2018 (8) TMI 2127 - AT - Income Tax

Addition u/s 68 - assessee is a proprietor of a rice mill and has taken unsecured loan of Rs. 50 lacs from two legal entities - CIT(A) deleted the addition - HELD THAT - We note that the assessee has discharged the onus casted upon him to prove the identity creditworthiness and genuineness of the lenders. We note that assessee has returned the loan through account payee cheque before 24.05.2013 to both lenders which facts could not be controverted by the revenue. In such a scenario the factual finding of Ld. CIT(A) cannot be disturbed and so we confirm the same. Appeal of revenue is therefore dismissed.

Summary

Issues: Revenue's appeal against deletion of addition of Rs.50 lakhs under section 68 of the Income-tax Act, 1961 for Assessment Year 2012-13.

Analysis:
1. Issue of Deletion of Addition: The appeal was filed by the revenue against the order of the Commissioner of Income Tax (Appeals) regarding the deletion of an addition of Rs.50 lakhs under section 68 of the Income-tax Act, 1961. The assessee, a proprietor of a rice mill, had taken an unsecured loan of Rs.50 lakhs from two legal entities. The assessee provided various documents to prove the identity, creditworthiness, and genuineness of the transactions, including confirmation letters, audit reports, and bank account details of the lenders. The AO issued letters to the lender companies under section 133(6) of the Act, which were duly replied to. Additionally, the loans were repaid by the assessee before the assessment proceedings were initiated. The AO, however, concluded that the lenders were not creditworthy. The Tribunal noted that the AO's action was flawed and referred to a judgment emphasizing that the AO should have verified the genuineness of the transaction with the creditor's AO before disregarding the documents provided by the assessee.

2. Legal Precedent: The Tribunal relied on a judgment of the Hon'ble High Court, which highlighted that when the identity of the creditor and the genuineness of the transaction through account payee cheque are established, the AO should not doubt the transaction without verifying with the creditor's AO. The Tribunal found that the assessee had fulfilled the burden of proving the identity, creditworthiness, and genuineness of the lenders. The loans were returned through account payee cheques before the specified date, which the revenue did not refute. Consequently, the Tribunal upheld the factual findings of the CIT(A) and dismissed the appeal of the revenue.

3. Conclusion: The Tribunal dismissed the appeal of the revenue, emphasizing that the action of the AO in not accepting the documents provided by the assessee and deeming the lenders as not creditworthy was not justified. The Tribunal found that the assessee had met the burden of proof and had repaid the loans before the assessment proceedings, leading to the confirmation of the CIT(A)'s decision to delete the addition of Rs.50 lakhs. The judgment was pronounced on 14th August 2018.