2016 (2) TMI 712 - HC - Income Tax

Addition u/s 68 - Held that - Assessee has not been able to discharge the initial onus of proving the creditworthiness of the six lenders. The mere fact that the Assessee had produced the bank account statements of the six lending parties would not per se relieve it of the burden particularly if these bank accounts gave rise to further questions regarding the creditworthiness of the six lenders. For instance, at least three of the lenders were not paid any interest. Compared to the income disclosed in the returns, the amounts advanced as loan to the Assessee were disproportionately large. In particular one of the parties advanced a loan of ₹ 1.40 crore free of any interest. It is in these circumstances and upon a thorough analysis of the bank accounts of the six lenders that the CIT(A) came to the conclusion that their creditworthiness was not established. The question was not one of demonstrating the sources of the income of the lenders as much as establishing their financial capacity to advance the sums in question to the Assessee. - Decided against assessee

Summary

Issues:
- Appeal against ITAT order upholding addition under Section 68 of the Income Tax Act
- Question of establishing creditworthiness of loan creditors

Analysis:
1. The appeal was filed against an ITAT order upholding an addition made by the AO under Section 68 of the Income Tax Act. The Assessee contended whether the ITAT was justified in upholding the order of the CIT(A) sustaining an addition of Rs. 2.40 crore under Section 68 of the Act.

2. The Assessee, a private company, had taken unsecured loans from thirteen parties for business purposes. The AO made an addition of Rs. 2.40 crore under Section 68 of the Act, stating the Assessee failed to prove the creditworthiness of six parties. The CIT(A) initially deleted the addition, but the ITAT remanded the matter back to the CIT(A) for specific findings on creditworthiness.

3. The CIT(A) later concluded that the Assessee failed to establish the creditworthiness of the six parties based on various grounds. The Assessee then approached the ITAT, arguing it had provided relevant evidence like bank statements, ITRs, etc., to prove creditworthiness as per legal precedents.

4. However, the Court upheld the concurrent findings of the CIT(A) and ITAT, stating the Assessee did not discharge the initial onus of proving the creditworthiness of the lenders. The Court emphasized that merely producing bank statements was insufficient, especially when questions arose regarding creditworthiness based on the large loan amounts and lack of interest payments.

5. The Court highlighted that the focus was on establishing the financial capacity of the lenders to advance the sums to the Assessee, rather than just demonstrating the sources of their income. Legal precedents were cited to support the decision, and it was concluded that no substantial question of law arose, leading to the dismissal of the appeal.