2018 (2) TMI 1702 - AT - Income Tax

Tribunal decision: Section 68 additions upheld for some creditors, Section 2(22)(e) not applicable

The Tribunal partly allowed the Revenue's appeal, confirming the addition under Section 68 for creditors other than Mohit Gaur and Kanishk Sharma, whose ... Addition u/s 68 - unsecured loans received by assessee from various persons - Held that:- AO has not made proper inquiries in respect of loan creditors other than Mohit Gaur and Kanishk Sharma. In fact Ld.CIT(A) himself records that in the accounts of other loan creditors there were corresponding cash entries. Thus the credit worthiness & genuineness of transactions with remaining creditors have not been established by assessee as required u/s 68. Thus, in our view, Ld.CIT(A) was wrong in deleting the entire addition. Therefore we confirm the addition to the extent of credit entries other than of Sh.Mohit Gaur and Sh.Kanishk Sharma. - Decided partly in favour of assessee. Deemed dividend u/s 2(22)(e) - Held that:- It is not disputed that assessee had advanced loans to the company during the year under consideration and company has returned back this money to assessee. Here assessee being a share holder has advanced loans to the company, which do not fall within the ambit of provisions of s.2(22)(e) of the Act - Decided in favour of assessee Issues Involved:1. Applicability of Section 68 of the Income Tax Act.2. Creditworthiness and genuineness of loan transactions.3. Applicability of Section 2(22)(e) regarding deemed dividends.4. Adequacy of the appellate order by CIT(A).Issue-wise Detailed Analysis:1. Applicability of Section 68 of the Income Tax Act:The Revenue contended that the assessee failed to establish the identity, creditworthiness, and genuineness of the loan transactions as required under Section 68. The assessee received unsecured loans amounting to Rs. 87,51,548/- from various individuals, including relatives and employees. The Assessing Officer (AO) observed that the creditors had meager incomes and could not satisfactorily explain the source of funds, particularly the cash deposits made just before advancing the loans. The AO doubted the genuineness of these transactions and added Rs. 87,51,548/- to the assessee's income under Section 68.2. Creditworthiness and Genuineness of Loan Transactions:The CIT(A) deleted the addition made by the AO, noting that the assessee provided confirmations, bank statements, and income tax returns of the creditors. Specifically, for Mohit Gaur and Kanishk Sharma, who advanced Rs. 50 lakhs each, the CIT(A) observed that they had taken loans from Allahabad Bank against the mortgage of their properties. The CIT(A) considered this sufficient to establish their creditworthiness and the genuineness of the transactions. However, the Tribunal found that the CIT(A) failed to adequately address the creditworthiness and genuineness of other creditors, particularly those with corresponding cash deposits before advancing the loans. Thus, the Tribunal upheld the addition for creditors other than Mohit Gaur and Kanishk Sharma.3. Applicability of Section 2(22)(e) Regarding Deemed Dividends:The AO invoked Section 2(22)(e) to add Rs. 2,35,78,675/- to the assessee's income, arguing that payments made by M/s Tarunika Gaur Housing & Construction Ltd. to the assessee, who held a 97.54% shareholding, were deemed dividends. The assessee contended that these payments were repayments of loans he had advanced to the company. The CIT(A) found that the ledger account of the assessee in the company's books showed a credit balance throughout the year, indicating that the payments were indeed loan repayments and not advances. The Tribunal upheld the CIT(A)'s decision, stating that the provisions of Section 2(22)(e) were not applicable as the transactions were repayments of loans advanced by the assessee to the company.4. Adequacy of the Appellate Order by CIT(A):The Revenue argued that the CIT(A) did not pass a speaking order and failed to address the surrounding facts and circumstances adequately. The Tribunal noted that while the CIT(A) provided a detailed analysis for some creditors, it did not sufficiently address the issues for others, particularly those with unexplained cash deposits. Thus, the Tribunal found the CIT(A)'s order partially inadequate and confirmed the addition for creditors other than Mohit Gaur and Kanishk Sharma.Conclusion:The Tribunal partly allowed the Revenue's appeal. It confirmed the addition under Section 68 for creditors other than Mohit Gaur and Kanishk Sharma, whose creditworthiness and genuineness were established. The Tribunal upheld the CIT(A)'s decision regarding the non-applicability of Section 2(22)(e) for deemed dividends, as the payments were loan repayments. The Tribunal also noted the inadequacy of the CIT(A)'s order in addressing the issues for all creditors comprehensively.