2018 (5) TMI 2129 - AT - Income Tax

Addition u/s 68 - Unexplained loan - unexplained cash credit - assessee failed to prove the identity and creditworthiness of the lender - CIT- A deleted the addition - HELD THAT - In this case assessing officer has despite noting that there were overwhelming evidence that the amount of loan claimed by the assessee was received from bogus entity floated by Bhanwarlal Jain group did not bother to issue any notice whatsoever to the lender in this case. Thereafter, after committing this fatal error, the assessing officer proceeded to refer to the case of Bhanwarlal Jain group and reject the assessee's contention. Upon assessee's appeal, CIT (Appeals) has referred to all the evidences regarding the loan submitted by the assessee which included confirmation from the lender. Thereafter the ld. Commissioner of Income Tax (Appeals) has also referred to Hon ble Bombay High Court decision in this regard. When all the relevant details and evidences were filed by the assessee and the assessing officer has made no effort whatsoever to examine the lender, there is no infirmity in the order of the ld. Commissioner of Income Tax (Appeals). Accordingly, we confirm the same. Appeal by the Revenue stands dismissed.

Summary

Issues:
Appeal against deletion of addition under section 68 of the Income Tax Act for unexplained cash credit.

Analysis:
1. Issue 1 - Identity and Creditworthiness of Lender:
The Revenue challenged the deletion of the addition of Rs.37,91,123 under section 68 of the Income Tax Act, arguing that the assessee failed to prove the identity and creditworthiness of the lender. The Assessing Officer relied on information from the Investigation Wing regarding the modus operandi of providing bogus loans by the Bhanwarlal Jain group. However, the Commissioner of Income Tax (Appeals) found that the identity of the creditor was established through PAN and filing of income tax returns. The genuineness of the transaction was supported by banking channels for loan acceptance and repayment, along with interest payments. The lender's creditworthiness was backed by bank statements and balance sheets. The Commissioner concluded that the AO's focus on the Bhanwarlal Jain group's activities was misplaced, as the assessee had proven the identity, creditworthiness, and genuineness of the loan.

2. Issue 2 - AO's Failure to Examine Lender:
Despite overwhelming evidence linking the loan to a bogus entity related to the Bhanwarlal Jain group, the Assessing Officer did not issue any notice to the lender. This failure to examine the lender was a critical error. The Commissioner of Income Tax (Appeals) considered all evidence submitted by the assessee, including lender confirmation, and referenced a Bombay High Court decision on a similar case. The ITAT upheld the Commissioner's decision, emphasizing that since the assessee provided all relevant details and the lender was not examined by the assessing officer, the deletion of the addition was justified.

In conclusion, the ITAT dismissed the Revenue's appeal, affirming the Commissioner's order to delete the addition under section 68 of the Income Tax Act. The judgment highlighted the importance of establishing the identity, creditworthiness, and genuineness of transactions to avoid additions based solely on external information without proper verification.