Bhumi Polymers Pvt. Ltd. Vs. The DCIT - (Income Tax Appellate Tribunal) (16 Nov 2023)

Primary onus lies with the assessee to explain the source of credit in the books under Section 68 of the IT Act

MANU/IR/0180/2023

Direct Taxation

The appeal has been preferred by the assessee against the order of the Commissioner of Income Tax (Appeals). The only issue raised by the assessee is that the learned CIT(A) erred in confirming the addition made by the AO by treating the receipt of unsecured loan as unexplained cash credit under Section 68 of the Act.

The assessee, a private limited company, is engaged in the business of manufacturing HDPE Pipes and Sprinkler & Drip items. The AO found that all the loan parties were agriculturists and there was cash deposit before issuing the demand draft to the assessee. Furthermore, there were not furnished sufficient details justifying the quantum of agricultural income. Likewise, the amount of cash deposit in some of the cases was below Rs. 50,000 against which demand draft was issued by the parties. Thus, the AO in the absence of sufficient creditworthiness of the loan parties treated the amount of loan as unexplained cash credited and added to the total income of the assessee. Aggrieved, the assessee preferred an appeal before the Learned CIT(A).

The provisions of Section 68 of the Act suggest that if there is any sum credited in books of account maintained for the any previous year then the assessee is required to offer proper and reasonable explanation regarding nature and sources of such credit to the satisfaction of the AO. Thus, the primary onus lies with the assessee to explain the source of credit in the books. Over the period, the Hon'ble Courts have laid down that the assessee to discharge its onus is required to furnish evidence with respect to identity of the creditor, genuineness of transaction and credit worthiness of the creditor. If the assessee failed to discharge the primary onus cast or the explanation and evidence submitted by the assessee was not found satisfactory by the AO, then the sum credited in the books shall be deemed as income of the assessee.

Undeniably, the assessee during the appellate/assessment proceedings in support of genuineness of unsecured loan has furnished confirmation, land records, and bank passbook and in some of the cases voter card. Even the loan parties have confirmed the transactions in the statement furnished under section 131(1) of the Act. The money was credited in the books of the assessee through the banking channel. However, the AO and learned CIT(A) based on their observation that there was cash deposit in the bank account of the loan parties, have doubted on the credit worthiness of the loan parties.

The approach taken by the revenue is not justified. As such, the assessee provided necessary details and thus, the onus shifted on the revenue to bring contrary material, but the learned CIT-A merely doubting the mismatch in the signature of the loan parties and deposit of cash in the bank account drew adverse inference but without pointing out any specific defect in the documents submitted by the assessee. Therefore, the finding of the learned CIT(A) are set aside and the AO is directed to delete the addition made by him. The appeal of the assessee is allowed.

Tags : ASSESSMENT ADDITIONS LEGALITY