2016 (4) TMI 354 - AT - Income Tax

Addition made u/s. 68 - as per AO depositors were not financially capable to give loans/deposits, most of the depositors had interest income that too received from the Assessee and they did not have any other source of income or their income was very small and thus according to the A.O mere receipt of loans by account payee cheques did not make the loans as genuine - Held that - CIT(A) while granting the relief has given a finding that most of the creditors had current account with the Assessee wherein deposits and withdrawals were made on regular basis, majority of the depositors were maintaining the current account with the Assessee for more than 2 years and in the assessment order passed u/s. 143(3) for A.Y. 2007-08, the same depositors have been treated as genuine. Ld. CIT(A) has further given a finding that Assessee had furnished the copy of ledger account with confirmation, full address, copy of PAN number, income tax acknowledgement receipt etc. before the A.O but A.O did not made any further inquiry of the concerned creditor nor had issued summons u/s. 131 of the Act, nor made any spot inquiries on the addresses of the creditors. He thus held that Assessee had discharged the initial onus cast upon it and the evidences and explanations furnished by the Assessee have not been found to be untrue and while deleting the addition he also placed reliance on the various decisions cited in the order. Before us, Revenue has not brought any material on record to controvert the findings of ld. CIT(A) nor has pointed any fallacy in his findings - Decided in favour of assessee

Summary

Issues Involved:
1. Addition under Section 68 of the Income Tax Act, 1961 regarding unexplained cash credits.
2. Assessment of the financial capacity and genuineness of depositors.

Issue-wise Detailed Analysis:

Issue 1: Addition under Section 68 of the Income Tax Act, 1961 regarding unexplained cash credits

The primary issue in this case revolves around the addition of Rs. 3,25,85,682/- under Section 68 of the Income Tax Act, 1961, made by the Assessing Officer (A.O.). The A.O. observed that the assessee received loans/deposits from 27 persons amounting to Rs. 3,04,47,991/- and interest of Rs. 21,37,691/-. The A.O. concluded that the assessee failed to prove the identity, genuineness, and creditworthiness of the depositors, leading to the addition of the aggregate amount as non-genuine loans under Section 68.

The CIT(A) deleted the addition, noting that the assessee provided documents such as PAN, ledger accounts, confirmations, and income tax returns for most creditors. The CIT(A) emphasized that the deposits were made through account payee cheques and that the creditors had current accounts with the assessee, showing regular transactions. Furthermore, the CIT(A) pointed out that the same depositors were treated as genuine in earlier assessments.

Issue 2: Assessment of the financial capacity and genuineness of depositors

The A.O. argued that the depositors were not financially capable of providing loans to the assessee, as most of them had minimal income, primarily from interest paid by the assessee. The A.O. also noted that the returns of income for the depositors were prepared by the same C.A. firm, raising doubts about the genuineness of the transactions.

The CIT(A), however, found that the assessee had discharged the initial onus by providing necessary documents and that the A.O. did not conduct further inquiries, such as issuing summons or verifying the creditors' details. The CIT(A) cited various judicial decisions, including CIT vs. Mohanakala and DCIT vs. Rohini Builders, to support the view that the assessee had discharged the burden of proof, and the onus shifted to the A.O. to disprove the evidence provided.

The Tribunal upheld the CIT(A)'s decision, noting that the Revenue did not bring any material to counter the CIT(A)'s findings. The Tribunal emphasized that the assessee had provided sufficient evidence to prove the identity, genuineness, and creditworthiness of the depositors, and the A.O. failed to conduct further inquiries to disprove the assessee's claims.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order that deleted the addition under Section 68 of the Income Tax Act, 1961. The Tribunal concluded that the assessee had discharged the initial onus by providing necessary documents, and the A.O. failed to conduct further inquiries to disprove the evidence provided by the assessee. The Tribunal found no reason to interfere with the CIT(A)'s order, leading to the dismissal of the Revenue's appeal.