2019 (4) TMI 2060 - AT - Income Tax

Addition u/s. 68 - unsecured loans and interest thereon relating to said unsecured loans - Burden to prove the identity, creditworthiness of the creditors and the genuineness of the transactions - addition on the ground that the creditors have not responded, only meager incomes were shown by the creditors, truncated bank statements were filed and assessee has not proved that the lender is proprietor of the concern from which loan has been taken by the assessee - HELD THAT - As in the case of M/s. Shree Laxmi Estate Pvt ltd. 2017 (12) TMI 1658 - ITAT MUMBAI and M/s. Shree Laxmi Developers Laxmi Developers 2017 (12) TMI 1658 - ITAT MUMBAI held that once the assessee has discharged his initial burden the burden shifts to the Assessing Officer to prove otherwise. The Coordinate Bench considered the submissions as well as the material placed before the lower authorities and concluded that when once the assessee furnished all the details in respect of the loan transactions assessee has discharged its initial burden and the burden shifts to the assessee. It was held that no addition can be made only on the basis of information received from the investigation wing without there being any evidences to disprove the loan transactions from the creditors We find that, the assessee has discharged its initial onus of proving the identity, genuineness and creditworthiness of the creditors by providing all necessary details as stated in earlier paragraphs and thus the assessee has discharged identity, genuineness and creditworthiness of the creditors. Assessing Officer has not controverted the evidences furnished by the assessee. No further enquiries have been made by the Assessing Officer to disprove the evidences furnished by the assessee. As in view of the evidences furnished by the assessee, we are of the view that the assessee has discharged his onus of proving the identity, genuineness and creditworthiness of the creditors and fulfilled the requirement of ingredients of section 68 of the Act. Thus, the addition made u/s. 68 of the Act without any enquiry is liable to be deleted. Thus, we direct the Assessing Officer to delete the addition made u/s. 68 - Decided against revenue.

Summary

Issues Involved:
1. Addition under Section 68 of the Income Tax Act towards unsecured loans and interest thereon.
2. Genuineness, identity, and creditworthiness of the creditors.
3. Admissibility of additional evidence under Rule 46A of the Income Tax Rules.
4. Burden of proof and the role of the Assessing Officer (AO) in verifying claims.
5. Legal precedents and principles applicable to Section 68 cases.

Issue-wise Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act towards unsecured loans and interest thereon:
The Revenue appealed against the deletion of additions made under Section 68 by the AO, which treated unsecured loans and interest as unexplained cash credits. The AO had issued notices to creditors, most of which were returned unserved, and no replies were received from others. The AO added the unsecured loans to the income of the assessee, citing insufficient proof of the creditors' identity, genuineness, and creditworthiness.

2. Genuineness, identity, and creditworthiness of the creditors:
The assessee provided various documents to establish the identity, genuineness, and creditworthiness of the creditors, including income tax returns, bank statements, ledger accounts, PAN cards, and confirmations. Despite these, the AO was not convinced, citing low income shown by creditors, truncated bank statements, and lack of proof that individuals were proprietors of their concerns.

3. Admissibility of additional evidence under Rule 46A of the Income Tax Rules:
The assessee submitted additional evidence under Rule 46A, explaining that due to personal reasons, complete information could not be furnished earlier. The CIT(A) admitted these additional evidences, considering the assessee was prevented by sufficient cause. The AO, in his remand report, rejected these additional evidences, but the CIT(A) found them satisfactory and deleted the additions made by the AO.

4. Burden of proof and the role of the Assessing Officer (AO) in verifying claims:
The Tribunal emphasized that the initial burden of proof lies on the assessee to establish the identity, genuineness, and creditworthiness of the creditors. Once the assessee discharges this burden, it shifts to the AO to disprove the claims. The Tribunal noted that the AO did not make further inquiries or provide sufficient evidence to counter the assessee's claims. The Tribunal cited several legal precedents, including the Supreme Court's ruling in CIT v. Orissa Corporation Pvt. Ltd., which held that the AO must pursue further investigations if initial evidence is provided by the assessee.

5. Legal precedents and principles applicable to Section 68 cases:
The Tribunal referred to various judgments, including those by the Supreme Court and High Courts, which have established that the assessee must prove the identity of the creditor, the genuineness of the transaction, and the creditworthiness of the creditor. It was highlighted that if the AO harbors doubts, they are duty-bound to carry out thorough investigations. The Tribunal found that the assessee had provided sufficient evidence, and the AO's failure to conduct further inquiries or provide contrary evidence meant that the additions under Section 68 were not justified.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the additions made under Section 68, concluding that the assessee had discharged the burden of proof regarding the identity, genuineness, and creditworthiness of the creditors. The AO's failure to conduct further inquiries or provide sufficient evidence to counter the assessee's claims led to the dismissal of the Revenue's appeal. The Tribunal emphasized the importance of adhering to legal precedents and principles in such cases.