2019 (6) TMI 850 - AT - Income Tax

Addition u/s 68 - unexplained cash credit as the assessee failed to prove the identity and creditworthiness of the lender - HELD THAT - It is well settled that in order to discharge the onus u/s 68, the assessee must prove the following - (i) the identity of the creditor, (ii) the capacity of the creditor to advance money; and (iii) the genuineness of the transaction. After the assessee has adduced evidence to establish prima facie the aforesaid, the onus shifts to the department. In the instant case, though the onus shifted to the department, the AO has failed to make necessary enquiry to reject the contentions of the assessee. - Decided against revenue.

Summary

Issues:
- Addition of unexplained cash credit under section 68 of the Income Tax Act
- Identity and creditworthiness of the lender
- Assessment based on information from Investigation Wing
- AO's failure to conduct independent enquiry
- Onus of proof on the assessee under section 68

Analysis:

Issue 1: Addition of unexplained cash credit under section 68 of the Income Tax Act
The appeal by the Revenue challenged the deletion of an addition of ?3,54,13,062 made under section 68 of the Income Tax Act for unexplained cash credit. The AO had raised concerns regarding the identity and creditworthiness of the lender, leading to the addition.

Issue 2: Identity and creditworthiness of the lender
The AO contended that the assessee failed to prove the identity and creditworthiness of the lender, as the parties were linked to providing accommodation entries of unsecured loans. The AO highlighted discrepancies such as the absence of diamond stock at the lenders' premises and lack of maintained books of accounts at registered offices.

Issue 3: Assessment based on information from Investigation Wing
The AO's assessment heavily relied on information from the Investigation Wing regarding the lender's involvement in providing accommodation entries. However, the CIT (A) emphasized that this information should not be the sole basis for drawing conclusions without further independent enquiry.

Issue 4: AO's failure to conduct independent enquiry
In contrast to cases where the AO conducted independent enquiries to verify the identity and creditworthiness of lenders, in this case, the AO did not undertake such investigations. The lack of independent verification raised doubts about the AO's conclusions.

Issue 5: Onus of proof on the assessee under section 68
The onus of proving the identity, capacity, and genuineness of the transaction rested on the assessee under section 68. The assessee provided various documents to establish the legitimacy of the loans, including loan confirmations, PAN of lenders, bank statements, and balance sheets.

The CIT (A) referenced a High Court judgment to support the assessee's position that the loans were taken in the regular course of business, with proper documentation and compliance with TDS requirements. The Tribunal upheld the CIT (A)'s decision, emphasizing that the AO failed to conduct necessary enquiries to refute the assessee's contentions, thus dismissing the Revenue's appeal.