No Addition u/s 68 to be made as unexplained cash credit if loan creditor had deposited cash before issue of cheque
ABCAUS Case Law Citation:
ABCAUS 3026 (2019) (06) ITAT
Important Case Laws Cited/relied upon by the parties:
Orissa Corporation Pvt. Ltd. 159 ITR 78
Rohini Builders 256 ITR 360
The instant appeal filed by the assessee was directed against the order of CIT(A) in confirming the addition made by the Assessing Officer (AO) by treating the loan received by the assessee as unexplained cash credit u/s of the Income Tax Act, 1961 (the Act).
During the year under consideration, the assessee had claimed to have received a loan from a Pvt. Ltd. company. Although the confirmation of the said loan creditor was filed by the assessee during the course of assessment proceedings before the AO, the notice issued by the AO to the said loan creditor u/s 133(6) at the address given in the confirmation was returned unserved.
The assessee failed to produce the director of the lender company for verification / examination before the AO. However, the assessee produced the final account and copy of bank statement of the loan creditor.
The AO observed that there was a huge cash deposit made by the loan creditor in the bank account before issuing cheque to the assessee towards the loan.. The AO also noted that the turnover of the lender company during the year under consideration was also low.
Keeping in view all these facts and circumstances of the case, the AO held that the creditworthiness of the concerned loan creditor was not satisfactorily established and even the genuineness of the transaction was not proved.
He accordingly treated the loan claimed to be received by the assessee as unexplained cash credit and addition was made by him to the total income of the assessee u/s 68 of the Act.
On appeal, the CIT(A) confirmed the said addition holding that even though the identity of the loan creditor was established, the creditworthiness of the said creditor as well as the genuineness of the loan transaction was not proved.
The Tribunal observed that the loan confirmation of the concerned loan creditor giving all the relevant details such as name and address of the concerned creditor, PAN of the said creditor and mode of payment etc. was filed by the assessee during the course of assessment proceedings before the AO.
It was also noted that the bank account of the concerned loan creditor was also filed by the assessee along with final accounts to show that the loan given to the assessee by cheque through proper banking channel was duly reflected in the accounts of the concerned loan creditor.
The Tribunal was of the view that the primary onus that lay on the assessee to prove identity and capacity of the concerned loan creditor as well as to establish the genuineness of the relevant loan transaction thus was duly discharged by the assessee.
It is also observed that interest was paid by the assessee on the said loan and deduction claimed by the assessee for such interest was also allowed by the AO.
It was observed that the AO still treated the loan in question received by the assessee during the year under consideration as unexplained cash credit u/s 68 for the reason that the notice issued u/s 133(6) to the concerned loan creditor was returned back unserved by the postal authority and there were cash deposits found to be made in the bank statement of loan creditor before issuing cheque to the assessee for the loan in question.
The Tribunal observed that the Hon’ble Supreme Court had held that that merely because summons issued to some of the creditors could not be served or they fail to appear before the Assessing Officer cannot be the basis to treat the loans taken by the assessee from those creditors as non-genuine. It was also held that if the Assessing Officer was not satisfied about the cash amount deposited by those creditors in their bank account, the proper course should have been to make assessments in the case of those creditors by treating the cash deposits in their bank account as unexplained investment of those creditors u/s 69.
Following the ratio of decision of Hon’ble Supreme Court the Tribunal deleted the addition made by the AO and confirmed by the CIT(A) by treating the loan in question received by the assessee as unexplained cash credit u/s 68.