2023 (12) TMI 1485 - AT - Income Tax

Unsecured loans and unexplained cash credit: addition overturned where identity, genuineness and creditworthiness were substantiated by records.

Addition under unexplained cash credit provisions was contested where assessee accepted unsecured loans. The assessee produced identity details, account ... Unexplained cash credit - Addition u/s 68 - assessee accepted unsecured loan from various parties - AO also made addition towards proportionate interest on unsecured loan - as per revenue identify, genuineness and the credit worthiness of the companies not established by the assessee. HELD THAT:- Assessee has submitted identity for which name, address and PAN was given before the AO as well as before the CIT(A). As regards the genuineness, the assessee has stated that the assessee required the same fund for its deficit of working capital and at that particular time the assessee required the fund. As regards to creditworthiness, from the confirmation of accounts, copy of bank statements, copy of ITR acknowledgement, copy of Leger account of the said Aheli Projects Limited and Berhampur Finance & Leasing Pvt. Ltd, though the tax liability was shown lesser still funds were very much available with the parties while giving loan to the assessee. This fact remains on record and these evidences which was without any reason doubted by the AO. Thus, the addition made u/s 68 by the AO does not sustain. In fact in subsequent A.Y. i.e. April 2015 the assessee has repaid the loans and deducted tax at source. Thus, ground no. 1 is allowed. Issues: Whether the addition of Rs.60,00,000 as unexplained cash credits under Section 68 of the Income-tax Act, 1961 and the consequential disallowance of proportionate interest are justified.Analysis: The assessee produced identity details (name, address, PAN), confirmations, bank statements, ITR acknowledgements and ledger accounts for the creditor companies. The material on record demonstrated availability of funds with the alleged creditors and established the genuineness of the transactions undertaken to meet working capital requirements. The repayments made subsequently with deduction of tax at source in April 2015 further corroborated the transactions. The Assessing Officer's doubts about low declared tax liability of the lenders did not outweigh the documentary evidence of funds and genuineness supplied by the assessee. The disallowance of proportionate interest flowed from the primary addition under Section 68 and was therefore consequential.Conclusion: The addition of Rs.60,00,000 under Section 68 is not sustainable and is deleted; the consequential disallowance of proportionate interest is also deleted. Ratio Decidendi: Where an assessee furnishes cogent documentary evidence establishing the identity, genuineness and availability of funds of creditors (including confirmations, bank statements and tax filings), an addition under Section 68 cannot be sustained merely because the creditors show low tax liability.