Opening balance of loan creditor cannot be treated as unexplained cash credit or bogus credit

Opening balance of loan creditor brought forward from preceding year cannot be treated as unexplained cash credit or bogus credit

ABCAUS Case Law Citation
ABCAUS 3492 (2021) (04) ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming an addition on account of unexplained cash credit u/s 68 of the Income Tax Act, 1961 (the Act).

The assessee was a partnership firm. During the   assessment proceedings, the Assessing Officer noted that   the assessee had shown unsecured loan from the persons, who had not filed their return of income. 

The Assessing Officer (AO) issued notice u/s 142(1) and called the assessee to furnish the details of sundry creditors gross receipt and details of various expenses. 

The AO noted that despite number of opportunities, the assessee could not furnished the requisite information and details in respect of the sundry creditors/ loans.

The AO also issued notice u/s 133(6) to various persons from whom unsecured loan were claimed. From the replies, it was found that most of the persons were return filer except one Smt. Sharda Singh who is household lady and claimed to have given a substantial amount.

The AO accepted the unsecured loan in respect of the other persons except the said lady. The AO held that the loan creditor had no source of income and therefore, the creditworthiness of the creditor was not genuine.

Accordingly, the AO made addition of the said loan amount as bogus sundry creditor.

The assessee challenged the action of the AO before the CIT(A) but could not succeed.

Before the Tribunal, the assessee submitted that the unsecured loan under question was not taken during the year under consideration but it is brought forward balance from the preceding year. He submitted that the amount was shown as opening balance and the same was repaid during the year under consideration.  He also referred to the audit report and submitted that the auditor had also not raised any objection regarding the fact that this loan was taken in   the preceding year and it was only an opening balance. 

Therefore, the assessee submitted that an opening balance and therefore cannot be treated as unexplained cash credit or bogus credit for the year under consideration.

The assessee also referred to the assessment order passed u/s 143(3) for the preceding AY and submitted that the AO had not doubted the genuineness of this loan, which was taken during the said year.

The Tribunal noted that if the loan was introduced in the preceding year and the AO while passing the assessment   order u/s 143(3) for preceding AY had not doubted the genuineness of the loan then the same cannot be held as a bogus sundry creditor for the year under consideration. 

The Tribunal noted that neither the Assessing Officer nor the CIT(A) had verified and consider this explanation of the assessee that the loan amount was only a brought forward amount and shown as opening balance and no new loan was taken from the loan creditor during the year under consideration.

The Tribunal, remanded the issue to the record of the CIT(A) for limited purpose to verify the fact whether the loan amount was only an opening balance and brought forward from the preceding year and then decide the issue afresh.

Thus the ground of appeal was allowed in favour of the assessee.

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