2019 (7) TMI 1313 - AT - Income Tax

Addition u/s 68 - unsecured cash credit - authenticity of the loan transactions under consideration - Addition based on search proceedings conducted on accommodation entry provider and their statement - HELD THAT - assessee placed on record supporting documentary evidence viz. (i) copies of the returns of the lender companies; (ii) copies of their audited financial statements; (iii) copies of the bank accounts of the lender companies; and (iv) the affidavits of the principle officers of the lender companies, wherein they had confirmed the loan transactions. On a perusal of the bank accounts of the aforementioned lender companies, all of which we find were being assessed to income tax, therein revealed that there was no immediate cash deposits in their respective bank accounts in order to facilitate advancing of the loans to the assessee. In nutshell it is neither the case of the revenue, nor a fact borne from the records, that the assessee had routed his own money in the garb of the unsecured loans raised from the aforementioned parties. As observed by the CIT(A), the assessee had also deducted tax at source at the time of payment/crediting of the interest on the loans raised from the aforementioned companies. Accordingly, in the backdrop of the aforesaid facts, we are of a strong conviction that the assessee had sufficiently discharged the onus that was cast upon him as regards proving the authenticity of the loan transactions under consideration. A.O except for harping on the fact that the assessee had raised the loans from the companies which were controlled by Shri Praveen Kumar Jain, had absolutely done nothing which would conclusively prove that no genuine loans were raised by the assessee from the aforesaid companies. On the contrary, the notices which were issued by the A.O under Sec.133(6) to the aforementioned companies, wherein they were called to share certain information viz. nature of activities of the lender companies, source for giving the loans etc., were duly complied with by the said concerns and the requisite documents were placed on the record of the A.O by the aforementioned companies. We find that the A.O who ought to have made necessary verifications as regards the authenticity of the loan transactions by summoning the principal officers of the aforementioned companies u/s 131, and also carrying out field inquiries/investigations as regards the identity and creditworthiness of the investor companies, and also the genuineness of the transactions, had however, not even done the bare minimum. We find, that the CIT(A) observing that as the assessee had duly discharged the onus that was cast upon him under Sec. 68 for proving the authenticity of the loan transactions, therefore, in the absence of any material placed on record by the A.O to dislodge the said duly substantiated claim of the assessee, there was no occasion for him to have to re-characterised the loans raised by the assessee as accommodation entries. - Decided in favour of assessee.

Issues Involved:
1. Genuineness of unsecured loan transactions.
2. Onus of proving the genuineness and true nature of the unsecured loan transaction.
3. Admissibility of statements and evidence from search proceedings.
4. Evaluation of the evidence provided by the assessee and the revenue's response.
5. Reversal of the CIT(A)'s order.

Detailed Analysis:

1. Genuineness of Unsecured Loan Transactions:
The primary issue was whether the unsecured loan transactions amounting to ?1,05,00,000/- taken by the assessee from six companies allegedly controlled by Shri Praveen Kumar Jain were genuine. The Assessing Officer (A.O) added these transactions as unexplained cash credits under Sec. 68 of the Income Tax Act, 1961, based on information that these companies were involved in providing accommodation entries (bogus loans).

2. Onus of Proving the Genuineness and True Nature of the Unsecured Loan Transaction:
The CIT(A) observed that the assessee had provided substantial documentary evidence to substantiate the genuineness of the loan transactions, including:
- Copies of returns of income of the lender companies.
- Audited financial statements.
- Bank statements showing no immediate cash deposits before issuing cheques.
- Affidavits from the directors of the lender companies confirming the loan transactions.
- Evidence of interest payments with TDS deductions.

The CIT(A) held that the assessee had discharged the onus cast upon him to prove the authenticity of the loan transactions. The A.O, however, did not conduct any independent verification or summon the lender companies to validate the transactions.

3. Admissibility of Statements and Evidence from Search Proceedings:
The A.O relied heavily on the information obtained from the search proceedings conducted on Shri Praveen Kumar Jain, which indicated that he was involved in providing accommodation entries through dummy companies. The A.O concluded that the loans were bogus based on this information, without any direct evidence linking the specific transactions of the assessee to the alleged accommodation entries.

4. Evaluation of the Evidence Provided by the Assessee and the Revenue's Response:
The CIT(A) found that the A.O had not made any effort to disprove the evidence provided by the assessee. The A.O did not issue summons under Sec. 131 to the lender companies nor recorded their statements. The CIT(A) noted that the A.O's conclusions were based on general observations about Shri Praveen Kumar Jain's activities rather than specific evidence against the assessee's transactions. The CIT(A) concluded that the A.O failed to discharge the burden of proof to rebut the evidence provided by the assessee.

5. Reversal of the CIT(A)'s Order:
The revenue appealed against the CIT(A)'s decision, arguing that the A.O had rightly made the addition under Sec. 68. However, the tribunal upheld the CIT(A)'s order, agreeing that the assessee had sufficiently discharged the onus of proving the genuineness of the loan transactions. The tribunal noted that the A.O had not provided any material evidence to disprove the assessee's claims and had not conducted necessary verifications.

Conclusion:
The tribunal dismissed the revenue's appeal, finding no merit in the arguments presented. The order passed by the CIT(A) was upheld, confirming that the assessee had adequately substantiated the genuineness of the loan transactions and the A.O had failed to provide contrary evidence. The appeal filed by the revenue was dismissed.

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