2023 (10) TMI 388 - AT - Income Tax

Tribunal Upholds Addition of Rs. 3.98 Crore as Unexplained Cash Credit Under Section 68; Assessee Fails to Prove Loan Genuineness.

The Tribunal set aside the CIT(A) order that deleted the addition of Rs. 3,98,98,500 as unexplained cash credit, upholding the AO's decision. The assessee ... Addition u/s 68 - unexplained cash credit - onus to prove - HELD THAT:- The assessee has not submitted any evidences/explanation to discharge its onus u/s 68 even before us. The assessee chose not to appear before us when this appeal was fixed for hearing nor adjournment application was filed. The assessee has not submitted any explanation/evidences to satisfy the mandate of Section 68. Thus, we adverse view is to be taken as despite several stages of litigation, and despite being given adequate and sufficient opportunities by us, the assessee failed to satisfy the mandate of Section 68 with respect to loan raised by assessee during the year under consideration from M/S Newwave commercial Pvt. Ltd.. The onus u/s 68 was on the assessee as the said sum stood credited in its books of accounts, which the assessee failed to discharge the identity, creditworthiness of the creditor and genuineness of the transaction - we hold that the order passed by the ld. CIT(A) did not properly dealt with the issues involved in the appeal and accordingly, we set aside the order passed by the ld. CIT(A) and sustain the order passed by the AO. In terms of the above, we allow the appeal filed by the revenue. ISSUES PRESENTED AND CONSIDERED 1. Whether the Assessing Officer was justified in treating the amount of Rs. 3.97 crores credited as loan in the assessee's books as unexplained cash credit under Section 68 of the Income-tax Act on the ground that the loan was not a genuine transaction but merely entries in the books. 2. Whether the CIT(A) erred in deleting the addition made by the AO where the assessee failed to furnish evidence to discharge the onus under Section 68 regarding identity, creditworthiness of the creditor and genuineness of the transaction. ISSUE-WISE DETAILED ANALYSIS Issue 1: Legitimacy of addition as unexplained cash credit under Section 68 Legal framework: Section 68 places the onus on the assessee to explain the identity of the creditor, the genuineness of the transaction and the creditor's creditworthiness when any sum is found credited in the books and is otherwise unexplained. Precedent treatment: No specific judicial precedents were cited in the text; Tribunal applied the statutory onus principle under Section 68. Interpretation and reasoning: The AO conducted investigations including summons/notices under Section 133(6) to bank managers and examined bank statements of the assessee, the creditor company and upstream remitting parties. The AO observed (a) the creditor company's bank balances were nominal (e.g., Rs. 18/- and Rs. 8,164/- for halves of the year), (b) upstream companies showed large deposits followed by immediate transfers to the creditor company, and (c) matching transactional patterns suggesting round-tripping or accommodation entries rather than genuine funding. On this basis the AO concluded the loan entries lacked backing by financial capacity and were merely book entries, hence unexplained cash credit. Ratio vs. Obiter: Ratio - where a credit entry is unsupported by evidence of identity/creditworthiness/genuineness and investigative material shows artificial fund movements and negligible effective balances, the AO may treat the sum as unexplained cash credit under Section 68. Conclusion: The AO's treatment of the Rs. 3.97 crores as unexplained cash credit was sustainable on the materials collected and the statutory onus framework. Issue 2: Whether CIT(A) properly deleted the addition despite absence of evidence from assessee Legal framework: Appellate authority must consider AO's findings and available material; deletion of addition requires cogent evidence from assessee discharging the onus under Section 68. Failure of the assessee to appear or to produce evidence permits adverse inference. Precedent treatment: No precedents cited; Tribunal relied on established principle that assessee bears onus under Section 68 and that appellate orders cannot ignore AO's material without counter-evidence. Interpretation and reasoning: The CIT(A) allowed the appeal primarily on the assessee's submissions, but did not address or controvert the AO's detailed investigative findings. The assessee failed to produce documentary evidence before AO, CIT(A) or Tribunal to establish identity/creditworthiness/genuineness. Additionally, the assessee did not contest the appeal at the Tribunal hearing and furnished no adjournment application. Given repeated opportunities, the absence of supporting evidence meant the onus remained unsatisfied. The Tribunal found that the CIT(A) did not properly deal with the AO's factual findings and therefore erred in deleting the addition. Ratio vs. Obiter: Ratio - an appellate deletion that relies solely on unsubstantiated submissions without addressing or negating the AO's material findings is infirm; where the assessee fails to discharge onus under Section 68 at multiple stages, adverse view sustaining the AO's addition is warranted. Obiter - procedural observations regarding non-appearance and condonation of delay (procedural) are incidental to the ratio. Conclusion: The CIT(A)'s deletion was set aside; the AO's addition under Section 68 was reinstated because the assessee failed to discharge statutory onus and the appellate order did not properly consider or rebut the AO's investigative material. Cross-reference The conclusions on Issue 1 and Issue 2 are linked: validity of the AO's invocation of Section 68 (Issue 1) depends on the assessee's failure to discharge the onus (Issue 2), and the Tribunal's reversal of the CIT(A) rests on both the evidentiary materials obtained by the AO and the absence of cogent counter-evidence from the assessee.