2019 (8) TMI 739 - HC - Income Tax

Addition u/s 68 - loans from relatives through banking channel - creditworthiness or genuineness of the transaction as suspicious - HELD THAT - Apex Court in the case of Principle CIT vs. NRA Iron and Steel Pvt. Ltd. 2019 (3) TMI 323 - SUPREME COURT and held that if the Assessee Company-Respondent failed to discharge the onus required u/s 68, the Assessing Officer was justified in adding back the amounts to the Assessee's income. In the case in hand, though the stated transaction of alleged loan is through bank but the assessee was not able to explain or substantiate the source; creditworthiness of the creditor and the genuineness of the transactions before the AO and before the CIT(A) and Tribunal. It is also not in dispute that cash deposits were made in the bank account of the creditor just before advancing the loan to the assessee and no explanation was forthcoming before the authorities below and even during the course of arguments before the Tribunal. Therefore, in view of the concurrent findings of fact recorded by the AO, the CIT(A) and the Tribunal that the assessee was unable to satisfactorily explain the source of investment in the said property at any stage, no error could be pointed out in the impugned orders which may warrant interference by this Court. The law is well settled that the onus of proving the source of a sum of money found to have been received by the assessee is on him and if he disputes the liability for tax, it is for him to show that the receipt is not income or it is exempted from tax. In the absence of such proof, the revenue is entitled to treat it as taxable income. - decided against assessee

Issues Involved:
1. Creditworthiness of creditors advancing loans to the assessee.
2. Genuineness of transactions with family members as creditors.
3. Applicability of Section 68 concerning unexplained loans.
4. Nature and adequacy of the ITAT's order.
5. Relevance of the Suman Gupta case to the assessee's situation.
6. Basis of Tribunal's conclusion—whether based on conjecture or evidence.

Detailed Analysis:

1. Creditworthiness of Creditors:
The primary issue revolves around whether the Tribunal erred in dismissing the appeal by holding that the creditworthiness of the creditors was not established. The assessee argued that the creditors were blood relatives and the transactions were through banking channels. However, the Assessing Officer (A.O.) found that the assessee failed to produce the creditor or any document supporting the creditor's financial capability. The Tribunal upheld this finding, noting that cash deposits were made in the creditor's account just before the loan was advanced, thus questioning the creditworthiness.

2. Genuineness of Transactions with Family Members:
The assessee contended that loans received from family members should not be doubted in the absence of contrary evidence. Despite this, the Tribunal found that the assessee did not substantiate the genuineness of the transactions. The A.O. required the assessee to produce the creditor and establish the genuineness and creditworthiness, which the assessee failed to do.

3. Applicability of Section 68:
The Tribunal confirmed the addition under Section 68, which deals with unexplained cash credits. The assessee argued that the amounts credited could not be treated as income merely because the explanation was not acceptable. The Tribunal, however, noted that the assessee did not discharge the burden of proof required under Section 68, as neither the creditworthiness of the creditor nor the genuineness of the transaction was established.

4. Nature and Adequacy of the ITAT's Order:
The assessee claimed that the ITAT's order was cryptic and non-speaking, adjudicating different cases in one stroke. However, the Tribunal provided detailed reasons for its decision, including the failure of the assessee to produce the creditor and the suspicious nature of cash deposits before the loan was advanced.

5. Relevance of the Suman Gupta Case:
The Tribunal applied the decision in Suman Gupta Vs ITO, which the assessee contested. The Tribunal found that the facts of the Suman Gupta case were applicable, as both involved unexplained cash credits and the failure to establish the genuineness and creditworthiness of transactions.

6. Basis of Tribunal's Conclusion:
The assessee argued that the Tribunal's conclusion was based on conjecture and suspicion rather than evidence. The Tribunal, however, based its decision on the lack of evidence provided by the assessee to substantiate the loan transaction. The Tribunal noted that the creditor's bank account showed cash deposits just before the loan, which was not explained satisfactorily.

Conclusion:
The High Court upheld the Tribunal's findings, stating that the assessee failed to discharge the burden of proof under Section 68. The concurrent findings of fact by the A.O., CIT(A), and Tribunal were based on proper appreciation of evidence. The High Court found no substantial question of law warranting interference, thus dismissing the appeals. The judgment emphasized the importance of establishing the identity, creditworthiness of the creditor, and the genuineness of the transaction to avoid additions under Section 68.

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