INCOME TAX ACT, 1961

Section 68

Income from undisclosed sources - Addition under section 68 - Difference in loan account as per assessee's books of account and as per loans confirmed by creditor - Unexplained credits

AO noticed that there was difference in respect of loans availed of by assessee-company from a creditor 'S', when compared to loan liability shown in the books of account of the assessee and confirmation letter issued by the creditor. Accordingly, the AO made addition under section 68 on account of unexplained credits. Assessee submitted that it availed a term loan from 'S' and the said loan had been treated as liability in its balance sheet with a corresponding debit to work-in- progress account. Further, during the relevant year under consideration, it availed refinance loan from 'S' and 'S' while disbursing loan, adjusted outstanding loan pertained to earlier loan and balance amount had been credited to the account of the assessee. But, the assessee by an inadvertent mistake passed entries in the books of account and accounted entire amount of refinance loan with a corresponding debit to work-in-progress account. Further, it also passed another entry for loan disbursement amount and debited equal amount to work-in progress account. Therefore, the difference occurred in loan account as per the assessee's books of account and as per loans confirmed by the creditor. Held: While disbursing new loan, creditor 'S' adjusted earlier outstanding loan and balance amount had been disbursed to assessee. However, the assessee while recording new loan availed of from 'S', once again passed wrong accounting entries and credited loan account for entire amount with corresponding debit to work-in-progress account. Thus, the assessee created non-existing liability and also continued earlier loan amount towards principal outstanding and accrued interest, even though the earlier loan was closed in the books of accounts of 'S'. That resulted in duplicate entries of loan amount, however, the said difference had been reconciled and necessary entries had been passed in the books of account of the assessee. AO without considering reconciliation filed by the assessee along with necessary evidences including confirmation letter from 'S', made addition towards difference in liability under section 68, although said liability was non-existing liability but continued to live in the books of account of the assessee due to inadvertent error. Hence, the addition made under section 68 was deleted.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2015-16

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