INCOME TAX ACT, 1961

Section 68

Income from undisclosed sources - Addition under section 68 - Receipt of unsecured loan, AO doubting loan as not genuine on account of deposit of cash by assessee in bank account of loan creditor -

Assessee received unsecured loan from one 'J'. AO doubted genuineness of loan transaction and treated loan amount as unexplained credit under section 68 on the ground of alleged wrong bank statement allegedly submitted by loan creditor along with her reply to requisition under section 133(6). Also, AO doubted deposit of cash, by assessee in loan creditor's bank account. Assessee explained that he was in urgent need of funds to salvage his credit with NEDFI since he was unable to repay instalments of his NEDFI loan due to losses in his industrial undertaking. He had, therefore, approached long-time family friend and business associate 'T' for the said loan. Since loan could not have been taken in cash, as per IT provisions, assessee took cheques from said 'J' and to conclude the transaction urgently, he specifically took cheques of her SB Account at Amerigog where he himself has his account. Since there was no balance in the said account and since banks do not accept cash deposits exceeding Rs. 50,000 in outside branches especially in SB accounts, assesse took cash from 'J' and deposited same in her said SB account. < b>Held:As far as alleged wrong bank statement was concerned, assessee could not have any knowledge about same. Statements were obtained by the staff of creditors. The alleged wrong bank statement might have been a mix up at the bank level which staff did not notice. However, when loan cheques clearance was duly reflected in creditor's and the assessee's respective bank accounts, any mistake in bank statement could not be a reason to conclude that loan was not genuine. Regarding deposit of cash by assessee in loan creditor's account, assessee had stated on oath, before AO that he was given cash by loan creditor 'J' for depositing same in her bank account as there was no balance in her account to honour the loan cheques. AO, in his assessment order, had surmised that this could not have happened because, according to him, cash could have well been deposited at Shillong in this age of Core Banking. However, in surmising this, he forgot that in business dealings in real life this is quite usual and not at all abnormal. Assessee in his statement on oath had stated that since he was in urgent need of fund he had taken loan cheques of creditor's account at bank branch where he himself had an account and since there was no sufficient fund in said account, creditor gave him cash to deposit in said account which he did and deposited the cheques in his account which were cleared and credited in his account. To verify whether assessee's account with NEDFI was overdue, same have been examined by CIT(A). All the accounts of assessee with NEDFI were actually overdue and assessee had deposited funds in these accounts only after clearance of cheques from 'J' in his account. Also, 'J' had accepted in her reply, sent by post in response to requisition under section 133 (6), to AO, that she had given loan to assessee free of interest. If AO had doubt about genuineness of loan, despite the reply of loan creditor, he should have summoned creditor under section 131 for further verification which was not done so. Accordingly, addition of loan amount under section 68 was not justified.

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