2016 (10) TMI 1274 - AT - Income Tax

Unexplained cash credit u/s. 68 - genuineness of the loan transaction as well could creditworthiness of the lender - HELD THAT - Once tax-payer files the basic details such as name and address of creditor, PAN, income tax return, confirmation and bank statement, the initial onus gets discharged and if the Revenue doubts the identity and/or creditworthiness of the lender and/or genuineness of the transaction, the onus shifts back to the tax-payer to offer an explanation to the satisfaction of the AO as contemplated u/s 68 so that truth behind the smokescreen could have been unraveled by the AO. In the absence of the same, the AO has the powers to make additions to the income as unexplained cash credit u/s. 68 of the Act because the AO is both an investigator and adjudicator. Thus merely submission of the name and address of the lender, income tax returns, Balance Sheet/statement of affairs, bank statement of the lender is not sufficient as the AO is to be satisfied as to the identity and creditworthiness of creditor as well as to the genuineness of the transaction entered into with the creditor. As confessed / admitted by the partners of M/s Moxdiam in the statement recorded on oath u/s 131 of the Act that they are persons of meager financial means/resources and several bank accounts were opened by Moxdiam to provide accommodation bills and accommodation entries to various parties in lieu of commission income. Assessee had stated before us that the admission of the partners of the firm M/s Moxdiam is restricted to providing of accommodation bills for purchase and sale invoices of diamonds and it cannot be extended towards accommodation entries of the nature of loans as are extended by Moxdiam to the assessee. We are afraid that this contention of the assessee cannot be accepted as it is admitted by partners of Moxdiam that the firm is engaged in providing accommodation entries and accommodation bills in lieu of commission income and we cannot give a hyper technical restricted meaning to the words of the partners recorded in the statement as the partners clearly stated and meant that the firm M/s Moxdiam is engaged in activities of providing accommodation entries and accommodation bills to various parties and hair splitting by giving hyper technical restrictive meanings to the words recorded in the statement cannot be allowed as is referred to by the learned counsel for the assessee rather it is to be seen from the perspective of the admission of partners of Moxdiam wherein they have admitted/confessed that the firm Moxdiam is not doing any regular and genuine commercial and business dealings but is engaged in providing accommodation entries and accommodation bills in lieu of commission income, which also stood corroborated by the financial statements of Moxdiam which on perusal clearly reveals that there are no own funds invested by partners in Moxdiam as the capital invested by partners in Moxdiam seen along with their current account will reveal a deficit / debit figure. Additions made by the AO and sustained by learned CIT(A) are to be affirmed as we do not find any infirmity in the order of learned CIT(A) which we with due respect affirm with respect of raising of loan of ₹ 1.0 crore by the assessee from Moxdiam which is held to be income of the assessee as an unexplained cash credit u/s. 68 of the Act. Consequentially, interest of ₹ 93,000/- provided by the assessee on the said loan also cannot be held to be genuine interest and is ordered to be disallowed as deduction claimed by the assessee. - Decided against assessee.

Summary

Issues Involved:
1. Addition of ?1.00 crore as fictitious loan.
2. Disallowance of interest of ?93,000/- on alleged fictitious loan.
3. Disallowance of ?25,000/- out of sundry expenses.
4. Confirmation of additions and disallowances totaling ?1,01,18,000/-.
5. Validity of the orders passed by the CIT(A) and the AO.

Issue-wise Detailed Analysis:

1. Addition of ?1.00 crore as fictitious loan:
The assessee firm borrowed ?1.00 crore from Moxdiam, which was alleged to be fictitious by the AO. During the survey u/s 133A, Moxdiam's partners admitted to providing accommodation bills and entries. The assessee provided loan confirmations, bank statements, and tax returns of Moxdiam. However, the AO found Moxdiam's financial capacity dubious and added ?1.00 crore to the assessee's income u/s 68. The CIT(A) upheld this addition, emphasizing that Moxdiam's financials did not support its capacity to lend such an amount. The Tribunal agreed, noting that the assessee failed to prove the creditworthiness of Moxdiam and the genuineness of the transaction.

2. Disallowance of interest of ?93,000/- on alleged fictitious loan:
The AO disallowed the interest of ?93,000/- paid on the alleged fictitious loan, which was upheld by the CIT(A). The Tribunal confirmed the disallowance, as the loan itself was found to be non-genuine.

3. Disallowance of ?25,000/- out of sundry expenses:
The assessee did not press this ground during the hearing, and it was dismissed as 'not pressed' by the Tribunal.

4. Confirmation of additions and disallowances totaling ?1,01,18,000/-:
The CIT(A) confirmed the additions and disallowances totaling ?1,01,18,000/-, stating that the assessee failed to provide satisfactory evidence to prove the identity, source, and capacity of the lender, Moxdiam. The Tribunal upheld this decision, emphasizing the lack of genuine business activities and financial capacity of Moxdiam.

5. Validity of the orders passed by the CIT(A) and the AO:
The Tribunal found no infirmity in the orders passed by the CIT(A) and the AO, affirming their decisions. The Tribunal noted that the assessee failed to discharge its burden of proving the genuineness of the loan transaction and the creditworthiness of the lender.

Additional Observations:
- The Tribunal admitted additional evidence submitted by the assessee but found it insufficient to prove the genuineness of the loan transaction.
- The Tribunal emphasized the importance of proving the identity, creditworthiness, and genuineness of the transaction under Section 68 of the Act.
- The Tribunal referred to several case laws supporting the Revenue's position and highlighted the need for a pragmatic and fair approach in such cases.

Conclusion:
The Tribunal dismissed the appeals filed by the assessee, confirming the additions and disallowances made by the AO and upheld by the CIT(A). The assessee's failure to prove the genuineness of the loan transaction and the creditworthiness of the lender was the primary reason for the dismissal.