2015 (5) TMI 319 - HC - Income Tax

Addition u/s 68 - ITAT deleted addition - Held that - In this case the assessee was given fullest opportunity to prove his case. The view that the source of income of the creditors and their creditworthiness was required to be gone into militates against the view taken by the Tribunal. The learned Tribunal, it is obvious, did not examine the correctness of the views expressed by the assessing officer and the CIT (Appeals). No reasons have been disclosed as to why the views expressed by the CIT (Appeals) and the assessing officer are wrong.The learned Tribunal proceeded to set aside the order without any examination whatsoever of the views expressed as would appear from the paragraph quoted above. It is now well settled that creditworthiness of the alleged creditors and the source of the source are relevant enquiries. Thus the view taken by the learned Tribunal is not sustainable. - Decided in favour of revenue.

Summary

Issues:
Challenge to judgment of Income Tax Appellate Tribunal reversing CIT (Appeals) order on addition under section 68 of Income Tax Act for assessment year 2006-07.

Analysis:
The appeal challenged a judgment where the Income Tax Appellate Tribunal reversed an order by CIT (Appeals) regarding the addition under section 68 of the Income Tax Act for the assessment year 2006-07. The Tribunal deleted the addition of Rs. 41,15,000 made by the Assessing Officer, which was upheld by CIT (Appeals). The Tribunal's decision was based on the assessee providing Permanent Account Numbers and loan confirmations from all creditors, who were assessed to income tax and had filed returns for the relevant year. The Tribunal applied the decision of the Calcutta High Court in a similar case and deleted the addition. However, the Tribunal did not assess the correctness of the views of the assessing officer and CIT (Appeals) or provide reasons for setting aside their orders.

The Tribunal's decision was criticized for not examining the creditworthiness of the creditors and the source of the source, which are crucial inquiries. The Tribunal's failure to consider these aspects was highlighted by citing precedents emphasizing the burden on the assessee to prove the identity of creditors, their creditworthiness, and the genuineness of transactions. Mere furnishing of particulars was deemed insufficient, and the Tribunal was expected to ensure the establishment of these essential elements. It was noted that an appellate authority should only interfere when the order is wrong, not merely because it is not right, as per established legal principles.

A comparison was drawn with a Supreme Court judgment where the burden of proof was discussed in a case involving alleged loans backed by hundi transactions. The Tribunal's decision in the present case was contrasted with the Supreme Court's stance on the burden of proof and the necessity for examining the source of income and creditworthiness of creditors. The Tribunal's failure to delve into these critical aspects was deemed unsustainable, leading to the first question being answered in favor of the revenue. The second question was deemed distinguishable, and the appeal was admitted and disposed of accordingly.