2025 (7) TMI 1806 - AT - Income Tax

Section 68 Addition Deleted as AO Relied Solely on Retracted Statement Without Proper Evidence

Gupta Ashok Kumar, Hyderabad Versus The Income Tax Officer, Ward-1 (2), Hyderabad

The ITAT Hyderabad set aside the CIT(A) order and directed the AO to delete the addition made under section 68 relating to unexplained cash credits on ... Addition u/s 68 - unexplained cash credits - sole basis to arrive at a conclusion that, loans received from three companies as unexplained cash credit on the basis of statement recorded from Mr. Mukesh Banka under section 132(4) at the time of search, where he has admitted to have provided accommodation entries of unsecured loans to various beneficiaries through shell/ paper companies HELD THAT:- Assessee has discharged the onus by filing relevant evidences to prove the identity, genuineness of the transactions and creditworthiness of the parties. AO without appreciating the relevant facts and only on the basis of statement of Mr. Mukesh Banka made the addition towards loan under section 68 of the Act, even though, the said statement has been subsequently withdrawn by filing a retraction letter. CIT(A) without considering the relevant facts, has simply sustained the addition made by the AO. Thus, we set-aside the order of the CIT(A) and direct the AO to delete the addition made towards loans under section 68 - Assessee appeal allowed. ISSUES: Whether unexplained cash credits under section 68 of the Income Tax Act can be added where unsecured loans are claimed to have been received from certain individuals and companies.Whether the assessee discharged the onus cast upon him under section 68 by proving the identity, creditworthiness, and genuineness of the loan creditors and transactions.Whether mere transfer of funds through banking channels suffices to prove genuineness of transactions under section 68.Whether the statement recorded under section 132(4) of the Act admitting accommodation entries can be solely relied upon to treat loans as unexplained cash credits.Whether additions under section 68 can be sustained when the alleged accommodation entry provider retracts his statement.Whether the absence of business activity by the assessee in his individual capacity affects the genuineness of loans received.Whether failure of third parties to respond to notices under sections 131 and 133(6) justifies adverse inference against the assessee under section 68.Whether repayment of loans shortly after receipt negates the addition under section 68. RULINGS / HOLDINGS: The additions made under section 68 towards unsecured loans from certain companies and an individual were held to be unjustified as the assessee had filed relevant evidence proving 'identity, creditworthiness and genuineness of the transaction' and the burden shifted to the Assessing Officer to disprove the claim, which was not done.Mere transfer of funds through banking channels is 'not sufficient to accept the claim of loan or receipt as genuine' if other evidences are lacking; however, in this case, relevant evidences including bank statements, financial statements, and confirmation letters were furnished by the assessee.The Assessing Officer erred in relying solely on the statement of the alleged accommodation entry provider recorded under section 132(4) of the Act, especially when that statement was subsequently retracted, and ignored the evidences filed by the assessee.The absence of business activity by the assessee in his individual capacity does not preclude genuineness of loans if the loans are for entities where the assessee is involved, and this was accepted as a valid explanation.Failure of third parties to respond to notices under sections 131 and 133(6) is 'not sufficient to draw an adverse inference' against the assessee when the assessee has furnished names, addresses, PAN, and other evidences of the creditors.Repayment of loans within a short duration through banking channels, along with payment of interest and deduction of TDS, negates the addition under section 68 as unexplained cash credits.The addition towards loan received from the assessee's daughter, an NRI, was deleted as the assessee furnished bank statements, confirmation letters, PAN details, and proof of her filing income tax returns, establishing the genuineness of the transaction. RATIONALE: The Court applied the provisions of section 68 of the Income Tax Act, 1961, which cast an initial onus on the assessee to prove the identity, creditworthiness, and genuineness of the loans or cash credits, failing which the amount is treated as unexplained cash credit and added to income.Once the assessee discharges this initial onus by furnishing credible evidence, the burden shifts to the Assessing Officer to disprove the genuineness or creditworthiness by bringing on record material evidence.The Court relied on precedents including CIT vs. Lovely Exports Private Limited and Orissa Corporation Private Limited vs. CIT, emphasizing the shifting of burden and the need for corroborative evidence beyond mere statements or surmises.The Court noted that reliance on a statement recorded under section 132(4) of the Act, which was later retracted, is insufficient to uphold additions under section 68 without corroborative evidence.The Court referred to judicial principles that non-compliance with notices under sections 131 and 133(6) alone cannot justify adverse inferences when the assessee has furnished sufficient information about creditors.Repayment of loans and payment of interest through banking channels were considered strong indicators of genuineness, supported by judicial precedents including decisions of the Gujarat High Court.The Court distinguished the case facts from those where shell or paper companies were used for accommodation entries by noting the active status, audited accounts, and tax compliance of the creditor companies involved.The Court also relied on a coordinate bench decision where similar additions were deleted on similar facts, reinforcing the principle that mere suspicion or uncorroborated statements cannot override documentary evidence.