2025 (3) TMI 521 - AT - Income Tax

Addition under Section 68 deleted as assessee proved identity, genuineness and creditworthiness of cash credit transaction

The ACIT, Central Circle-1 (2), Chennai. Versus Ram Maharaj Sundareswaran

ITAT Chennai upheld CIT(A)'s deletion of addition under Section 68 for unexplained cash credit. The assessee received Rs. 2 crores through banking channel ... Unexplained cash credit u/s. 68 - assessee has failed to discharge his onus with respect to the credit worthiness and genuineness of the transaction - CIT(A) deleted addition as the amount is found to have been received through banking channel HELD THAT:- Based only on suspicion, conjectures and surmises the AO couldn’t have spurned it away. Even though, original MoU was placed before the AO, he failed to call for the stamp vendor [Mr.N.Jyothi Selvam] who sold the stamp paper on 05.12.2018 as well as any of the witnesses whose names have been cited as witnesses to the aforesaid MoU. AO couldn’t point out any material infirmity in the MoU i.e. as to the assertions made by the assessee that he was the owner of the scheduled property and that the buyer has part performed his part of the obligation by advancing Rs. 2 Crs. through banking channel on 21.12.2018 [which was an event which happened before the search took place on 29.01.2019]. AO erred in law, by observing that unregistered document [MoU] is not enforceable contract. And as noted, the AO has not been able to rebut the onus which shifted on him after the MoU was presented before him and the payer/purchaser has confirmed the transfer of Rs 2 Crs online to assessee’s account. Having said so, we also agree with the Ld.CIT(A) that the addition u/s.68 of the Act was not warranted because the identity of the credit is not disputed [i.e. Shri Ramajayam Rangasamy]; and the nature of the transaction has been shown as advance for the purchase of scheduled property owned by the assessee. Section 68 addition could have been made only if assessee failed to prove the identity, creditworthiness and genuineness of the transaction. In this case, even if the statement of assessee recorded during the search is accepted, then it is loan from Shri Ramajayam Rangasamy; and if the statement of transferee of the credit is taken, then it is ‘advance’ of the sale consideration given to assessee; in both scenario, there is no element of income embedded in either transaction. Decided in favour of assessee. ISSUES PRESENTED and CONSIDEREDThe core legal issue in this case is whether the addition of Rs. 2,00,00,000/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961, by the Assessing Officer (AO) was justified. The Tribunal needed to consider whether the Learned Commissioner of Income Tax (Appeals) [Ld.CIT(A)] was correct in deleting this addition. The specific questions involved included:Whether the amount received by the assessee through banking channels was indeed an unexplained cash credit.Whether the assessee failed to demonstrate the creditworthiness and genuineness of the transaction.Whether the MoU presented by the assessee was credible evidence of the transaction being an advance for a property sale.Whether the AO's suspicion of the MoU being an afterthought was justified.Whether the addition under Section 68 was warranted given the nature of the transaction.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsSection 68 of the Income Tax Act, 1961, allows the AO to add any unexplained cash credits in the books of an assessee as income if the assessee fails to satisfactorily explain the nature and source of the credit. The burden of proof initially lies on the assessee to demonstrate the identity, creditworthiness, and genuineness of the transaction.Court's Interpretation and ReasoningThe Tribunal examined the evidence presented, including the Memorandum of Understanding (MoU) dated 21.12.2018, which indicated that the Rs. 2 Crores was an advance for the purchase of property. The Tribunal noted that the MoU was executed on a stamp paper purchased on 05.12.2018 and was signed by both parties, witnessed by two individuals. The Tribunal found that the MoU had not been effectively rebutted by the AO.Key Evidence and FindingsThe assessee received Rs. 2 Crores through an online transfer from Shri Ramajayam Rangasamy, which was initially explained as an interest-free loan.Shri Ramajayam Rangasamy later stated it was an advance for a property purchase, supported by the MoU.The AO suspected the MoU was fabricated to cover up the nature of the transaction, citing contradictions in statements and lack of property sale evidence.The Tribunal found the MoU credible as it was executed on a valid stamp paper and was corroborated by the payer's statement.Application of Law to FactsThe Tribunal applied Section 68 and concluded that the identity of the credit was not in dispute, and the nature of the transaction was sufficiently explained as an advance for property purchase. The Tribunal emphasized that the AO failed to rebut the onus that shifted to him after the MoU was presented.Treatment of Competing ArgumentsThe Tribunal considered the AO's argument that the MoU was an afterthought and the transaction was not genuine. However, it found that the AO's conclusions were based on suspicion rather than concrete evidence. The Tribunal agreed with the Ld.CIT(A) that the transaction did not contain an element of income, whether considered as a loan or an advance.ConclusionsThe Tribunal upheld the Ld.CIT(A)'s decision to delete the addition under Section 68, concluding that the transaction was adequately explained and did not constitute unexplained cash credit.SIGNIFICANT HOLDINGSThe Tribunal's significant holdings included:The MoU was a credible document that evidenced the nature of the transaction as an advance for property purchase.The AO's suspicion of the MoU being an afterthought was not supported by sufficient evidence.The addition under Section 68 was not warranted as the transaction did not constitute unexplained cash credit.Verbatim Quotes of Crucial Legal Reasoning'Further, to treat a particular credit / receipt as income appearing in the books,-the corollary debit / payment has to be considered... As long as such liability was not discharged by the recipient, the same partake the character of loan / advance.''Therefore, in the light of the above discussion, the AO is directed to delete the addition of Rs. 2 crores made u/s 68.'Core Principles EstablishedThe Tribunal reaffirmed that the burden of proof under Section 68 initially lies with the assessee but shifts to the AO once the assessee provides credible evidence explaining the nature and source of the credit.Final Determinations on Each IssueThe Tribunal dismissed the Revenue's appeal, confirming the Ld.CIT(A)'s decision to delete the addition of Rs. 2 Crores under Section 68 of the Income Tax Act, 1961.