2019 (3) TMI 2016 - AT - Income Tax

Addition u/s. 68 - information received from the DGIT (Inv.) that the assessee is one of the beneficiaries of the accommodation entries provided by various entities being operated by Praveen Kumar Jain Group - burden of proving the identity, genuineness and creditworthiness of the creditors - HELD THAT - In the case on hand also the assessee has discharged its initial burden by providing all the necessary details in respect of the loan transactions and thus the assessee has discharged identity, genuineness of the transactions and creditworthiness of the parties. Thus, hold that there is no valid reason for the AO to treat the loan transactions has not proved by the assessee. Hence, direct the AO to delete the addition made u/s. 68 in all these Assessment Years. Appeals of the assessee are allowed

Summary

Issues Involved:
1. Addition made under Section 68 of the Income Tax Act.
2. Genuineness, identity, and creditworthiness of creditors.
3. Reliance on investigation reports and statements without cross-examination.
4. Initial burden of proof and shifting of burden to the Assessing Officer (AO).

Detailed Analysis:

1. Addition made under Section 68 of the Income Tax Act:
The appeals concern the addition made under Section 68 of the Income Tax Act for the Assessment Years 2008-09 to 2010-11 and 2012-13 to 2014-15. The Assessing Officer (AO) based the additions on information from the Directorate General of Income Tax (Investigation) [DGIT (Inv.)], which indicated that the assessee was a beneficiary of accommodation entries provided by entities operated by the Praveen Kumar Jain Group (PKJ Group). The AO concluded that the entities were non-existent and treated the creditors as non-genuine.

2. Genuineness, identity, and creditworthiness of creditors:
The assessee contended that the loans were received and repaid through account payee cheques and provided various documents to prove the genuineness, identity, and creditworthiness of the creditors. These documents included confirmations from creditors, bank statements, PAN details, audited financial statements, and an affidavit from Praveen Kumar Jain retracting his earlier statement about providing accommodation entries. Despite these submissions, the AO and the Commissioner of Income Tax (Appeals) [CIT(A)] sustained the additions, doubting the genuineness of the transactions based on the investigation report.

3. Reliance on investigation reports and statements without cross-examination:
The assessee argued that the AO relied solely on the investigation report and statements from the PKJ Group without providing the assessee an opportunity to cross-examine the individuals whose statements were used against them. The AO did not provide the statements relied upon nor conducted further inquiries to disprove the loan transactions, which the assessee claimed violated principles of natural justice.

4. Initial burden of proof and shifting of burden to the Assessing Officer (AO):
The Tribunal observed that the assessee had discharged the initial burden of proof by providing comprehensive details about the loan transactions, including identity, genuineness, and creditworthiness of the creditors. Citing precedents, the Tribunal noted that once the initial burden is discharged by the assessee, the burden shifts to the AO to prove otherwise. The AO, however, made additions based solely on the investigation report without substantial evidence to disprove the loan transactions.

Judgment:
The Tribunal, referencing similar cases (M/s. Shree Laxmi Estate Pvt Ltd. v. ITO and M/s. Shree Laxmi Developers v. ITO), concluded that the assessee had provided sufficient evidence to prove the loan transactions. The Tribunal held that the AO's reliance on the investigation report without providing cross-examination opportunities or further inquiry was insufficient to sustain the additions under Section 68. Consequently, the Tribunal directed the AO to delete the additions made for all the relevant assessment years.

Conclusion:
The appeals were allowed in favor of the assessee, with the Tribunal directing the deletion of the additions made under Section 68 of the Income Tax Act, emphasizing the importance of providing cross-examination opportunities and the necessity for the AO to conduct thorough inquiries beyond relying on investigation reports. The judgment reinforces the principle that once the initial burden of proof is discharged by the assessee, the onus shifts to the AO to disprove the claims with substantial evidence.