Debit entries also to be considered for cash credit u/s 68. Credit entries can’t be looked in isolation

Debit entries should also be considered for cash credit entries u/s 68. Credit entries cannot be looked into isolation ignoring debit entries.

ABCAUS Case Law Citation
ABCAUS 3581 (2022) (02) ITAT

Important case law relied referred:
CIT Vs. Rohini builders 256 ITR 36

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the addition made by Assessing Officer (AO) for alleged accommodation entries as unexplained cash credits u/s 68 of the Income Tax Act, 1961 (the Act).

There was a search and seizure operation under section 132 of the Act in the case of a business group.

During the search proceedings it was discovered that among other companies, one company was engaged in providing the accommodation entries. The appellant assessee had obtained unsecured loan from the said company.

Accordingly, the AO treated the same as non-genuine loan and made the addition under section 68 of the Act to the total income of the assessee.

Before the Tribunal, the assessee contended that he had received only half of the alleged amount as unsecured loan from the company which was returned. However, the payment was failed and therefore there were double entries reflecting in the bank statement. 

It was explained that one entry was of the repayment and the other entry was of the cancellation of such repayment which was shown in the deposit column of the bank statement. But the revenue authorities had misunderstood these entries.

Besides the above, it was contended that the amount of loan received by the assessee had been repaid and therefore the genuineness of the transactions cannot be doubted merely on the reasoning that the other party being found engaged in the activity of providing accommodation entry. 

In view of the admitted facts, the Tribunal held that, the assessee had received only the half amount against the amount as alleged by the revenue.

Further, the Tribunal opined that the loan was refunded in the same financial year implying that the assessee was not the beneficiary of the loan received by it as alleged by the AO. Therefore, the impugned transaction was the business transactions between the assessee and the loan parties.

The Tribunal stated that the question for the adjudication was whether only the credit entries should only be considered for the purpose of cash credit entries as provided under section 68 of the Act after ignoring the debit entries.

The Tribunal opined that debit entries cannot be set aside for determining the income of the assessee. It stated that though the transactions of the loan received by the assessee was not free from any doubt but in either of the case, once repayment of the loan has been established based on the documentary evidence, the credit entries cannot be looked into isolation after ignoring the debit entries.

Accordingly, the Tribunal set aside the finding of the CIT-A and directed the AO to delete the addition made. The ground of appeal was allowed in favour of the assessee.

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