2024 (2) TMI 325 - AT - Income Tax

Assessee wins Section 68 additions case on cash deposits and unsecured loans with proper documentation

ITAT Ahmedabad ruled in favor of the assessee in two Section 68 additions. First, regarding cash deposits of Rs. 50 lakhs during demonetization, the ... Addition u/s. 68 - Source of cash deposited in the bank - sales credited to profit and loss account and declared as income - HELD THAT:- Admittedly, the assessee deposited cash during the demonetization period for Rs. 50 lakhs in two different bank accounts. The sources of such deposit were explained by the assessee as sales proceeds of jewellery business in which he indulges during the month of October 2016. The assessee, in support of his explanation, furnished a business permission letter from AMC, VAT registration certificate, sales bills and VAT return etc. AO, without pointing any defect in the documentary evidence filed by the assessee held the cash deposit from unaccounted sources merely on reasoning that the assessee has not maintained stock register. Assessee has duly shown the cash receipt from the sale of gold/gold ornaments duly recorded in audited books of the account supported by sales bill and stock details. AO has not pointed out any defect in the books of accounts. Therefore, AO cannot treat the cash generated from sales duly recorded in books of account from unexplained/unaccounted sources unless books of account rejected based on valid reasons. Thus set aside the finding of the CIT(A) and direct the AO to delete the addition made by him Decided in favour of assessee. Addition u/s. 68 being unsecured loans - onus to prove - order of the AO was confirmed by the Ld. CIT(A) by observing that the credit of unsecured loan from the parties cannot be treated as explained merely by providing PAN and bank statement until the proof of identity and credit worthiness of the parties are established - HELD THAT:- The provision of section 68 cast primary onus on the assessee to explain the nature and source of the sum credited in the books of account. This primary onus can be discharged by establishing/furnishing the proof of the identity of the creditor, their creditworthiness and genuineness of transaction. Once the primary evidence in relation to the identity, genuineness and creditworthiness is furnished by the assessee, the burden shifts on the revenue to bring credible material before rejecting the primary document furnished by the assessee. Assessee has discharged the onus cast upon him by furnishing ledger confirmation from the creditor, their PAN, their copy of ITR, and their Bank statements. In our considered view, the identity of the creditor was duly established by furnishing their PAN, ITR and bank statement. Likewise, the genuineness of the transactions also got established by the fact that the transactions were carried out through banking channel which were duly reflecting in their respective bank statements and duly recorded in the books of account as loan which also confirmed by the creditor. Revenue authorities do not bring any material on record suggesting otherwise. AO does not point out any infirmity the in the primary documents nor conducted direct investigation from the creditors/ parties by issuing notice u/s 133(6)/131(1) - we are of the view that the genuineness of transaction cannot be doubted. Creditworthiness of the creditor who lent such sum to the assessee we note that the loan amount received by the assessee from different creditor varying between Rs. 50 thousand to Rs. 2 lacs which are not huge sum. In addition to that the assessee provided PAN details as well as copy of ITR-V of the creditor based on which the revenue authority should have access to financial detail of the creditor. The assessee also furnished copy of bank statement of the creditor showing the availability of fund before lending money to the assessee. The revenue authorities without pointing any infirmity in the documentary evidence furnished by the assessee as well as without bringing independent material on record suggesting that the creditor does not possess the creditworthiness to lend money. Thus revenue authorities failed to discharge the burden shifted on them. Therefore, sum credited in the books of the assessee cannot be treated as unexplained u/s 68. Decided in favour of assessee. Issues Involved:1. Addition of Rs. 50,00,000 under Section 68 as unexplained cash credit.2. Addition of Rs. 4,65,000 under Section 68 as unexplained unsecured loans.Issue 1: Addition of Rs. 50,00,000 under Section 68 as Unexplained Cash CreditThe first issue raised by the assessee is that the learned CIT(A) erred in confirming the addition of cash deposit of Rs. 50 Lakh as unexplained cash credit under section 68 of the Act. The assessee, engaged in the business of trading gold and silver under the name M/s Adheshwer Jewelers, deposited Rs. 50 Lakh during the demonetization period. The assessee explained the source of the cash deposit as sales proceeds from the Diwali festival period, supported by sales bills and a cash book. However, the AO rejected this explanation due to deficiencies such as lack of evidence of purchases, non-maintenance of a stock register, and incomplete sales bills. The AO treated the entire cash deposit as unexplained cash credit under section 68 and added it to the total income.The learned CIT(A) confirmed the AO's addition. The assessee appealed, submitting evidence such as VAT registration certificates, sales bills, and cash book entries. The Tribunal noted that the AO did not point out any defects in the documentary evidence and that the VAT registration was valid before the demonetization period. The Tribunal also referenced similar cases where additions under section 68 were deleted due to proper maintenance of books and supporting evidence. The Tribunal concluded that the AO could not treat the cash generated from sales as unexplained without rejecting the books of account based on valid reasons. The Tribunal directed the AO to delete the addition of Rs. 50 Lakh.Issue 2: Addition of Rs. 4,65,000 under Section 68 as Unexplained Unsecured LoansThe second issue raised by the assessee is that the learned CIT(A) erred in confirming the addition of Rs. 4,65,000/- as unexplained cash credit under section 68 of the Act. The AO found that the assessee had shown loans from three parties and treated these as unexplained cash credits due to failure to establish the genuineness of the transactions and the creditworthiness of the loan parties. The assessee provided confirmations, PAN details, and bank statements of the parties, arguing that the amounts were small and the creditworthiness should not be questioned.The Tribunal noted that the assessee had discharged the primary onus by providing necessary documents, and the revenue authorities did not bring any material to suggest otherwise. The AO did not point out any infirmities in the documents or conduct direct investigations. The Tribunal concluded that the genuineness of the transactions could not be doubted and that the revenue authorities failed to discharge their burden. The Tribunal directed the AO to delete the addition of Rs. 4,65,000.ConclusionIn conclusion, the Tribunal allowed the appeal filed by the assessee, directing the AO to delete the additions of Rs. 50,00,000 and Rs. 4,65,000 made under section 68 of the Act. The order was pronounced in the Court on 04/10/2023 at Ahmedabad.