2014 (9) TMI 1109 - HC - Income Tax

Unexplained loan - Held that - If the addition was to be made that might have been made in the hands of Shri Anand Mohan Shukla, but certainly, not in the hands of the assessee. When it is so, then we accept the loan advance by Anand Mohan Shukla for a sum of ₹ 1,13,000/- as genuine loan. Remaining loan amount is very meager so the same is also accepted as genuine. In view of the above, we accept the loan of ₹ 1,70,000/- as a genuine and accordingly, delete the addition. For the purpose, all the impugned orders are hereby set aside.The answer to the substantial question of law is in favour of the assessee and against the Department.

Summary

Issues:
Appeal against ITAT order for Assessment Year 1993-94 - Disbelief of cash credits as initial capital - Addition of cash credits in income - Burden of proof on revenue - Identity, capacity, and genuineness of creditors - Loan transactions - Creditworthiness of creditors.

Analysis:
1. The appellant filed an appeal against the ITAT order for the Assessment Year 1993-94, challenging the disbelief of cash credits amounting to Rs. 1,70,000 as initial capital for starting the business. The substantial questions of law revolved around the ITAT's decision on the cash credits and the burden of proof under Section 68 of the Income Tax Act.

2. The appellant, who started a petrol pump business, claimed an initial capital of Rs. 1,45,000 and loans totaling Rs. 2,36,000 from friends and relatives. The Assessing Officer (A.O.) accepted some loans but disbelieved the loan of Rs. 1,70,000 from specific creditors, leading to additions in the appellant's income. The A.O. questioned the genuineness of the loans from Anand Mohan Shukla, Shyam Shanker Mishra, Keshav Prasad Dubey, Prabhu Nath Tiwari, and Ram Chandra Sharma.

3. Anand Mohan Shukla, one of the creditors, stated that he borrowed money from five individuals, including the disputed amount. Despite his explanation, the A.O. added Rs. 1,70,000 to the appellant's income, a decision upheld by the lower authorities. The appellant contended that the loans were genuine, supported by the creditor's identity, transaction genuineness, and the banking channel used for the transactions.

4. The appellant's counsel argued that Anand Mohan Shukla, a teacher and the appellant's brother, lent the money interest-free through legitimate channels. The counsel cited relevant case laws to support the argument that the creditor's creditworthiness was established, emphasizing the creditor's occupation and the lack of examination of the other lenders by the A.O.

5. The Department's counsel defended the impugned order by asserting that the creditors' creditworthiness remained unproven, urging the dismissal of the appeal. After hearing both parties and reviewing the evidence, the Court delved into the crucial issue of the loan from Anand Mohan Shukla, emphasizing the lack of summons to the other lenders by the A.O.

6. Relying on legal precedents, the Court determined that the loan from Anand Mohan Shukla was genuine, as the source of the source need not be proven. The Court highlighted that any addition should have been made in the creditor's hands, not the appellant's. Consequently, the Court accepted the loan as genuine and deleted the addition of Rs. 1,70,000 from the appellant's income, ruling in favor of the assessee against the Department.

7. In conclusion, the Court allowed the appellant's appeal, setting aside the impugned orders and holding that the loan amount was genuine, thereby resolving the dispute regarding the cash credits and the burden of proof on the revenue department.