2015 (7) TMI 1230 - AT - Income Tax

Addition on loans - non adherence to personal presence of the creditors - loans are through banking channel - creditors had died before completion of reassessment proceedings - Held that - No hesitation to hold that the assessee discharge his onus establishing genuineness of the transaction and creditworthiness of the respective creditors and the Assessing Officer only stressed upon the personal presence of the creditors who had died before completion of reassessment proceeding. The AO and the CIT(A) have not undertaken any verification or examination from the assessment records of the respective creditors as per details and documentary evidence submitted by the assessee in the confirmation in the form of PAN number and assessment ward details. In this situation addition u/s 68 of the Act cannot be made without demolishing the explanation and affidavit submitted by the assessee and without discharging the onus which was shifted by the AO after submission of explanation and all relevant documents by the assessee. Thus we hold that the addition made by the AO and upheld by the CIT(A) during the second round of proceeding cannot be held as sustainable and in accordance with letters and sprit of Section 68 of the Act specially when the assessee has shown by substantial evidence that the loans have been returned to the respective creditors then the addition u/s 68 of the Act cannot be held as correct and justified. Accordingly sole ground of the assessee is allowed.

Summary

Issues Involved:
1. Sustaining the addition of Rs. 7,00,000/- in respect of two loans.
2. Compliance with Section 68 of the Income Tax Act, 1961 regarding unexplained loans.
3. Adequacy of evidence provided by the assessee to prove the genuineness of the loans and the creditworthiness of the creditors.
4. Responsibility of the Revenue to verify the details provided by the assessee.

Issue-wise Detailed Analysis:

1. Sustaining the Addition of Rs. 7,00,000/- in Respect of Two Loans:
The assessee challenged the CIT(A)'s decision to sustain the addition of Rs. 7,00,000/- made by the Assessing Officer (AO) on account of unexplained loans. The AO initially added Rs. 3,50,000/- which was later enhanced to Rs. 7,00,000/- by the CIT(A). The Tribunal had previously set aside the matter for a de novo assessment, but the AO again made an ex-parte order maintaining the addition of Rs. 7,00,000/-.

2. Compliance with Section 68 of the Income Tax Act, 1961:
The AO and CIT(A) emphasized that the assessee failed to discharge the onus under Section 68, which requires proving the identity of the creditor, the creditworthiness of the creditor, and the genuineness of the transaction. The CIT(A) upheld the addition, stating that the assessee did not produce primary evidence like confirmation letters, bank statements, and Income Tax Returns of the creditors.

3. Adequacy of Evidence Provided by the Assessee:
The assessee contended that confirmations from the creditors, bank statements, and an affidavit were provided, showing that the loans were genuine and repaid through banking channels. The AO insisted on the personal appearance of the creditors, who had passed away before the reassessment proceedings. The Tribunal noted that the assessee had submitted PAN numbers, addresses, and other relevant details that could have been verified by the AO.

4. Responsibility of the Revenue to Verify the Details Provided by the Assessee:
The Tribunal observed that the AO and CIT(A) did not undertake any verification from the assessment records of the creditors, despite having sufficient details to do so. The Tribunal emphasized that once the assessee provided substantial evidence, the onus shifted to the Revenue to disprove the claims. The Tribunal referenced the Delhi High Court's ruling in CIT Vs. Dwarkadhish Investment P. Ltd., which supports this view.

Conclusion:
The Tribunal concluded that the authorities below ignored vital evidence provided by the assessee, which showed the genuineness of the transactions and the creditworthiness of the creditors. The AO and CIT(A) failed to verify the details from the creditors' assessment records. Consequently, the addition of Rs. 7,00,000/- under Section 68 was deemed unsustainable. The Tribunal set aside the CIT(A)'s order and directed the AO to delete the addition. The appeal of the assessee was allowed, and the related stay application was dismissed as infructuous.