2017 (12) TMI 1348 - AT - Income Tax

Unexplained cash credits u/s 68 - Ingenuity of claim - onus to prove the claim - Held that - In the present case the issue involved is relating to the genuineness of the loans received by the assessee which is required to be explained by the assessee in terms of section 68. The onus, in this regard, is on the assessee to establish the identity as well as the capacity of the concerned creditors and genuineness of the relevant loan transactions. Keeping in view the voluminous documentary evidence placed on record by the assessee in the form of income tax returns and final accounts of the concerned creditors, these loan confirmations and bank statements, thus the onus is satisfactory discharged by the assessee and the authorities below are not justified in treating the loans in question as unexplained on some flimsy grounds and by applying the test of human probabilities which, in my opinion, is not relevant in the facts of the case. Therefore, delete the addition made by the A.O. and confirmed by the Ld. CIT(A) under section 68 on account of loans taken by the assessee from the concerned four creditors by treating the same as unexplained and allow this appeal of the assessee

Summary

Issues Involved:
1. Addition of ?13,03,000/- as unexplained cash credits under section 68 of the Income Tax Act, 1961.

Detailed Analysis:

1. Addition of ?13,03,000/- as unexplained cash credits under section 68:

The assessee, engaged in the business of trading potatoes, filed a return of income declaring a total income of ?10,92,457/-. The return included loans received from six parties, four of which were scrutinized by the Assessing Officer (A.O.) who issued notices under section 131 and recorded the statements of the loan creditors. The A.O. observed several discrepancies and contradictions in the statements and financial positions of the creditors, leading to the conclusion that the loans were not genuine and were thus treated as unexplained cash credits under section 68.

Findings by Assessing Officer (A.O.):

- Sri Biswajit Ghosh: The A.O. noted discrepancies between his statement and balance sheet, such as the inability to recall investments and contradictory statements about further loans. The A.O. found it improbable that a small trader would provide an interest-free loan to a financially stronger relative without affecting his own business.

- Sri Ashis Roy: Similar contradictions were found in his statements and financial records. The A.O. questioned the feasibility of providing a substantial loan without interest, given his financial position.

- Sri Ram Chandra Samanta: The A.O. highlighted inconsistencies in his statements and financial records, particularly regarding his investment in a company and the impact of the loan on his business.

- Sri Nirmal Ghosh: The A.O. observed contradictions in his statements and balance sheet, questioning his financial capacity to provide the loan.

Based on these observations, the A.O. added the loan amounts totaling ?13,03,000/- to the assessee’s income, treating them as unexplained under section 68.

Appeal to Commissioner of Income Tax (Appeals) [CIT(A)]:

The assessee contested the A.O.'s decision, arguing that the loan transactions were genuine, supported by confirmations, bank statements, and financial records of the creditors. The assessee maintained that the creditors were assessed to tax and the loans were received via account payee cheques.

The CIT(A) upheld the A.O.'s decision, emphasizing the contradictions in the creditors' statements and their financial incapacity to provide the loans. The CIT(A) relied on circumstantial evidence and the principle of preponderance of probabilities, citing judicial precedents that mere documentation is insufficient to prove the genuineness of transactions under section 68.

Appeal to Income Tax Appellate Tribunal (ITAT):

The ITAT reviewed the arguments and evidence. It noted that the discrepancies pointed out by the A.O. were not substantial enough to doubt the genuineness of the loans. The creditors did not deny giving loans, and their financial records supported the transactions. The loans were reflected in their balance sheets, and confirmations were provided.

The ITAT observed that the CIT(A) mainly doubted the creditors' financial capacity based on their declared income, overlooking their substantial opening capital balances. The ITAT emphasized that the assessee had satisfactorily discharged the onus of proving the identity, capacity, and genuineness of the loan transactions through voluminous documentary evidence, including income tax returns, final accounts, loan confirmations, and bank statements.

The ITAT concluded that the authorities below unjustifiably treated the loans as unexplained based on flimsy grounds and irrelevant application of human probabilities. Therefore, the ITAT deleted the addition of ?13,03,000/- made by the A.O. and confirmed by the CIT(A), allowing the appeal of the assessee.

Conclusion:

The ITAT allowed the appeal of the assessee, deleting the addition of ?13,03,000/- made under section 68 for loans treated as unexplained cash credits. The decision was based on the satisfactory discharge of the onus by the assessee in proving the identity, capacity, and genuineness of the loan transactions through substantial documentary evidence.