2025 (2) TMI 1629 - AT - Income Tax

Deeming provision for unexplained credits: bank records and remand report can substantiate a loan explanation and negate additions.

The note addresses treatment of unexplained credit entries under the deeming provision for credited sums, focusing on the evidentiary standard required to ... Addition u/s 68 - unexplained cash-credits - whether assessee is not liable for proving source of the source? - adherance to strict rule of evidence and interpretation HELD THAT: - The Tribunal examined documents produced first before the CIT(A) (confirmation by the creditor, bank statements and ITR of the creditor, and the assessee's bank account) in compliance with Rule 46A. The remand report and bank records showed the creditor deposited funds shortly before transferring them to the assessee and that the assessee repaid the loan subsequently; neither the AO nor the CIT(A) had queried the source-of-source though that test applies w.e.f. A.Y. 2013-14. Applying the strict evidentiary approach required by the deeming fiction in section 68, and noting the absence of enquiries on the source-of-source, the Tribunal held that the assessee's explanations and produced material were satisfactory and that doubts must be resolved in the assessee's favour. [Paras 3, 4, 5] Final Conclusion: The Tribunal allowed the appeal, deleted the addition made under section 68 after finding the assessee's explanations and documents satisfactory and observing that the Revenue had not tested the source or source-of-source. Issues: Whether the addition of Rs. 10,00,000 made under section 68 of the Income-tax Act, 1961 can be sustained where the assessee produced confirmations, bank statements and remand report evidence showing the funds were loans repaid to the creditor.Analysis: The proceedings involved documents first produced before the appellate authority and remand report was obtained in compliance with Rule 46A of the Income-tax Rules, 1962. Bank records of the creditor and the assessee were examined in the remand report and corroborated the transactions: deposits into the creditor's account on 26.03.2014 and 28.03.2014, transfers to the assessee on 28.03.2014 and repayment by the assessee to the creditor on 04.04.2016. Section 68 of the Income-tax Act, 1961 requires that where a sum is credited and the explanation is not satisfactory the sum may be charged as income, and where the sum is a loan the explanation of both the assessee and the person in whose name the credit is recorded must be found satisfactory by the assessing officer. The factual matrix before the Tribunal showed no adverse inquiry or finding by the AO or the lower appellate authority on the issue of repayment or on the requirement to prove the source of the source; the remand report and bank statements supported the assessee's explanation. Given that section 68 is a deeming provision requiring careful evidentiary scrutiny, and in the absence of contrary findings by the AO or CIT(A) on the repayment and source issues, the benefit of doubt was held to favour the assessee.Conclusion: The addition of Rs. 10,00,000 made under section 68 of the Income-tax Act, 1961 is deleted and the appeal is allowed in favour of the assessee.