2021 (3) TMI 1483 - AT - Income Tax

Addition under s.68 deleted where bank cash deposit proved as assessee's own earlier advance; appeal dismissed

J.C.I.T (OSD), Circle-3 (1) (2), Ahmedabad. Versus M/s Radhe Developers (India) Ltd.

ITAT upheld the deletion of an addition under s. 68 where the AO had treated a bank cash deposit as unexplained; CIT(A) found the assessee met conditions ... Addition u/s 68 - onus to prove - unexplained cash deposit in the bank account - HELD THAT:- In the case on hand, the assessee has received a sum from Shri Kanjibhai Desai which was treated as unexplained cash credit under section 68 of the Act by the AO. However, the learned CIT (A) was pleased to delete the addition made by the AO by observing that the assessee has complied with the conditions as specified under section 68 of the Act. This Tribunal in the own case of assessee [2021 (3) TMI 918 - ITAT AHMEDABAD], involving identical facts and circumstances has decided the issue in favour of the assessee as held amount received by the assessee represents its own money which was advanced in the earlier year as elaborated somewhere in the preceding paragraph. Appeal of the revenue is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether a sum received by the assessee from a land aggregator can be treated as unexplained cash credit under section 68 of the Income Tax Act when the assessee asserts that the sum is repayment of advances earlier made by the assessee? 2. Whether the assessee discharged the onus under section 68 by proving identity, genuineness of transaction and creditworthiness of the depositor where payments and repayments passed through banking channels and documentary evidence (PAN, bank statements, confirmations, earlier ledger entries) was placed on record? 3. What is the evidential significance, for the assessee's claim under section 68, of a contemporaneous finding in the depositor's assessment proceedings that the source of cash deposits in the depositor's bank account is explained? 4. Whether the fact that funds were paid by a group company to the land aggregator and later remitted to the assessee justifies treating the receipts in the assessee's hands as undisclosed income when records show earlier advances from the assessee to the aggregator. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of section 68 to amounts claimed as repayment of earlier advances Legal framework: Section 68 treats unexplained cash credits as income unless the assessee explains the nature and source; the assessee bears onus to prove that amounts reflected in books are not unexplained credits. Precedent Treatment: The Tribunal relied on an earlier decision in the assessee's own case (identical facts for an earlier assessment year) and followed that reasoning. Interpretation and reasoning: The Tribunal examined audited financial statements showing advances to the aggregator in an earlier year, the contemporaneous ledger/balance showing a substantial advance balance, and documentary proof that amounts received in the year under consideration corresponded to repayments. The revenue offered no cogent evidence contradicting that the receipts were repayments of the assessee's own earlier advances. Ratio vs. Obiter: Ratio - where the assessee's books and supporting documentary evidence establish prior advances and receipts matching those advances, the receipts cannot be treated as unexplained credits under section 68. Conclusions: The Tribunal held that section 68 is not attracted when the amount received represents repayment of the assessee's own earlier advances and the facts demonstrating that position are uncontroverted. Issue 2 - Discharge of the onus under section 68: identity, genuineness and creditworthiness Legal framework: The legal test under section 68 requires proof of (i) identity of the creditor/depositor, (ii) genuineness of the transaction, and (iii) creditworthiness of the creditor. Precedent Treatment: The Tribunal applied settled principles that documentary proof (PAN, address, bank statements, confirmations) and transaction through banking channels are relevant and can discharge the assessee's onus. Interpretation and reasoning: The assessee furnished PAN, address, confirmations from the depositor, bank statements of both depositor and assessee showing account-payee cheques, ledger entries evidencing earlier advances, and statements recorded under section 131(1A) corroborating the repayment narrative. Transactions were carried out through banking channels, which supported genuineness. The depositor's capacity to effect the repayments was shown by prior bank withdrawals funded by earlier cheques from the assessee. Ratio vs. Obiter: Ratio - production of PAN, confirmations, bank statements showing account-payee cheques and evidence of earlier advances are sufficient to discharge the onus under section 68 unless rebutted by positive evidence. Conclusions: The Tribunal concluded that the assessee discharged the onus regarding identity, genuineness and creditworthiness and therefore the amount could not be treated as unexplained cash credit. Issue 3 - Evidential effect of the depositor's assessment outcome on the assessee's claim Legal framework: Findings in related proceedings (e.g., assessment of the depositor) are relevant when they establish that the source of funds in the depositor's hands was accepted by Revenue after verification. Precedent Treatment: The Tribunal treated the assessment outcome in the depositor's case as a corroborative material fact to be given weight in the assessee's case. Interpretation and reasoning: The AO in the depositor's reassessment examined cash books, bank books, daily cash balances and sources of cash deposits and made no addition, implying acceptance of the depositor's explanation. The Tribunal reasoned that if the source of cash deposits was held explained in the depositor's hands after verification, the capacity and genuineness in the depositor's hands cannot be doubted for the purposes of section 68 in the assessee's hands. Ratio vs. Obiter: Ratio - an independent finding accepting the depositor's source of funds after verification is relevant and supports the assessee's explanation regarding repayment. Conclusions: The Tribunal held that acceptance of the depositor's explanation in his own proceedings strengthens the assessee's case and militates against treating the receipts as unexplained credits. Issue 4 - Relevance of group-company cash movements and mode of return of funds Legal framework: AO may examine motive and mode of transactions (cash vs banking channel) but must base additions on evidence indicating unexplained income rather than speculative inferences. Precedent Treatment: The Tribunal rejected the AO's inference that cash handed over within same-bank accounts and subsequent banking-mode return implies undisclosed income absent contrary evidence. Interpretation and reasoning: The AO posited that it was illogical for cash to be handed over and then banked if the funds were genuine, and that return to the assessee rather than to the group concern indicated concealment. The Tribunal found these to be speculative, noting documented earlier advances by the assessee, contemporaneous bank transfers, and debtor confirmations which coherently explained why repayments were routed to the assessee. The mere fact that initial movement involved cash (for operational reasons of land acquisition) and return was through banking channel does not prove unaccounted income where contemporaneous records explain the flow. Ratio vs. Obiter: Ratio - speculative inferences about the irrationality of banking practices do not suffice to treat accounted receipts as unexplained when documentary evidence explains the transaction chain. Conclusions: The Tribunal rejected the AO's theory that internal group cash movements converted into bank credits constituted unexplained income, upholding the assessee's explanation. Overall Conclusion The addition under section 68 was deleted: the assessee demonstrated that receipts were repayments of earlier advances, discharged the onus as to identity, genuineness and creditworthiness by documentary evidence and corroborating findings in the depositor's assessment, and the AO's contrary inferences were not supported by positive evidence. The Tribunal therefore dismissed the revenue's appeal. Cross-objection challenging validity of reassessment was rendered infructuous and dismissed.