2018 (4) TMI 1666 - AT - Income Tax

Reopening of assessment - Addition u/s. 68 - assessee failure to prove genuineness of loan - disallowance of interest paid on above said loan - discharge of primary onus - addition relying on statement of accommodation entry providers - HELD THAT - The assessee has furnished confirmation obtained from Rose Impex, which contained PAN and address of the creditor. The assessee has also furnished copies of return of income filed by the creditor. These documents prove the identity of creditor. The assessee has also furnished bank account of Rose Impex and also it s own bank account in order to show that the loan transaction has been carried out through banking channel. Though, the learned CIT(A) has observed that there was huge transfer of fund before giving loan to the assessee, perusal of the bank account of Rose Impex would show that the funds have been transferred were through banking channels only and not by way of depositing cash. The assessee has also furnished bank statement to show that the above said loans have been repaid on 25.3.2013. Since transactions of taking loan and repayment of loan have taken place through banking channel, in our view, the genuineness of transaction also stands proved. Perusal of the balance sheet of Rose Impex would show that the loan of ₹ 25 lakhs given to the assessee is duly reflected in the balance sheet of the assessee. Further, it can be noticed that Rose Impex has taken loans from various persons, which formed source for giving loan to the assessee. Hence, it cannot be said the Rose Impex was not having funds for giving loan to the assessee, meaning thereby, creditworthiness of the creditor also stands proved. Merit in the contention that assessee has discharged primary onus placed upon it u/s. 68 - we have noticed that the assessee has discharged burden of proof placed upon its shoulders u/s. 68 of the Act, we are of the view that the learned CIT(A) was not justified in confirming the addition by simply placing reliance on the statement given by Mr. Bhanwarlal Jain - decided in favour of assessee

Summary

Issues involved:
Reopening of assessment, addition of loan amount u/s. 68 of the Act, disallowance of interest paid on the loan.

Reopening of assessment:
The Assessing Officer reopened the assessment based on information received regarding accommodation entries provided by a group concern. The assessee was required to prove the genuineness of a loan taken from a concern belonging to the group. Despite furnishing various documents, the Assessing Officer relied on a statement by an individual associated with the group. The AR argued that the initial burden under section 68 was met by proving the identity, creditworthiness, and genuineness of the transaction. The AR contended that the loan was repaid through banking channels, proving its authenticity.

Addition of loan amount u/s. 68 of the Act:
The Assessing Officer added the loan amount under section 68, citing lack of proof of genuineness. The CIT(A) upheld this addition. The AR argued that all necessary documents were provided to prove the legitimacy of the loan. The AR highlighted that the transactions were conducted through banking channels, the creditor's creditworthiness was established, and the loan repayment was evidenced. Case laws were cited to support the argument that the burden of proof under section 68 was discharged by the assessee.

Disallowance of interest paid on the loan:
The Assessing Officer disallowed the interest paid on the loan, which was also confirmed by the CIT(A). The AR contended that the Assessing Officer failed to prove the unreliability of the documents submitted by the assessee. The AR argued that since the burden of proof under section 68 was met, the disallowance of interest was unjustified. The Tribunal found that the documents furnished by the assessee contradicted the statement relied upon by the Assessing Officer. Consequently, the Tribunal directed the deletion of the addition of the loan amount and the disallowance of interest.

The Tribunal concluded that the burden of proof under section 68 was discharged by the assessee through the submission of necessary documents proving the identity, creditworthiness, and genuineness of the loan transaction. The Tribunal found that the Assessing Officer's reliance on a retracted statement was unjustified, and the documents provided by the assessee were reliable. Therefore, the Tribunal allowed the appeal, directing the deletion of the addition of the loan amount and the disallowance of interest. The validity of the assessment reopening was not adjudicated as the issues were decided in favor of the assessee.