Mere clubbing loan account with capital account can not be treated unexplained income

Mere clubbing loan account with capital account can not be treated as unexplained income – ITAT

In a recent judgment, the ITAT Visakhapatnam has held that mere clubbing loan account with capital account in order to present better statement of account can not be treating as unexplained income.

ABCAUS Case Law Citation:
ABCAUS 4104 (2024) (06) ITAT

In the instant case, the Revenue had challenged the order passed by the CIT(A) NFAC in deleted the addition of unexplained cash credits u/s 68 of the Income Tax Act, 1961 (the Act) towards capital introduced.

The respondent assessee was a sole proprietary concern engaged in money lending for interest against gold ornaments and at the same time the gold collected against such lending will be pledged with the financial institutions for refinancing purpose.

The return was summarily processed U/s. 143(1) of the Act. Later, the case was selected for complete scrutiny under CASS for verification of the income from other sources, cash deposits increased during the year under consideration.

In response to notices issued u/s 143(2) and 142(1), the assessee submitted her response through e-filing portal. After examining the submissions made by the assessee, the Assessing Officer (AO) framed the assessment by making inter alia additions on account of introduction of capital u/s 68 of the Act.

Before the Tribunal, the Revenue contended that he Ld. CIT(A) was not justified in deleting the addition on capital introduction out of money received on account of onetime settlement for mortgaged amount with NBFC as the assessee failed to produce any supporting documentary evidence in support of her claim during the assessment proceedings.

It was further contended that the window dressing of accounts for obtaining credit facilities by indicating a financial position that is not warranted by the books of accounts of the assessee, is a commission of colossal act of misrepresentation as held by the Hon’ble High Court of Calcutta.

The Tribunal observed that the ground raised by the Revenue was related to the deletion of addition being the capital introduced by the assessee in her capital account.

The assessee contended that she was in the business of finance and had taken refinancing from a NBFC. It was further submitted that the amount from NBFC was a liability of the assessee which was also disclosed in the balance sheet. This liability was merely added back to the capital account of the assessee to project a better capital infusement by the proprietor.

It was further argued that being a proprietary concern, the assessee provisionally liable for any liability and hence grouping of liability of NBFC cannot be considered as unexplained and taxed by invoking the provisions of section 68 r.w.s 115BBE of the Act.

It was pleaded that the Revenue Authorities had  not disputed the loan amount availed by the assessee and a mere grouping of the loan with the capital account does not mean that the loan remains unexplained.

The Tribunal noted that it was undisputed that the assessee had taken a loan from NBFC. It was also undisputed that this loan amount was added to the capital account of the assessee in order to present better statement of account of the assessee. The Revenue had not disputed the loan amount taken by the assessee, but only contested the clubbing of the loan account with the capital account and thereby treating it as unexplained income and neither it can be considered as a waiver of the loan account to be taxed U/s. 68 r.w.s 115BBE of the Act.

The Tribunal held that since the outstanding amount to NBFC was not disputed by the Revenue, it cannot not be considered as a ground for considering the clubbing of the outstanding amount with the capital account as unexplained and subject it to tax U/s. 68 r.w.s 115BBE of the Act.

Accordingly, the Tribunal dismissed the ground raised by the Revenue and the appeal was dismissed.

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