2024 (6) TMI 1371 - HC - Income Tax

Company wins as quick loan repayment defeats unexplained cash credit addition under section 68

Gujarat HC dismissed the revenue's appeal regarding unexplained cash credit under section 68. The assessee company had repaid the unsecured loans within ... Unexplained cash credit under section 68 - Repayment of advances as evidence of genuineness - Onus of proving identity and creditworthiness of creditors - Interpretation of legislative 'may' in charging provisions Unexplained cash credit under section 68 - Repayment of advances as evidence of genuineness - Onus of proving identity and creditworthiness of creditors - Interpretation of legislative 'may' in charging provisions - Whether additions under section 68 could be sustained where the alleged advances were shown to have been repaid within the same financial year and repayments were verified from ledger and bank records. - HELD THAT: - The Court accepted the undisputed factual finding that the advances received by the assessee were repaid within the same financial year, in many cases within 30 days, and that repayments were verified from ledger accounts and bank statements. The assessing officer did not dispute the repayments. Applying the principle that the assessee must initially discharge the onus by proving identity and genuineness of creditors and that repayment of loans constitutes strong evidence of genuineness, the Court relied on the ratio in Dy. CIT v. Rohini Builders and the jurisprudence referred to therein to conclude that unsatisfactoriness of explanation under section 68 does not automatically result in charging the amount as income. Where repayment is established and the Department has not shown lack of creditworthiness or otherwise rebutted the verifications, additions under section 68 are not warranted. The Court accordingly upheld the deletion of the addition made by the authorities. Addition under section 68 deleted; appeal dismissed. Final Conclusion: The Revenue's appeal is dismissed: the High Court upheld the Tribunal's deletion of additions under section 68 in Assessment Year 2016-2017 on the ground that the advances were repaid within the same financial year and such repayment, verified by ledger and bank statements and not controverted by the assessing officer, established the genuineness of the transactions. Issues Involved:1. Justification of the Tribunal in upholding the deduction of addition caused on account of unexplained cash credit under section 68 of the Income Tax Act, 1961.2. Justification of the Tribunal in upholding the deduction of addition under section 68 despite detailed inquiry revealing the non-existence of the creditor.Issue-wise Detailed Analysis:1. Justification of the Tribunal in upholding the deduction of addition caused on account of unexplained cash credit under section 68 of the Income Tax Act, 1961:The Revenue challenged the Tribunal's order which upheld the deduction of an addition amounting to Rs. 11,57,00,000/- under section 68 of the Income Tax Act, 1961. The assessee, a company engaged in trading rough and polished diamonds, had shown a Gross Profit (GP) rate of 0.82% on a turnover of Rs. 83,61,61,111/- for the Assessment Year 2016-2017. The return of income was filed declaring total income at Rs. 56,54,590/-. The assessment proceedings under section 143(3) of the Act resulted in an addition of Rs. 11,57,00,000/- to the total income of the assessee on account of unsecured loans treated as unexplained cash credit under section 68.The Commissioner of Income Tax (Appeals) [CIT(A)], Surat, allowed the assessee's appeal, noting that the advances had been repaid within the financial year, mostly within 30 days. The repayment was supported by ledger accounts, bank statements, and affidavits from lenders. The Assessing Officer (AO) did not question the repayments or their sources. The Tribunal, in its order, noted that the CIT(A) had verified the repayments and relied on the jurisdictional High Court's decision in Ayachi Chandrasekhar Narsangji, which held that no addition under section 68 can be made if the loan amount is repaid in the subsequent year and the Department has accepted the repayment.2. Justification of the Tribunal in upholding the deduction of addition under section 68 despite detailed inquiry revealing the non-existence of the creditor:The Tribunal found that the assessee had refunded the entire deposits either within a day or a week in seven transactions, and within a maximum period of five months in six transactions. No amount was left at the end of the financial year, and the repayment was not doubted by the AO. The Tribunal cited the Gujarat High Court's decision in CIT Vs Ayachi Chandrashekhar Narsangji, which held that if the Department has accepted the repayment of a loan in the subsequent financial year, no addition can be made in the current year on account of cash loans.The Tribunal also referred to the Gujarat High Court's decision in Dy. CIT v. Rohini Builders, which emphasized that the assessee had discharged the initial onus under section 68 by proving the identity and capacity of the creditors and the genuineness of the transactions. The assessee provided complete addresses, GIR numbers, permanent account numbers, and copies of assessment orders or returns filed by the creditors. The loans were received and repaid by account payee cheques, and interest was paid after deduction of tax at source. The Tribunal noted that the AO did not make any addition on account of interest claimed/paid by the assessee in relation to the cash credits, which were allowed as business expenditure.The Tribunal concluded that the unsatisfactoriness of the explanation under section 68 does not automatically result in deeming the amount credited in the books as the income of the assessee. The Tribunal, therefore, dismissed the Revenue's appeal, finding no merit in it.Conclusion:The High Court, after considering the submissions of the learned advocates and the orders impugned in the appeal, found that the amount of loan received by the assessee was returned within the same financial year, mostly within 30 days. The repayment was verified from the Ledger Account and the Bank Statement. The Court upheld the Tribunal's decision, noting the ratio laid down in the case of Dy. CIT v. Rohini Builders, and dismissed the Revenue's appeal with no order as to costs.