Cash credit addition u/s 68 made on the basis of statement retracted deleted by ITAT

Cash credit addition u/s 68 made on the basis of statement retracted subsequently deleted by ITAT

In a recent judgment, Cash credit addition u/s 68 made on the basis of statement retracted subsequently deleted by ITAT following law laid by Hon’ble Apex Court

ABCAUS Case Law Citation:
ABCAUS 3842 (2024) (01) ITAT

Important Case Laws relied upon by parties:
Swati Bajaj 139 352

Andaman Timber Industries vs. CCE 62
CIT vs. P. Mohanakala 291 ITR 278
CIT vs. Odeon Builders Pvt Ltd
PCIT vs. Ojas Tarmake (P) Ltd. 156 375
GTC Industries Limited 65 ITD 380
NRA Iron & Steel Pvt. Ltd. 103 48
Sadiq Sheikh 122 39
Kottex Industries (P.) Ltd 129 151

Retraction of statement

In the instant case, the Income Tax Department had challenged the order passed by the NFAC / CIT(A) in deleting the addition u/s 68 of the Income Tax Act, 1961 (the Act) towards unsecured loan taken from alleged shell/paper companies.

The respondent assessee, a private limited company was engaged in the business of real estate development. The assessee company during the relevant year had accepted unsecured loans from certain parties.

It was alleged by the Assessing Officer (AO) that the parties from whom unsecured loans were accepted by the assessee were paper/shell companies and managed by one entry provider. The basis of such an allegation was the search proceedings carried out in the case of said entry provider where certain evidence were found and his statement was recorded under section 132(4) of the Act.

Accordingly, it was unearthed that the entry provider was engaged in the activity of providing bogus accommodation entry in the form of unsecured loan, share capital or other forms through various paper/shell companies controlled and managed by him.

As such, he had appointed dummy directors in those paper/shell companies. 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 On analysis of the bank statements of those companies, it was noticed that huge amounts of cash were withdrawn from their bank accounts.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.

Based on the above, the AO found that the assessee company had taken unsecured loan from six companies which were controlled and managed by the said entry provider.

The AO proposed to treat the impugned unsecured loans as unexplained cash credit under the provision of section 68 of the Act.

However, the assessee submitted that it had accepted genuine intercorporate deposits from those six parties during the year which have been duly repaid in the next year along with interest after deducting necessary tax at source. The tax deducted on payment of interest has been duly claimed by those parties in their respective ITRs.

The assessee in support of its claim has furnished ledger copies, confirmation letters, bank statements, ITRs and annual reports of the parties. It was contended that once it is found that the loan credited through banking channel has been repaid through banking channel along with interest, then the nature and source of such credit cannot be doubted under section 68 of the Act.

The assessee further submitted that the entire basis of alleging the unsecured loan as bogus the material found during the search and statement of the entry provider. However, no such material and opportunity of cross examination had been provided. Therefore, such material or statement cannot be relied against it. It was also submitted that one of the allegations that huge amount of cash was withdrawn from banks of the alleged paper companies whereas no such cash withdrawal in case of the parties from whom it has accepted intercorporate deposits.

However, the AO treated as unexplained cash credit under section 68 of the Act and added to the total income.

The CIT(A) after considering the facts in totality deleted the addition made by the AO.

Before the ITAT, the Revenue submitted that the loan companies were formed same day, at the same address and having same email ids. All the affidavits furnished by assessee were similarly worded and notarized from one person on the same date. Furthermore, only the Ledger copy was submitted by the assessee to justify the re-payment of the loan received by it. As such, there was no bank statement furnished by the assessee of the loan parties. As per the Revenue, there was no need to furnish the opportunity of cross examination as there was sufficient collateral evidence against the assessee that the assessee had received bogus loans.

The Tribunal observed that as liad down by the Hon’ble Supreme Court 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 Tribunal noted that the assessee in support of genuineness of loan have furnished all the necessary documents such as ledger of parties, contra ledger from the parties and confirmation, ITRs, bank statements and annual reports. However, 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.

The Tribunal observed that in the identical facts and circumstances, the Hon’ble Supreme Court has confirmed the concurrent finding of CIT(A), the ITAT and the High court in favour of the assessee by observing that concurrent factual findings, had not been shown to be perverse.

The Tribunal further observed that the provision of section 68 of the Act 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. Over the period, the Hon’ble Courts have laid down that the assessee to discharge its onus is required to furnish evidence with respect to identity of the creditor, genuineness of transaction and credit worthiness of the creditor. If the assessee fails to discharge the primary onus cast or the explanation and evidence submitted by the assessee was not found satisfactory by the AO, then the sum credited in the books shall be deemed as income of the assessee.

The Tribunal further observed that while dealing with scope of provision of the section 68 of the Act the Hon’ble Supreme Court has held that “the opinion of the Assessing Officer (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.” In other words, 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.

The Tribunal observed that the assessee during the assessment proceeding in support of genuineness of credit of unsecured loans has furnished ledger of parties, contra ledger from the parties and confirmation, ITRs, bank statements and annual report of parties along with their affidavit. The AO in assessment order has nowhere referred to any independent inquiry of whatsoever made to disprove the primary evidence provided by the assessee and not pointed out any infirmity in those evidence. As such, the AO merely on the basis statement of entry provider which has been retracted subsequently held the unsecured loans as unexplained cash credit.

The Tribunal opined that the approach taken by the AO was not justified. As such the AO failed to appreciate the facts, evidence provided, and case laws relied upon by the assessee company. The assessee company had taken loan through banking channel and repaid the same in the next year along with interest through banking channel and deducted TDS on the interest. It was also important to note that the interest had been allowed by the AO during the assessment which has direct nexus on the loan in dispute. As such the AO had taken a contrary stand. Thus, the loan amount cannot be made subject to addition under the provisions of section 68 of the Act in view of the judgment of Hon’ble Jurisdictional High Court

Accordingly, the Tribunal confirmed the finding of the CIT(A) and directed the AO to delete the addition made by him.

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