2018 (11) TMI 1893 - AT - Income Tax

Addition u/s.68 and on account of commission - Bogus accommodation entries - HELD THAT - In the case of Dy. CIT vs Rohini Builders 2001 (3) TMI 9 - GUJARAT HIGH COURT held that where loans were received by the assessee by account payee cheques and the repayment of loans have also been made by account payee cheques along with interest in relation to those loans and that the assessing officer having allowed the interest claimed/paid by the assessee in relation to the cash credits cannot treat the cash credits as not genuine. The assessee had discharged the initial onus which lay on it in terms of Section 68 by proving the identity of the creditors by giving their complete addresses, PAN nos. and copies of assessment orders wherever readily available and that has also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from the bank accounts of the creditors. It held that the assessee is not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of accounts but not the source of the source. After considering the various judicial pronouncements with reference to the factual matrix of the case the CIT(A) concluded that assessee has discharged the primary onus with respect to the identity, genuineness and creditworthiness of the loan creditors. As brought to our notice that the loan so taken by the assessee has been repaid in the next assessment year 2010-11 by the account payee cheque. The confirmations filed by all the loan creditors are also placed on record acknowledging the repayment of loans. AO had passed scrutiny assessment order in assessee s case for the A.Y.2010-11 dated 25/03/2013, wherein there is no adverse observation with regard to the repayment of loan already taken by the assessee to the respective loan creditors. CIT(A) has recorded categorical findings to the effect that the assessee has discharged the burden cast on him with regard to the identity of the loan creditors, genuineness of the transaction and creditworthiness of loan creditors. The detailed finding so recorded by CIT(A) are as per material on record which has not been controverted by learned DR by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the findings so recorded by CIT(A). - Decided against revenue.

Summary

Issues Involved:
1. Addition of ?1,75,00,000/- under Section 68 of the Income Tax Act.
2. Addition of ?3,50,000/- on account of commission.

Detailed Analysis:

1. Addition of ?1,75,00,000/- under Section 68:

The primary issue revolves around the addition of ?1,75,00,000/- treated as unexplained cash credits under Section 68 of the Income Tax Act. The Assessing Officer (AO) based this addition on information from the Investigation Wing, which indicated that the assessee had obtained accommodation entries from entities associated with Praveen Kumar Jain, known for providing bogus accommodation entries. The AO reopened the assessment and observed that the assessee had taken loans from four entities, totaling ?1,75,00,000/-.

The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, noting that the assessee had provided sufficient documentary evidence, including loan confirmations, bank statements, and income tax returns of the lenders, to prove the identity, creditworthiness, and genuineness of the transactions. The CIT(A) emphasized that the AO had not conducted proper inquiries or provided any material evidence to contradict the assessee's claims. The CIT(A) cited various judicial precedents to support the view that once the assessee provides prima facie evidence, the onus shifts to the Revenue to disprove the genuineness of the transactions.

The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, agreeing that the assessee had discharged the primary onus by providing adequate evidence. The ITAT noted that the transactions were conducted through account payee cheques, and the repayment of loans was also made through banking channels. The ITAT referenced the Gujarat High Court's decision in Dy. CIT vs Rohini Builders, which held that the assessee is not expected to prove the source of the source of the credits. The ITAT concluded that the AO had not brought any positive material to counter the evidence provided by the assessee, and therefore, the addition under Section 68 could not be sustained.

2. Addition of ?3,50,000/- on Account of Commission:

The AO also added ?3,50,000/- as commission, alleging that it represented the cost of obtaining the accommodation entries. The CIT(A) deleted this addition, stating that since the primary addition of ?1,75,00,000/- was found to be genuine, the related commission could not be considered as an accommodation entry. The ITAT concurred with the CIT(A), noting that the AO's basis for the commission addition was the same as for the primary addition, which had already been disproven.

Conclusion:

The ITAT dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete both the addition of ?1,75,00,000/- under Section 68 and the addition of ?3,50,000/- on account of commission. The ITAT emphasized that the assessee had provided sufficient evidence to prove the genuineness of the transactions, and the AO had failed to bring any contrary evidence. The judgment highlights the importance of proper inquiry and evidence in cases involving unexplained cash credits and the necessity for the Revenue to substantiate its claims beyond mere statements or assumptions.