KOLKATA, JAN 28, 2019: THE ISSUE IS - Whether merely because loan creditors have not appeared in response to summons or have not been produced before the AO can not be a sole reason for making addition u/s 68 for unexplained cash credit. - YES IS THE VERDICT.

The assessee company, engaged in the business of manufacturing of polythene liners bags, had filed its return of income for relevant AY. During the course of assessment proceedings, the assessee was asked to furnish the details of short term borrowings. The assessee company submitted the details. To verify the identity and creditworthiness of the loan creditors and genuineness of the transactions, summons u/s 131 of the of the Act were issued to the loan creditors asking them to appear personally along with the requisite details and documents as mentioned in the summons. But none loan creditors, appeared personally. The AO made addition u/s 68 for unexplained cash credit. On appeal, CIT(A) upheld the order of AO. Further aggrieved, the assessee filed appeal before Tribunal.

Tribunal held that,

++ assessee submitted that there were no cash deposits in the hand of the creditors' accounts and transfer of funds through banking channels was done in the normal course of business and the source of source was also explained by the creditors. It was found that the Assessing Officer has made the addition only on the ground that the loan creditors did not appear in response to the summons issue u/s 131 of the Act. It is well settled that no adverse inference can be taken, just because loan creditors have not appeared in response to summons or have not been produced before the assessee. Supreme Court in the case of CIT vs. Orissa Corporation P. Ltd, wherein it was held as follows " "In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were the income-tax assessees. Their index number was in the file of the revenue. The revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee had discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such could arise."

(See 2019-TIOL-251-ITAT-KOL)