Section 68 addition unsustainable when assessee lacks books of accounts, genuine banking transactions established

ITAT Delhi held that Section 68 addition was not sustainable as assessee did not maintain books of accounts, making Section 68 inapplicable. The assessee received interest-free loans through normal banking channels and successfully established the lender's identity, creditworthiness, and transaction genuineness. The lender was an income tax assessee with audited balance sheets reflecting the loan, and tax audit reports showed no adverse comments. The tribunal found that source of source need not be proved for unsecured loans, and the transaction's genuineness was established through proper documentation. Appeal allowed.

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Issues Involved:
The appeal challenges the addition of Rs. 25,00,000/- and Rs. 6,96,700/- made by the Assessing Officer, confirmed by the Commissioner of Income Tax (Appeals), under sections 68 and 127 of the Income Tax Act, 1961.

Issue 1: Unexplained Cash Credit of Rs. 6,96,700/-
The case involved unexplained cash credit of Rs. 6,96,700/- as per the auditor's report under section 142(2A). The assessee failed to provide any explanation for the amount, leading to its addition under section 68 of the Income Tax Act, 1961.

Issue 2: Addition of Unsecured Loan of Rs. 25,00,000/-
The appellant raised an unsecured loan of Rs. 25,00,000/- and was asked to establish the identity, creditworthiness, and genuineness of the transaction. However, discrepancies in the lender's bank account transactions and income tax return led to the conclusion that the amount was an unexplained credit under section 68.

Judgment:
The Commissioner of Income Tax (Appeals) partly allowed the appeal, setting aside the addition of Rs. 6,96,700/- and confirming the addition of Rs. 25,00,000/-.

Appellant's Argument:
The appellant contended that the addition of Rs. 25,00,000/- lacked incriminating documents, providing evidence of the lender's creditworthiness and genuineness. The appellant maintained that the loan was interest-free and proved the transaction's legitimacy.

Department's Argument:
The department argued that the appellant failed to prove the transaction's compliance with section 68, citing discrepancies in cash deposits and loan repayments. The department contended that the appellant received an interest-free loan despite the lender paying interest on other loans.

Court's Decision:
Upon review, it was found that the appellant received interest-free loans through normal banking transactions, supported by documents demonstrating the lender's creditworthiness. The court emphasized that the appellant had established the identity, creditworthiness of the lender, and the genuineness of the transaction, falling within the purview of section 68.

Legal Precedent:
Citing the case of Roshan Di Hatti v. CIT [1977] 107 ITR 938 (SC), the court reiterated the burden of proof on the assessee to explain the source of income. In the absence of satisfactory explanations, the revenue can treat the income as taxable.

Conclusion:
The court allowed the appeal, setting aside both the additions of Rs. 6,96,700/- and Rs. 25,00,000/-, as the appellant successfully demonstrated the legitimacy of the transactions. The judgment was pronounced on 21st May, 2024.

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