Addition u/s 68 deleted as there was no cash trail, rotation of funds, or incriminating evidences, no enquiry conducted into records furnished by assessee
In a recent judgment, ITAT Guwahati has deleted addition of unexplained cash credit u/s 68 as there was no cash trail, rotation of funds, or incriminating evidences, no enquiry was conducted into evidences furnished by the assessee.
ABCAUS Case Law Citation:
4915 (2025) (12) abcaus.in ITAT
The case of the appellant assessee was reopened u/s 147 of the Income Tax Act, 1961 (the Act) by issuing notice u/s 148 of the Act after the AO received the information through insight portal, which revealed that a NBFC company had transferred a large sum in the account of the assessee.
It was observed by the AO that during the course of inquiry by the investigation wing into the financials of said company, the said party was not having any creditworthiness and these transactions were of suspicious nature.
The AO on the basis of said details/ information and also the information available on the insight portal of the department noted that the assessee was a salaried employee and thus, doubted such a large amount advanced by the said company to the assessee.
Finally, the AO treated the loan taken as unexplained cash credit/ bogus credit and added to the income of the assessee u/s 68 of the Act.
In the first appellate proceedings, the CIT (A) also confirmed the order of the ld. AO by dismissing the appeal of the assessee observing that said loan was outstanding for more than 5 years and even after that a small amount of repayment was shown from the appellant.
The CIT was of the view that it was not possible that any NBFC which generally carries on the business of advancing loan on interest shall advance such a huge amount of loan to any person, without charging interest, without taking any security and is not concerned about the repayment of even principal amount.
The CIT(A) also noted that from the copies of bank statements of NBFC that whatever sum of money is credited, the equivalent amount is transferred either to an educational institution or the appellant himself on the same day. All these facts clearly indicate that the said loan received by the appellant is not a genuine loan.
The Tribunal noted that the assessee claimed to have raised a loan from the said NBFC company and immediately thereafter it was advanced to educational institution and the money was used for setting up a School in Kamrup, Assam.
The Tribunal noted that the said Educational Institute was a Section 8 company jointly promoted by the assessee and the lender for setting up a School at Baihata Chariali, Assam. This clearly demonstrated the clear commercial rationale and bona fide nature of the transaction and therefore it was not an accommodation entry or colorable device as held by CIT(A).
The Tribunal further noted that the assessee, before both the authorities below, had furnished all the evidences proving the identity and creditworthiness of the lenders and genuineness of the transactions. The assessee had filed all the documents before the authorities comprising ITR, audited balance sheet, loan confirmation, bank statement and even assessment order u/s 143(3) of the Act in case of the lender. Also, AO in order to independently verify the transactions issued notice u/s 133(6) of the Act which was duly replied by the said NBFC by confirming the transactions. The authorities below had not pointed out any defect or deficiency in the documents furnished by the assessee as well as by the lender by doing any further enquiry. Therefore, the impugned order could not be sustained.
The Tribunal observed that the addition made by the Assessing Officer was based solely on suspicion, generalized allegations relating to third parties, and reliance on purported statements recorded in unrelated search proceedings none of which were ever furnished/confronted to the assessee or subjected to cross-examination without enquiring or dealing with the evidences furnished by the assessee.
The Tribunal further opined that the reliance on untested, undisclosed material is a direct violation of the fundamental principles of natural justice as enunciated by the Hon’ble Supreme Court.
It was further noted that no adverse material, no cash trail, rotation of funds, or incriminating evidences relating to the assessee’s transaction was brought on records by the authorities below. No enquiry had been conducted into the documents/ evidences furnished by the assessee. The reassessment itself was based on borrowed satisfaction arising merely from FIU alerts and Investigation Wing references, without any application of mind to the assessee’s own facts or records. Moreover, no cross examination was allowed to the assessee to examine the material and the person whose statement was relied by the AO which was in violation of natural justice.
As a result, the Tribunal set aside the impugned order and directed AO to delete the addition made.
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