2012 (7) TMI 71 - AT - Income Tax

Unexplained cash credit creditworthiness Held that - Assessee has furnished the relevant documents to discharge his primary onus of explaining the nature and source of credit entries - name and address of the creditor - confirmation of loan from the said creditor - address of the creditor - assessment particulars of the creditor - copy of legal notice served by the above loan creditor on the appellant, as the assessee failed to repay the loan - Since the disputed loan transaction had been through the account payee cheques and the address and PAN of creditor were before the AO, the question of identity of the creditor becomes irrelevant - action of the ld. AO was not justified and on the other hand, the ld. CIT(A) rightly held that the assessee has discharged his burden of proof regarding identity and creditworthiness of the creditor and genuineness of the transactions

Issues Involved:
1. Deletion of addition of Rs. 45,00,000/- made by the AO on account of unexplained cash credit.
2. Establishment of the identity and creditworthiness of the creditor.
3. Examination of the result of the criminal case filed against the assessee by the creditor.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 45,00,000/-:
The Revenue appealed against the CIT(A)'s order deleting the addition of Rs. 45,00,000/- made by the AO as unexplained cash credit. The AO had added this amount to the assessee's income, rejecting the explanation and documentary evidence provided by the assessee, including bank statements and confirmation letters from the creditor, Shri Y.V. Rama Raju. The CIT(A) deleted the addition, noting that the assessee had furnished sufficient documents to discharge his primary onus of explaining the nature and source of the credit entries. The CIT(A) emphasized that the burden of proof shifts to the department to prove the existence of the investment when section 69 of the Income Tax Act is invoked, unlike section 68 where the onus is entirely on the assessee.

2. Establishment of Identity and Creditworthiness of the Creditor:
The CIT(A) held that the assessee had provided sufficient evidence to establish the identity and creditworthiness of the creditor, including the name, address, confirmation of the loan, assessment particulars, and a legal notice from the creditor. The CIT(A) relied on various judicial precedents, including the Hon'ble Allahabad High Court's decision in CIT vs Dayachand Jain Vaidya and the Hon'ble Gauhati High Court's decision in Nemi Chand Kothari vs CIT, to support the view that the assessee had discharged his burden of proof. The CIT(A) noted that the loan transactions were conducted through account payee cheques, and the creditor's PAN and address were provided, making the question of identity irrelevant. The CIT(A) concluded that the onus had shifted to the Revenue to prove that the loan entry represented the assessee's suppressed income.

3. Examination of the Result of the Criminal Case:
The Revenue contended that the CIT(A) erred by not examining the result of the criminal case filed against the assessee by the creditor. However, the tribunal found that the CIT(A) was only required to examine the identity and creditworthiness of the creditor and the genuineness of the transaction, not the outcome of the criminal case. The tribunal observed that the legal notices and criminal complaints filed by the creditor supported the genuineness of the loan transaction. The tribunal also noted that the Revenue did not pursue the examination of the creditor's source of income, which was essential to determine creditworthiness, as highlighted in the Hon'ble Supreme Court's decision in CIT vs Orissa Corporation Pvt. Ltd.

Conclusion:
The tribunal concluded that the CIT(A) rightly deleted the addition made by the AO, as the assessee had discharged his burden of proof regarding the identity and creditworthiness of the creditor and the genuineness of the transaction. The tribunal found no perversity or error in the CIT(A)'s order and dismissed the Revenue's appeal, upholding the CIT(A)'s decision. The tribunal emphasized that the Revenue failed to pursue the examination of the creditor's source of income, which was crucial to establish creditworthiness. The appeal by the Revenue was deemed devoid of merit and was dismissed accordingly.

← Previous Next →