2016 (3) TMI 1245 - HC - Income Tax

Addition u/s 68 - prove the genuineness and creditworthiness of creditors - Held that - No doubt it is duty of the assessee to prove the genuineness and creditworthiness of his creditors but when all the transactions in this case have been routed through banks and the complete particulars have been furnished by the assessee which have not been disputed by the Assessing Officer the Assessing Officer was required to ensure the presence of creditors by using coercive method and not to proceed summarily. . As far as the question of disbelieving the statement of affairs and cash flow statement filed by on or behalf of the creditors in the face of the fact that they had filed return declaring income of about Rs. 1 lac is concerned the same has been disbelieved on the basis of conjectures and surmises. Because it varies from person to person to maintain the books of accounts even if their income is meager. Merely on the basis of the fact that the income was about Rs. 1 lac the statement of books of accounts cannot be disbelieved. When all these facts are further examined in the light of the undisputed fact that all the documents to prove the genuineness and creditworthiness of S/Sh. Netram Goel Anil Kumar Bansal Mahender Pratap Singh Ajay Kumar Jain Virender Kumar Vikas Kumar & Ms. Manju Rani lying at pages 92 to 160A of the Paper Book having been perused by the Assessing Officer and the loan amount in question borrowed by the assessee has since been repaid by the assessee by way of account payee cheques prior to 2009 the order passed by the ld. CIT(A) is not sustainable in the eyes of law. Thus the assessee has duly discharged the onus upon him to prove the genuineness and creditworthiness of his creditor to prove the loan of Rs. 8 lacs otherwise proved to have been paid by way of cheques and as such the addition made to his income is not sustainable. - Decided in favour of assessee.

Summary

Issues involved:
Challenge to the order of Ld. CIT(A) Faridabad regarding addition of loans under section 68 of the Income Tax Act, 1961 and interest paid on those loans; Dispute over the maintenance of books of accounts by individuals with income of about Rs. 1 lac; Burden of proof on genuineness and creditworthiness of creditors; Failure to produce creditors during remand proceedings.

Analysis:
The appellant challenged the order of Ld. CIT(A) Faridabad, seeking to set aside the impugned order dated 01/04/2011. The appellant, engaged in trading iron pipes, introduced unsecured loans amounting to Rs. 1435000, with interest debited at Rs. 215388. The Assessing Officer added Rs. 1567410 to the income, suspecting unaccounted money from undisclosed sources. The CIT(A) partly allowed the appeal, leading to the current appeal before the Tribunal.

During the appellate proceedings, the CIT(A) allowed admission of additional evidence, including affidavits, confirmations, and financial statements of creditors. The CIT(A) affirmed the Assessing Officer's findings based on the failure to produce creditors and the improbability of individuals with low income maintaining proper accounts.

The burden of proof on genuineness and creditworthiness lies with the assessee, but when transactions are bank-routed and details provided without dispute, the Assessing Officer must summon creditors if needed. Disbelief in the financial statements of low-income individuals lacks basis and cannot be a ground for disallowance.

All documents proving genuineness and creditworthiness were submitted, and loans were repaid via cheques. Thus, the burden was discharged, and the addition to income was deemed unsustainable. Consequently, the appeal was allowed, emphasizing the importance of fulfilling the burden of proof in such cases.