Addition u/s 68 for cash deposit prior to issue of cheque by lender deleted as deposit was out of cash withdrawn earlier
ABCAUS Case Law Citation
ABCAUS 3490 (2021) (04) ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming addition u/s 68 of the Income Tax Act, 1961 (the Act) made by the Assessing Officer (AO)
The appellant assessee was a partnership firm. The return of income of the firm was selected for scrutiny assessment.
During the relevant assessment year, the assessee had taken a temporary loan from a lender which were repaid within the financial year and the loan were squared off within the same year.
To prove the identity and genuineness of the transaction and creditworthiness of the lender, the assessee submitted all relevant details, i.e. copy of confirmation from the lenders, copy of lender’s income tax returns (ITRs) and bank statements.
The AO issued notice u/s 133(6) to the parties. From the information gathered, the AO observed that cash was deposited in the account of the lender before issue of cheque to the assessee.
The AO doubted the genuineness of the transaction and made the impugned addition.
Before the Tribunal, the assessee submitted that creditworthiness of the lenders was proved from the income returned by them
Cash deposit prior to issue of cheque by lender out of cash balance
It was further submitted that two months before the deposit of cash in bank, the lender had withdrawn cash from bank and therefore deposit of cash prior to issue of cheque by the lender was not significant in view of cash in hand.
The Tribunal stated that the confirmation letters, bank statements, use of banking channel, ITR of the lender and repayment within year clearly proved the bona fide of the transaction in totality.
The Tribunal opined that the lender had responded to the notice u/s 133(6) issued by the AO and in the event of any doubt, the AO could have extended suitable enquiries instead of making assumptions and presumptions.
The Tribunal stated that deposit of cash from earlier withdrawal provided plausible explanation towards cash deposit in the bank in the absence of any enquiry in this regard by the AO to the lender.
Borrower has no control over manner of carrying transaction by lender.
The Tribunal further stated that the borrower assessee could not be seen to have any perceptible control over the manner of carrying transaction by the lender.
The Tribunal opined that the repayment of loan exists as a strong mitigating circumstance and transcends all considerations.
The Tribunal found that the documents placed by the assessee before the Revenue significantly discharged the onus towards the identity and genuineness of the transaction and creditworthiness of the lender as contemplated under section 68 of the Act.
Accordingly, the addition was deleted and the Tribunal allowed the appeal in the favour of the assessee.
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