consideration”. (Para 8)

As per the brief facts of the case, the assessee is an individual carrying on the business as a manufacturer of aluminium ingots, allied metals and scrap in wastage steel under the name and style of M/s Vidhi Industries as Proprietor. The Assessing Officer noticed from the balance-sheet of the assessee that the assessee has outstanding unsecured loans to the tune of Rs.79,44,162/-. The Assessing Officer added the entire amount of unsecured loan as income u/s 68 of the Act for the reason that the assessee has not furnished any details / explanations with regard to the identity of the loan creditors, creditworthiness and the genuineness of the transactions. The Assessing Officer also disallowed the interest paid to the tune of Rs.13,633/- for same reason that the loan is not genuine.

On appeal, the CIT(A) called for a remand report from the Assessing Officer to examine the additional evidences submitted by the assessee. The Assessing Officer, in the remand report, had relied on the statement of oath under section 131 of the Act obtained from Ranjit K Yadav and Umesh Bagwale to conclude that the amount reflected against their name are bogus entries and therefore not genuine. With regard to the rest of the creditors, the Assessing Officer held that the assessee has not furnished the balance sheet, bank statement, etc. of the creditors and, therefore, failed to prove the creditworthiness and the genuineness of the transactions.

With regard to the loans taken during the year under consideration, the Bench noticed that the assessee has submitted before the CIT(A), the PAN, the statement of accounts of proprietary concern, capital account, personal balance sheet etc in the case of Nikita V Dave, and PAN, confirmations, Income Tax returns, statement of income, bank statements etc for the others.

The Bench also noted that the assessee has also furnished ledger accounts and bank statements to substantiate that all the loans have been repaid subsequently through banking channel, and the AO has not given any adverse finding with regard to the various documents submitted by the assessee as additional evidence, but has stated that the credit worthiness and genuineness are not substantiated for want of some more documents.

It is also relevant to mention that the assessee has repaid the part of the loan during the year under consideration and the balance in subsequent financial years, added the Bench.

Therefore, considering the fact and circumstances of the case, the Bench concluded that the Assessing Officer is not correct in adding the outstanding loan balance as unexplained, without recording any adverse finding with regard to the various documentary evidences submitted by the assessee and without bringing any other material against the claim of the assessee.

Hence, the ITAT allowed the appeal of assessee.

Counsel for Appellant/ Assessee: Nishit Gandhi

Counsel for Respondent/ Revenue: Rajeshwari Menon

Case Title: Shri Vijay Suresh Dave verses DCIT

Case Number: I.T.A. No.2842/Mum/2023

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