2018 (10) TMI 1917 - AT - Income Tax

Addition u/s 68 - unsecured loan receipts - AO made addition by placing reliance merely on the statements of Shri Bhanwarlal Jain Group which were recorded u/s.132(4) - HELD THAT - No independent enquiry was carried out by the AO, he has not brought any corroborative evidence to substantiate that the transactions are non-genuine. Assessee provided various evidences to establish that the transactions are genuine, creditors are identifiable and credit worthiness is proved. Following information is furnished by the assessee. (1) Confirmation of A/c. by the parties. (2) Income tax returns of the parties for A.Y.2012-13. (3) Bank Statements of the parties showing the loan transactions. (4) Audited Balance sheet P L A/c of the creditors along with the schedule wherein credit in the name of the assessee is outstanding in their books. (5) Reply given by the parties to the notice issued by the AO u/s 133(6) confirming the transaction with the assessee. (6) Payment of interest to creditors after subjecting the amount to IDS. By providing all this information to the Assessing Officer the assessee has discharged the initial onus of proving genuineness of the transactions u/s. 68 - Even the creditors have responded to the notices issued u/s. 133(6) of the Act and confirmed the genuineness of the transactions with the assessee, therefore once the initial onus is discharged by the assessee the burden shifts to the Revenue to disprove the claim of the assessee - all the loans were taken through banking channels and the repayments for the same was also made through banking channels. The loans were repaid after paying interest and deducting TDS. Assessing Officer ignored the documentary evidences submitted by the assessee and has exclusively relied on statements of third party in making the addition. In spite of request by the assessee the Assessing Officer did not provide any cross-examination of the parties who have made the submissions. No infirmity in the order passed in deleting the addition made u/s. 68 of the Act and the consequential interest on the credits. Thus, we sustain the order of the Ld.CIT(A) and reject the grounds raised by the Revenue.

Summary

Issues Involved:

1. Deletion of addition of ?1.40 Crores on account of unexplained credit under Section 68 of the Income Tax Act.
2. Deletion of addition of ?8,32,607/- on account of interest expenses under Section 69C of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of addition of ?1.40 Crores on account of unexplained credit under Section 68 of the Income Tax Act:

The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] which deleted the addition of ?1.40 Crores made by the Assessing Officer (AO) under Section 68 of the Income Tax Act. The AO had observed that the assessee received unsecured loans from three companies managed by the Shri Bhanwarlal Jain Group, which were involved in providing accommodation entries. Despite the companies responding to notices and providing necessary information, the AO relied on statements from the Shri Bhanwarlal Jain Group to conclude that the transactions were not genuine and treated them as unexplained credits.

The CIT(A) deleted the addition based on the evidence provided by the assessee, which included confirmations from the parties, income tax returns, bank statements showing loan transactions, audited balance sheets, and replies to notices confirming the transactions. The CIT(A) noted that the AO did not conduct an independent inquiry or provide corroborative evidence to substantiate the claim that the transactions were non-genuine. The CIT(A) also highlighted that the statements from the Shri Bhanwarlal Jain Group were retracted, and the AO did not provide cross-examination opportunities to the assessee.

The Tribunal upheld the CIT(A)’s decision, emphasizing that the assessee had discharged the initial onus of proving the genuineness of the transactions by providing substantial evidence. The Tribunal noted that the AO ignored the documentary evidence and relied solely on third-party statements. The Tribunal referred to the principles laid down in various judicial decisions, including the Supreme Court's ruling in Lovely Exports Pvt. Ltd., which stated that the AO should assess the amounts in the hands of the creditors if their identity, genuineness, and creditworthiness are not proved.

2. Deletion of addition of ?8,32,607/- on account of interest expenses under Section 69C of the Income Tax Act:

The AO had disallowed the interest expenses claimed by the assessee on the grounds that the credits were from bogus concerns. The assessee objected, stating that the interest payments were made through banking channels after deducting TDS. The CIT(A) observed that since the loans were treated as genuine, the interest paid on these loans should also be considered genuine. The CIT(A) provided a detailed table showing the interest accrued and TDS made for each lender.

The Tribunal upheld the CIT(A)’s decision, agreeing that the interest expenses were genuine and should be allowed as expenditure. The Tribunal directed the AO to withdraw the addition made under Section 69C of the Act.

Conclusion:

The Tribunal dismissed the Revenue's appeal, sustaining the CIT(A)’s order in deleting the additions made under Sections 68 and 69C of the Income Tax Act. The Tribunal emphasized the importance of proper evidence and independent inquiry in such cases, and the necessity for the AO to provide opportunities for cross-examination when relying on third-party statements.