The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) held that no additions can be made under Section 68 of the Income Tax Act, 1961 when the identities of the lenders are proved and loans are repaired.
The assessee company filed its return of income declaring NIL income. The return of income was processed under Section 143(1) of the Income Tax Act. The case of the assessee was reopened by issue of notice under Section 148 of the Income Tax Act.
The Assessing Officer issued a notice under Section 142(1) of the Income Tax Act calling for information/details which was duly complied with by the assessee.
The assessing officer noted that the assessee was unable to explain the purpose of the loan and that the genuineness of the transaction remained unproven as there was a cash deposit and immediate withdrawal.
The Assessing Officer finally concluded that the cash was deposited by M/s Evermore Sales Pvt Ltd in their bank account to advance a loan to the assessee and that the assessee in this guise had brought back its accounted income into regular books of accounts.
Hence, the receipt of a loan of Rs.25,00,000/- was added by way of unexplained cash credit under Section 68 of the Income Tax Act.
The counsel for the assessee, first objected to the inaction of the Assessing Officer to provide the reasons recorded for reopening the assessment which according to him was sina qua non to assume jurisdiction under Section 147 of the Income Tax Act.
He further submitted that the assessee had demonstrated before the Assessing Officer that this reason was factually incorrect in as much as there was no cash deposit in their account and that monies received from M/s Evermore Sales Pvt Ltd were Rs.25,00,000/- by way of interest-bearing loan through proper banking channel.
In the case of Pr. CIT Vs Ambe Tradecorp Pvt Ltd (145 taxmann.com 27), the counsel for the assessee submitted that when the identities of the lenders stood proved and that the loans were also repaid subsequently, no addition was permissible under Section 68 of the Income Tax Act.
The two-bench member comprising of Manish Borad (Accountant member) and Sonjoy Sarma (Judicial member) held that the given facts and circumstances of the case, are of the considered view since the assessee has successfully discharged its onus of proving the identity of the loan creditor, which in the instant case duly registered with Ministry of Corporate Affairs, having PAN and had filed return of income as well.
Therefore, there was no justification for the action of the Assessing Officer invoking the provisions of Section 68 of the Income Tax Act. The Commissioner of Income Tax (Appeal) was set aside and deleted the addition of Rs.25,00,000/- made under Section 68 of the Income Tax Act.
Thus, the appeal filed by the assessee was allowed.
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