Addition u/s 68 made by AO without issuing notice to creditors deleted by ITAT

Addition u/s 68 made without issuing notice to creditors deleted by ITAT as AO failed to conduct inquiry. Had creditors not responded, addition might be justified

ABCAUS Case Law Citation:
ABCAUS 2874 (2019) (04) ITAT

In the instant case, the assessee was in appeal before the Tribunal against the order passed by the CIT(Appeals) whereby he had confirmed the addition made by the Assessing Officer (AO) u/s 68 of the Income Tax Act, 1961 (the Act).

The case of the assessee was selected for scrutiny assessment and notice under section 143(2) of the Act was issued and served upon the assessee.

On perusal of the accounts, it revealed to the AO that the assessee had received unsecured loans from 76 parties/creditors.

He directed the assessee to explain the source of these amounts. The assessee submitted a list of 76 persons from whom he has taken money in the range of Rs. 15,000/- to Rs. 19,000/- per person. The assessee compiled the details before the AO, wherein he disclosed PAN of each creditor, date of receipt of amount and confirmation and date of repayment.

The AO did not issue any show cause notice to the creditors, rather he directed the assessee to produce creditors before him.

To the query of the AO, the assessee produced five-six persons out of the 76 persons. The AO was not satisfied with the explanation of the assessee, and with aid of section 68, he made addition.

Appeal to the CIT(A) did not bring any relief to the assessee.

The Tribunal observed that perusal of the details submitted revealed that the assessee had given PAN of each creditor. He had given dates on which these amounts had been taken. He had given the details of confirmation. He had also submitted the details of repayments.

The Tribunal observed that Section 68 of the Act contemplates that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof, or the explanation offered by the assessee is not, in the opinion of the AO satisfactory, then the sum so credited in the accounts may be treated as income of the assessee of that previous year.

The Tribunal noted that the assessee had given basic details to the AO. However, the AO did not issue any summons to any of the creditors. He simply directed the assessee to produce before him. The assessee had produced four-five creditors, but the AO could not conduct inquiry on account of paucity of times, because he had taken up assessment proceedings for scrutiny very late.

In view of the above, the Tribunal opined that the AO had failed to conduct inquiry. Had he issued notice to these individuals and they had not responded, then probably he might be justified to ask for fresh evidences or fresh addresses etc. But he could not have added the cash credit without making any inquiry.

The Tribunal allow the ground of appeal and deleted the disallowance.       

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