2015 (2) TMI 402 - AT - Income Tax

Unexplained credit under section 68 - Held that - A majority of the creditors have also appeared either in person or through their Authorised Representatives before the A.O. and have confirmed of having advanced the loan to the assessee. It is also evident that all the loan transactions were through regular banking channel. Many of the creditors are also income tax assessee s and not only their income tax particulars but the income tax returns filed by them along with balance sheets etc., were also submitted before the A.O. either by assessee or directly by those persons. It also appears from the facts on record that in case of many of the creditors, the assessee has subsequently repaid the loan, also through regular banking channel. It also appears that during the currency of the loans assessee also credited interest to the concerned loan creditors through banking channel. Under these circumstances, when the entire transaction is through regular banking channel, the loan received by the assessee cannot be treated as unexplained credit merely on the assumption that the creditworthiness of the creditors are not proved. When the loan transaction is through banking channel to prove that it is not genuine, the A.O. has to make proper enquiry and establish it on record by bringing sufficient evidence that it is the assessee s money which has been routed back to him through the creditors. Unless this fact is proved through proper enquiry, it will not be proper to treat the loan transaction as not genuine on conjecture and surmises.Therefore, on overall consideration of facts and materials on record, we are of the view that the entire issue relating to the loan transactions representing the 78 creditors requires re-examination. More so, considering the specific grievance of the assessee that adequate opportunity to explain was not given to him. Having held that issue relating to loan transactions requires re-examination, it is necessary also to decide whether A.O. or CIT(A) will be the appropriate authority to decide it afresh. In this context, it needs to be observed each of the loan transaction has to be examined independently in the context of the evidences produced relating to it along with the explanation of the assessee for determining the genuineness. Since the A.O., in our view, has not undertaken such exercise in respect of each of the loan transaction and rather has come to his conclusion by making general observations, we are inclined to remit the matter back to him for fresh examination. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Addition of Rs. 24,51,59,200 as unexplained credit under Section 68 of the Income Tax Act for the assessment year 2010-2011.

Detailed Analysis:

1. Addition of Rs. 24,51,59,200 as Unexplained Credit:

Facts and Initial Proceedings:
The assessee, an individual, filed a return of income declaring Rs. 1,01,13,840 for the assessment year 2010-2011. During the assessment proceedings, the Assessing Officer (A.O.) noticed an unsecured loan of Rs. 47,05,04,082 from various persons. The A.O. asked the assessee to furnish details of all loan creditors and their creditworthiness. The assessee provided confirmation letters and bank statements. However, the A.O. summoned the loan creditors based in Kolkata for examination. Out of 78 creditors, 20 appeared in person, 24 were represented by authorized representatives, and the rest did not appear. The A.O. found that the creditworthiness of the creditors was not proven and added Rs. 24,51,59,299 as unexplained credit under Section 68 of the Act.

Appeal to CIT(A):
The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)] and submitted voluminous documents to prove the genuineness of the loan transactions. However, the CIT(A) rejected the submissions and confirmed the addition made by the A.O. The assessee then appealed to the ITAT.

Arguments by the Assessee:
The assessee argued that the A.O.'s enquiry was commenced late and was conducted without informing the assessee adequately. The assessee's representative submitted that the A.O. did not provide a complete set of information gathered during the enquiry, which hindered the assessee's ability to respond effectively. The assessee contended that the loans were genuine, supported by banking transactions, and the creditors were income tax assessees with sufficient funds.

Arguments by the Department:
The Department argued that the A.O. conducted necessary enquiries and provided due opportunity to the assessee. They suggested that if the assessee felt aggrieved by the CIT(A)'s order, the matter could be remitted back to the CIT(A) for fresh adjudication.

Tribunal's Observations and Decision:
The Tribunal noted that the initial burden of proving the loan transaction lies with the assessee, which includes establishing the identity, creditworthiness, and genuineness of the transaction. The Tribunal observed that the assessee provided names, addresses, income tax particulars, and confirmation letters from the loan creditors. The transactions were conducted through regular banking channels, and many creditors were income tax assessees.

The Tribunal found that the A.O. disbelieved the loan transactions mainly due to doubts about the creditors' creditworthiness. However, the Tribunal emphasized that once the assessee discharges the initial burden with supporting evidence, the A.O. must make proper enquiries to disprove the genuineness of the transactions.

The Tribunal criticized the CIT(A) for confirming the A.O.'s view mechanically without examining the documentary evidence properly. The Tribunal decided to remit the matter back to the A.O. for fresh examination, allowing the A.O. to conduct necessary enquiries and examine the loan creditors who had not appeared earlier. The A.O. was directed to provide the assessee with any material intended to be used against them and allow an opportunity to explain.

Conclusion:
The Tribunal set aside the CIT(A)'s order and remitted the matter back to the A.O. for a fresh decision, ensuring a fair opportunity for the assessee to present their case. The appeal of the assessee was allowed for statistical purposes, and the stay application became infructuous. The order was pronounced in open court on 06.02.2015.