2025 (12) TMI 542 - AT - Income Tax

Additions under Section 68 deleted as unsecured loans not for AY 2020-21, supported by evidence, search under 132

ITAT Mumbai allowed the assessee's appeal and deleted the additions made u/s 68. It held that the alleged unexplained cash credit arising from unsecured ... Unexplained cash credit u/s 68 - unsecured loans credited in the books of accounts of the Assessee - difference between the balance of unsecured loan as per books of accounts of the appellant and that of his father - HELD THAT:- There was no discrepancy/difference with respect to the transactions for the Assessment Year 2020-2021 On perusal of the same we find that AO had made identical addition in each of the said assessment years. We note that in appeal for the said assessment years, the first appellate authority had deleted the additions on the ground that same were not arising out of any incriminating evidence found in the course of search action under Section 132 of the Act. Credit did not pertain to the Assessment Year 2020-2021 and therefore, the addition made by the Assessing Officer u/s 68 of the Act cannot be sustained. Accordingly, the addition is deleted and Ground No.1 raised by the Assessee is allowed. Addition u/s 68 - as submitted Assessee had placed on record sufficient evidence/additional evidence to discharge the onus cast upon the Assessee by Section 68 - HELD THAT:- We are of the view that the onus cast upon the Assessing Officer to bring on record material challenging the veracity of the corroborative documents furnished by the Assessee. On perusal of remand report, we find that the Assessing Officer has doubted the creditworthiness of the 3 lenders without bringing on record any material. We have no reason to doubt the veracity of the documentary evidence placed on record by the Assessee. Averment made of the Assessee that the unsecured loans taken from Bhumikaben Mehta and M/s. Krisha Enterprises were repaid by the Assessee has gone uncontroverted during the appellate proceedings. Thus, Assessee was able to discharge the onus cast u/s 68 of the Act to prove identity/creditworthiness of the lenders and the genuineness of the loan transactions under consideration. Accordingly, we delete the addition made under Section 68 - Asseesee appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the addition under section 68 in respect of the difference in closing balance of unsecured loan from a related party could be made in the year under appeal when such difference pertained to earlier years and not to the relevant previous year. 1.2 Whether the assessee had discharged the onus under section 68 in respect of unsecured loans aggregating to a specified sum taken from three lenders, and whether the addition could be sustained despite production of confirmations, return acknowledgements and bank statements of the lenders and absence of any adverse inquiry by the Revenue. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Addition under section 68 on account of difference in loan balance from related party Legal framework (as discussed) 2.1 The Court proceeded on the basis of section 68, which permits taxation of unexplained cash credits found recorded in the books of the assessee in the relevant previous year. Interpretation and reasoning 2.2 The addition was made on account of a difference between the closing balance of an unsecured loan as per the assessee's books and the corresponding balance as per the lender's books. 2.3 Examination of the ledger accounts of both parties for the relevant previous year showed that there was no discrepancy in the transactions for the year under appeal; the difference related to the opening balance brought forward from preceding assessment years. 2.4 Assessment orders for earlier years showed that the same difference had already been subjected to identical additions in those years, and those additions had subsequently been deleted by the first appellate authority on other grounds. 2.5 On these facts, the Court held that the impugned credit did not pertain to the assessment year under consideration and therefore could not be brought to tax in that year under section 68. Conclusions 2.6 Since the differential sum represented an opening balance originating from prior years and there was no unexplained credit arising in the books during the relevant previous year, the addition under section 68 was unsustainable and was deleted. Issue 2 - Addition under section 68 on unsecured loans from three parties Legal framework (as discussed) 2.7 The Court applied the established principles under section 68 that the assessee must discharge the primary onus of proving the identity of the creditor, the creditor's creditworthiness, and the genuineness of the transaction, whereafter the burden shifts to the Assessing Officer to rebut the evidence by inquiry or material on record. Interpretation and reasoning 2.8 The assessee had taken unsecured loans from three parties during the relevant previous year. Before the lower authorities and in appellate proceedings, the assessee produced, as additional evidence, (i) loan confirmations/ledger accounts, (ii) income-tax return acknowledgements for the lenders, and (iii) bank statements of the lenders evidencing the loan transactions. 2.9 The first appellate authority admitted such additional evidence after calling for a remand report. In the remand report, the Assessing Officer acknowledged that the assessee had submitted the same documents before him - loan confirmations, return acknowledgements and bank statements - but recorded that he had not received further items such as proof of business, source of income, details of employees, books of account, complete GST returns and truck bills of the lenders. 2.10 The Court found that the documents demanded additionally by the Assessing Officer pertained to the business records of the lenders, which the assessee could not reasonably be expected to produce beyond what was already furnished. 2.11 The orders of the Assessing Officer and the first appellate authority, as well as the remand report, did not show that any independent inquiries were carried out with the lenders through notices or summons, nor was any specific discrepancy or falsity in the confirmations, return acknowledgements or bank statements pointed out. 2.12 On this factual matrix, the Court held that by producing confirmations, income-tax return acknowledgements and bank statements of the creditors, the assessee had discharged the primary burden under section 68 regarding identity, creditworthiness and genuineness of the transactions. 2.13 The Court further noted that the assertion that two of the loans had been repaid by the assessee remained uncontroverted on record, which supported the genuineness of the loan transactions. 2.14 In the absence of any contrary material or investigation by the Assessing Officer to dislodge the evidence furnished, the Court held that the Revenue had failed to rebut the prima facie proof provided by the assessee. Conclusions 2.15 The assessee having satisfactorily established the identity of the lenders, their creditworthiness and the genuineness of the loan transactions through documentary evidence, and the Assessing Officer having neither conducted effective inquiry nor brought adverse material on record, the addition under section 68 in respect of the unsecured loans from the three parties was deleted.