2023 (10) TMI 1396 - AT - Income Tax

Addition u/s 68 - unexplained cash credit in the form of unsecured loans - Addition made as assessee has failed to establish the identity and creditworthiness of the cash creditors as well as the genuineness of transactions - CIT(A) deleted addition as Assessee has provided sufficient documents such as PAN, copies of ITR-V and various ROC forms to establish the identity of the creditor and sufficient documents in the form of confirmation letter from creditor, affidavit from their director, bank statement showing amount debited in the creditor s bank account and credited in assessee s bank through RTGS to establish genuineness of transaction. AO did not accept the genuineness of loans credited in the books of the assessee because notices issued to loans parties for independent inquiry have not been responded. Whether the documentary evidence provided by the assessee should be brushed aside for the reason that they did not respond to notices issued u/s 133(6) of the Act or not found when income tax official visited at their address or on the basis of commission report alleging that the creditor parties were managed by entry provider? - HELD THAT - The report of the commission cannot be taken as sacrosanct/gospel truth for taking any adverse view against the assessee without pointing out any specific defect in the documentary evidence furnished by the assessee during the assessment proceedings which have been elaborately discussed in the preceding paragraph. In our considered view the identity, creditworthiness of the parties and genuineness of the transaction were established by the assessee based on the documentary evidence but the revenue without pointing out any defect in such documents has decided the issue against the assessee based on the commission report. As such it is the onus upon the revenue to disprove the materials/documents submitted by the assessee in support of the transactions in dispute based on cogent reasons. But the same has not been done by the revenue in the objective manner. Likewise, it is also a fact on records that the revenue has taken some statements from the 3rd party which were not provided to the assessee for the rebuttal. It is the settled law that the third-party statement cannot be used against the assessee until and unless the opportunity of cross-examination is afforded to the assessee. In view of the above facts and after considering the necessary details discussed above, we do not find any reason to interfere in the finding of the learned CIT-A. Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of additions made u/s 68 of the Income Tax Act, 1961.
2. Identity, genuineness, and creditworthiness of cash creditors.

Summary:

Issue 1: Deletion of Additions Made u/s 68

The Revenue contested the deletion of Rs. 6,73,19,000/- out of total additions of Rs. 7,80,19,000/- made u/s 68 of the Income Tax Act, 1961 by the CIT(A)-4, Vadodara. The Revenue argued that the assessee failed to establish the identity and creditworthiness of the cash creditors and the genuineness of the transactions.

Issue 2: Identity, Genuineness, and Creditworthiness of Cash Creditors

The assessee, engaged in multiple businesses, received interest-free unsecured loans from various entities. To prove the identity, genuineness, and creditworthiness of the creditors, the assessee furnished several documents including PAN, income tax returns, audited accounts, bank statements, confirmations, ledger accounts, ROC documents, and affidavits from directors.

The AO disagreed, citing non-response to notices u/s 133(6), unavailability of parties at given addresses, low income of creditors compared to the loan amounts, and the timing of bank credits. The AO also referenced a commission report under section 131(1)(d) identifying some creditors as linked to an entry provider, leading to the addition of Rs. 7,80,19,000/- as unexplained cash credit.

The CIT(A) partially upheld the assessee's appeal, deleting Rs. 6,73,19,000/- of the additions. The CIT(A) noted that the assessee had discharged the initial onus by providing sufficient documentary evidence and that the AO failed to disprove this evidence. The CIT(A) emphasized that the AO's adverse inferences were based on assumptions and not supported by concrete evidence. The CIT(A) also highlighted judicial precedents stipulating that once the assessee establishes the identity and creditworthiness of creditors and the genuineness of transactions, the onus shifts to the AO to disprove the evidence provided.

The Tribunal upheld the CIT(A)'s decision, noting that the assessee had provided comprehensive documentary evidence and that the AO's reliance on non-response to notices and the commission report was insufficient to negate the evidence provided. The Tribunal emphasized that the AO should have conducted further investigations if there were doubts about the creditors' creditworthiness. The Tribunal also noted that third-party statements used against the assessee were not subjected to cross-examination, violating the principles of natural justice.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order to delete the addition of Rs. 6,73,19,000/-.

Order pronounced in the open court on 16-10-2023.