2022 (9) TMI 1436 - AT - Income Tax

Unexplained cash credit u/s 68 - filing of documentary evidence by assessee to prove the cash credits - HELD THAT - Assessee neither co-operated nor explained genuineness of the impugned cash credits even in remand proceedings. We thus quote PCIT V/s NRA Iron and steel (P) Ltd. 2019 (3) TMI 323 - SUPREME COURT , Sumati Dayal 1995 (3) TMI 3 - SUPREME COURT and CIT V/s Durga Prasad More 1971 (8) TMI 17 - SUPREME COURT that mere filing of documentary evidence does not absolve the assessee from discharging its onus of proving genuineness/ creditworthiness of the sums credited which has to be considered in the light of human probabilities by removing all blinkers, respectively. We thus conclude that the learned lower authorities have rightly made the impugned addition. Decided against assessee.

Summary

Issues Involved
1. Unexplained cash credit addition under Section 68 of the Income Tax Act, 1961.
2. Failure to establish the identity, creditworthiness, and genuineness of the loan transactions.

Detailed Analysis

Unexplained Cash Credit Addition under Section 68
The primary issue in this case revolves around the addition of Rs. 12.10 crores as unexplained cash credits under Section 68 of the Income Tax Act, 1961. The assessee introduced unsecured loans from two entities, Aum Impex (Rs. 5.00 Crores) and Pioneer Exim (Rs. 7.10 Crores), without paying any interest on these loans. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] found that the incomes of these creditors were not commensurate with the amount of loans advanced, raising doubts about the genuineness of the transactions.

Failure to Establish Identity, Creditworthiness, and Genuineness
The CIT(A) and AO required the assessee to establish three essential ingredients under Section 68: the identity of creditors, creditworthiness of creditors, and genuineness/nature of transactions. The assessee, however, failed to provide credible documentary evidence to substantiate these elements. The AO noted that there were significant credit entries in the bank accounts of these loan creditors immediately before issuing cheques to the assessee, which could not be satisfactorily explained.

During the appellate proceedings, the assessee claimed insufficient opportunity to explain the genuineness of the loans and requested the admission of additional evidence under Rule 46A. Despite several opportunities during remand proceedings, the assessee failed to produce the creditors for verification or provide the necessary details. The AO reported that the appellant did not furnish current addresses or other contact details of these loan creditors, nor did it establish the source of credits in the bank accounts before issuing cheques.

The CIT(A) emphasized that merely filing confirmatory letters or demonstrating that transactions were through banking channels does not discharge the onus of the assessee to prove the genuineness of the transactions. The CIT(A) observed that the appellant's business had no significant activities or goodwill, making it improbable to secure such large unsecured loans without any interest or collateral.

Legal Precedents and Judicial Rulings
The CIT(A) relied on several judicial rulings to substantiate the addition under Section 68:
1. Suman Gupta vs. CIT: The Supreme Court upheld the addition where identical amounts were found deposited in lenders' accounts before lending.
2. PCIT vs. Bikram Singh: The Delhi High Court held that transactions made through cheques do not presume genuineness without supporting agreements, security, and interest payments.
3. Toby Consultants (P.) Ltd. vs. CIT: The Delhi High Court ruled that the genuineness of transactions must be independently proven, not merely by filing documents.
4. Sanraj Engineering Pvt. Ltd. vs. CIT: The Delhi High Court justified the addition where the assessee failed to prove lenders' creditworthiness.
5. CIT vs. Maithan International: The Calcutta High Court emphasized examining creditors' creditworthiness beyond bank statements and confirmations.

Tribunal's Conclusion
The Tribunal found merit in the Revenue's arguments supporting the addition. The assessee neither cooperated nor explained the genuineness of the cash credits during remand proceedings. Citing precedents such as PCIT vs. NRA Iron and Steel (P) Ltd., Sumati Dayal vs. CIT, and CIT vs. Durga Prasad More, the Tribunal concluded that mere filing of documentary evidence does not absolve the assessee from proving the genuineness and creditworthiness of the sums credited. The Tribunal upheld the lower authorities' decision, dismissing the assessee's appeal.

Final Judgment
The assessee's appeal was dismissed, and the addition of Rs. 12.10 crores as unexplained cash credits under Section 68 was upheld. The order was pronounced in the Open Court on 23rd September 2022.