2017 (5) TMI 1584 - HC - Income Tax

Addition u/s 68 - notices never came to be issued to 11 creditors - Held that - Out of 64 creditors notices never came to be issued to 11 creditors. Quite apparently learned Tribunal without discussing the evidence if any placed on record by the assessee with regard to the creditworthiness and genuineness of the transactions proceeded to hold that no addition on account of unexplained credit could be made against the assessee since the assessee was in the process of installing the plant and had not commenced any business activities. As emerges from the impugned order that assessee vide letter dated 24.11.2008 had requested the Assessing Officer to issue summons against the aforesaid 11 creditors to ensure their attendance for their examination on oath under Section 131 of the Income Tax Act but Assessing Officer instead of issuing notices under Section 131 of the Act proceeded to decide the case on the basis of material on record - remand back the matter to the Assessing Officer ITA Baddi to examine and decide the matter afresh on the basis of material adduced on record by the respective parties

Summary

Issues:
1. Interpretation of Section 68 of the Income Tax Act regarding the burden of proof on the assessee to establish creditworthiness of creditors and genuineness of transactions.
2. Failure of the Tribunal to properly examine evidence related to creditworthiness and genuineness of transactions.
3. Non-issuance of notices to certain creditors for examination under oath as requested by the assessee.
4. Quashing of the impugned order and remand of the matter to the Assessing Officer for fresh examination based on the evidence.

Analysis:
1. The judgment addresses the interpretation of Section 68 of the Income Tax Act, emphasizing the burden on the assessee to prove the creditworthiness of creditors and genuineness of transactions. The court clarifies that the law does not require the assessee to commence production before Section 68 comes into play. The burden of proof lies on the assessee, and the fact-finding authorities must adjudicate on creditworthiness and genuineness.

2. The Tribunal failed to properly examine evidence related to creditworthiness and genuineness of transactions, as highlighted by the non-issuance of notices to 11 creditors. The court notes that the Tribunal did not discuss the evidence presented by the assessee and made a decision based on incomplete information, leading to the quashing of the impugned order.

3. The judgment highlights the failure of the Assessing Officer to issue notices to the creditors for examination under oath as requested by the assessee. This omission affected the proper examination of the creditworthiness and genuineness of the transactions. The court emphasizes the importance of following due process and ensuring all relevant evidence is considered in such cases.

4. In conclusion, the court quashes the impugned order and remands the matter to the Assessing Officer for a fresh examination based on the material on record. The court instructs the Assessing Officer to confirm whether the creditors advanced loans to the assessee through banking channels and to ascertain the creditworthiness and genuineness of the transactions as per the law. The court also urges the concerned authority to expedite the decision-making process due to the timeline of the assessment years involved.