2017 (9) TMI 1944 - AT - Income Tax

Addition u/s 68 - burden of proof - identity of the creditor, the credit worthiness of the creditor and the genuineness of transactions proved or not? - HELD THAT - Assessee has discharged the initial burden of proof placed upon it by furnishing the required documents to prove the three main ingredients, viz., the identity of the creditor, the credit worthiness of the creditor and the genuineness of transactions. AO has summoned the creditor and the creditor also has appeared before the assessing officer and confirmed the loan transactions. Despite these facts, I notice that the AO chose to place reliance on the general statement given by Shri Bhanwarlal Jain, meaning thereby, there is merit in the contentions of Ld A.R that the AO has failed to discharge the burden shifted upon his shoulders. Identical addition was made in the case of M/s Reliance Corporation 2017 (5) TMI 1261 - ITAT MUMBAI and the assessee therein also furnished all the relevant details in order to discharge the burden of proof placed upon it u/s 68 of the Act. The creditor also appeared before the AO and confirmed the transactions. The AO, however, made the addition by placing reliance on the statement given by Shri Bhanwarlal Jain. When the matter reached the Tribunal, the division bench deleted the addition. Since the facts of the present case are identical, hold that the Ld CIT(A) was not justified in confirming the addition made in AY 2008-09. - Decided in favour of assessee.

Issues Involved:
1. Addition of ?25.00 lakhs made under Section 68 of the Income Tax Act for AY 2008-09.
2. Disallowance of interest expenditure of ?6.31 lakhs for AY 2008-09.
3. Disallowance of interest expenditure for AY 2010-11 and 2011-12 related to loans added under Section 68 in AY 2007-08 and 2008-09.

Detailed Analysis:

1. Addition of ?25.00 Lakhs under Section 68 for AY 2008-09:
The assessee challenged the addition of ?25.00 lakhs made under Section 68 of the Income Tax Act, which was based on the loan received from M/s Sankhala Exports P Ltd. The AO reopened the assessment after a search on Bhanwarlal Jain group revealed that they provided accommodation bills for unsecured loans. Despite the creditor appearing before the AO and confirming the loan transactions, the AO relied on the general statement from Shri Bhanwarlal Jain and added the amount under Section 68. The Tribunal noted that the assessee had discharged the initial burden of proof by providing necessary documents to prove the identity, creditworthiness, and genuineness of the transactions. The AO failed to provide an opportunity for cross-examination and did not discharge the burden shifted to him. Citing a similar case (M/s Reliance Corporation), the Tribunal held that the addition of ?25.00 lakhs made in AY 2008-09 was not justified and directed the AO to delete the addition.

2. Disallowance of Interest Expenditure of ?6.31 Lakhs for AY 2008-09:
The AO disallowed the interest expenditure of ?6.31 lakhs, which included ?4.02 lakhs on loans taken in the preceding year and ?2.28 lakhs on the loan taken during the year under consideration, on the grounds that the loans were bogus. The Tribunal, following the deletion of the principal loan amount addition, held that the disallowance of interest relating to the loan of ?25.00 lakhs was not justified. Consequently, the Tribunal directed the AO to delete the disallowance of interest expenditure.

3. Disallowance of Interest Expenditure for AY 2010-11 and 2011-12:
For AY 2010-11 and 2011-12, the AO disallowed interest expenses related to loans added under Section 68 in AY 2007-08 and 2008-09. The Tribunal noted that the addition of ?50.00 lakhs made in AY 2007-08 did not survive as the CIT(A) had quashed the assessment order on legal grounds, and the revenue did not challenge this decision. Following the deletion of the addition for AY 2008-09, the Tribunal held that the disallowance of interest expenses for AY 2010-11 and 2011-12 was also not justified. The Tribunal directed the AO to delete the disallowance of interest expenses for both years.

Conclusion:
The Tribunal allowed all three appeals of the assessee, directing the AO to delete the additions and disallowances made under Section 68 and related interest expenditures for the assessment years in question. The judgment emphasized the importance of providing an opportunity for cross-examination and the necessity for the AO to discharge the burden of proof once shifted. The Tribunal's decision was pronounced on 12.9.2017.

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