2016 (3) TMI 1224 - AT - Income Tax

Addition under section 68 - proof the creditworthiness of the creditors and genuineness of the transactions - Held that - Restore the matter in issue to the file of the Assessing Officer with direction to the assessee to produce all the four creditors before the Assessing Officer for verification and examination and the assessee shall not seek unnecessary adjournment in the matter. The assessee is directed to prove the creditworthiness of the creditors and genuineness of the transactions and also directed to explain as to in what circumstances the commodity profits have been received by the creditors from M/s Satyam Commodities and M/s B.K. Commodities from whom the assessee was also taking commodity entries. Assessing Officer shall give reasonable sufficient opportunity of being heard to the assessee. I make it clear that in case the assessee fails to produce any of the creditors before the Assessing Officer, the Assessing Officer is at liberty to draw any adverse inference against the assessee and shall pass assessment order in accordance with law, strictly on merits of the case, as have been discussed and considered in the assessment order. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
Challenge to addition under section 68 of the Income Tax Act, 1961 based on unsecured loans received from related parties.

Analysis:
1. The assessee introduced cash credits as unsecured loans from related parties. The Assessing Officer directed the assessee to produce creditors for verification, but they failed to appear. The Assessing Officer considered the documents provided as an attempt to defraud the Revenue. The assessee received commodity profits from certain firms, but they also failed to attend the proceedings, leading to the addition of Rs. 9,27,000 under section 68 of the Act.

2. The assessee contended before the CIT (Appeals) that documentary evidence, including affidavits and bank statements, proved the creditworthiness of the creditors. However, the CIT (Appeals) held that mere filing of documents was insufficient to establish genuineness. The failure of the commodity firms to attend further weakened the assessee's case, leading to dismissal of the appeal ground.

3. The ITAT found that the assessee did not produce any creditors for verification, despite being related to them. The commodity firms were not members of the Multi Commodity Exchange of India, indicating suspicious transactions. The ITAT noted that profits were immediately transferred to the assessee as unsecured loans, indicating non-genuine transactions. The ITAT allowed the assessee one more chance to produce creditors for examination.

4. The ITAT set aside previous orders and directed the assessee to produce all creditors for verification. The assessee must prove creditworthiness and explain the commodity profits received. Failure to produce creditors may lead to adverse inferences. The ITAT allowed the appeal for statistical purposes, emphasizing the importance of proving genuineness and creditworthiness in such cases.