The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has remanded a ₹3.56 crore addition made under Section 68 of the Income Tax Act, 1961, after observing that the Assessing Officer had treated the closing loan balance as unexplained cash credit without verifying the substantially higher opening balance and debit transactions reflected in the lender’s confirmation account.
The bench of Amit Shukla (Judicial Member) and Girish Agrawal (Accountant Member) directed the Assessing Officer to verify the loan confirmation, particularly the opening balance of ₹3.73 crore and debit transactions totalling ₹4.05 crore. The appeal was consequently allowed for statistical purposes.
The company filed its income tax return on September 28, 2012, declaring nil total income while reflecting a loss of ₹1.53 crore.
During the relevant proceedings, the Assessing Officer examined loans aggregating to ₹3,55,66,822 shown in the name of the company’s Managing Director, Deepak S. Desai. The lender maintained accounts for his proprietary business but did not maintain separate books of account for his personal transactions.
The assessee furnished the lender’s bank statements and loan confirmation before the Assessing Officer. However, the officer noted that the lender had not produced a personal balance sheet.
Finding the material insufficient to establish the lender’s creditworthiness and the genuineness of the transaction, the Assessing Officer treated the entire amount of ₹3,55,66,822 as unexplained cash credit under Section 68.
Section 68 permits an addition where a sum is found credited in the books of an assessee and the assessee fails to offer a satisfactory explanation about its nature and source.
Before the Commissioner of Income Tax (Appeals), the assessee contended that the loan had been received through regular banking channels by account-payee cheques.
It argued that the identity of the lender was never disputed and that the lender’s bank statements and confirmation had already been submitted during the assessment proceedings.
The assessee further pointed out that the lender was its Managing Director and maintained proper books for his proprietary concern. According to the company, the mere absence of separate personal books of account could not make the transaction non-genuine.
It alleged that the Assessing Officer had made the addition primarily on presumptions and had not brought any adverse material on record to disprove the evidence furnished in support of the transaction.
The National Faceless Appeal Centre, however, upheld the Assessing Officer’s action, prompting the assessee to approach the ITAT.
During the hearing before the Tribunal, the assessee’s counsel referred to the lender’s confirmation account forming part of the paper book.
The Tribunal noticed that the confirmation reflected an opening balance of ₹3,73,64,315. This opening balance was itself higher than the ₹3,55,66,822 added by the Assessing Officer under Section 68.
The same confirmation account also recorded debit transactions aggregating to ₹4,05,15,000. After accounting for the entries appearing during the year, the account showed a net closing balance of ₹3,55,66,822.
Significantly, it was this closing balance that had been added by the Assessing Officer as unexplained cash credit.
The ITAT observed that these essential facts had not been taken into consideration while making the disputed addition. The assessment order did not properly examine whether the amount represented fresh credits received during the relevant financial year or merely the closing balance of an account containing an earlier opening balance and various debit transactions.
The Tribunal noted that the relevant explanation regarding the opening balance and the debit transactions had not been presented before the Assessing Officer during the original assessment proceedings.
It therefore considered it appropriate to restore the matter to the Assessing Officer instead of deciding the factual issue conclusively at the appellate stage.
The remand was restricted to verifying the details recorded in the lender’s confirmation account. The Assessing Officer was specifically directed to ascertain the correctness of the amounts mentioned in the document.
The verification must particularly cover the opening balance of ₹3,73,64,315, which exceeded the amount added under Section 68, and the debit transactions aggregating to ₹4,05,15,000.
After examining the evidence and satisfying himself about the correctness of the entries, the Assessing Officer must reconsider the assessee’s claim. The Tribunal also directed that the company be given a reasonable opportunity of hearing and permitted to furnish further material in support of its case.
Membership Required to Access Case Details & Order Copy
To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.
Read More: Mere Unverified Excel Sheets Recovered During Income Tax Search Can’t Justify Additions: ITAT
