2019 (1) TMI 756 - HC - Income Tax

Addition u/s 68 - AO issued notice u/s 142(1) - Held that - The burden is on the assessee to prove that the credits availed by him from 87 persons are genuine. It may be true that mere production of the PAN details, confirmation letters from some of those creditors by itself will not tantamount to discharging the burden of proof. But nevertheless, when these details are furnished, that too, after the Assessing Officer issued notice u/s 142(1) verification is required to be done. It is a common knowledge that those persons who had given confirmation letters would not readily volunteer and appear before the AO to depose. A departmental verification or atleast a sample verification should have been done to examine the genuinity of the stand taken by the assessee. In fact the Department themselves understood the matter in such a way that is why they had raised the ground before the Tribunal stating that the CIT-A atleast ought to have remanded the matter. A verification can be done by the AO on the materials placed before him. The learned counsel for the assessee submits that tax has also been deducted at source and documents are available which will prove the genuinity of the transaction. It is well open to the assessee to place all material before the AO. Appeal filed by the assessee is allowed, the impugned order is set aside and the matter is remanded to the Assessing Officer for fresh consideration. AO shall verify all the documents produced and the assessee shall also endeavour to produce atleast a few of the creditors before the Assessing Officer to show his bonafide and make out a case before the AO.

Summary

Issues:
1. Reversal of order regarding cash credit under Section 68 and consequent disallowance of interest.
2. Burden of proof regarding genuineness of loans.
3. Justification of addition under Section 68 and disallowance of interest.
4. Legal duty of assessing officer to issue summons under Section 131 for verification of loans.

Analysis:
1. The appellant challenged the order of the Income-tax Appellate Tribunal regarding the addition of unsecured loans as 'cash credit' under Section 68 and the consequent disallowance of interest paid. The Tribunal reversed the order of the Commissioner of Income Tax (Appeals) and upheld the addition. The appellant contended that the loans were genuine, supported by confirmation letters from creditors, but the Assessing Officer added the entire loan amount as unexplained cash credit and disallowed the interest paid.

2. The issue of burden of proof arose concerning the genuineness of the loans. The appellant argued that they had provided confirmation letters and creditor details, meeting their initial burden. However, the Tribunal held that the appellant failed to discharge the burden of proof regarding the authenticity of the loans. The appellant's inability to produce all creditors in person due to time constraints was a crucial factor in this issue.

3. The Tribunal justified the addition under Section 68 and the disallowance of interest by emphasizing the Assessing Officer's duty to verify the genuineness of transactions. The Commissioner of Income Tax (Appeals) had deleted the addition and interest disallowance, but the Tribunal set aside this decision, stating that proper verification was lacking. The Tribunal's decision was based on the lack of examination of the loan transactions' genuineness.

4. The legal duty of the assessing officer to issue summons under Section 131 for verification of loans was a significant aspect of the case. The Tribunal's decision to restore the Assessing Officer's order highlighted the necessity of verifying the creditor details and loan transactions thoroughly. The Supreme Court's rulings on the burden of proof in income tax cases were cited to emphasize the importance of objective assessment based on available evidence.

In conclusion, the High Court allowed the appeal, setting aside the Tribunal's order and remanding the matter to the Assessing Officer for fresh consideration. The Court emphasized the need for proper verification of documents and creditor details to establish the genuineness of the loans. The appellant was directed to cooperate in producing creditors before the Assessing Officer to support their case effectively. The substantial questions of law were left open, and no costs were awarded in this decision.