2019 (9) TMI 38 - AT - Income Tax

Addition u/s 68 - unsecured loan received - CIT-A deleted the addition - HELD THAT - CIT(A) recorded a finding to the effect that identity of lender is established beyond doubt by filing of PAN Card, Aadhar Card, TT return, affidavit confirming the transaction, loan confirmation duly signed by both the parties. CIT(A) also recorded finding to the effect that the genuineness of transaction is also proved as the loan amount is routed from lender's bank account to the assessee through RTGS noted by the AO himself. Thus, the loan transaction is through normal banking channels is a genuine transaction. After recording detailed findings with respect to the lender being Director in many companies, details of which were submitted before the A.O., which companies have substantial paid up capital and have also raised substantial funds, the CIT(A) concluded that the creditworthiness of the lender was also established. With regard to the A.O s contention that the loan creditor was not produced before him, the ld. CIT(A) categorically observed that the A.O. has sufficient power U/s 131 of the Act or to issue commission U/s 131(1)(d) of the Act, which the A.O. completely failed. The ld. CIT(A) also observed that even the bank statement which was called by the A.O. directly from the bank clearly indicate that there was sufficient credit balance in the bank account of the lender. CIT(A) considered various judicial pronouncements and after applying the ratio of these judicial pronouncements to the facts of the instant case recorded finding to the effect that the assessee has discharged his onus to fulfill all the three ingredient of loan creditor i.e. identity, genuineness and creditworthiness. The detailed finding so recorded by the ld. CIT(A) are as per the material on record and it has not been controverted by the ld. DR by bringing any positive material on record. - Decided in favour of assessee.

Issues Involved:
1. Deletion of addition of ?2,08,45,000 on account of unsecured loan received.
2. Justification of creditworthiness of the cash creditor.

Issue-wise Detailed Analysis:

1. Deletion of addition of ?2,08,45,000 on account of unsecured loan received:

The revenue filed an appeal against the order of CIT(A)-IV, Jaipur, which deleted the addition of ?2,08,45,000 made by the AO under section 68 of the Income Tax Act, 1961. The AO had added this amount, received by the assessee from Shri Anand Kumar Agarwal, on the grounds that the assessee failed to prove the genuineness of the transaction and the creditworthiness of the creditor.

During the scrutiny assessment, the AO required the assessee to establish the identity, creditworthiness, and genuineness of the transaction. The assessee submitted various documents, including the PAN card, Aadhar card, income tax return, details of companies owned by Shri Anand Kumar Agarwal, an affidavit confirming the transaction, a loan confirmation, and a letter stating bank details from where the funds were transferred. Despite these submissions, the AO made the addition, disregarding the documents.

The CIT(A) deleted the addition, observing that the identity of the lender was established beyond doubt by the submitted documents. The genuineness of the transaction was also proved as the loan amount was routed through normal banking channels via RTGS. The CIT(A) noted that the AO's view on the lender's creditworthiness, based on his returned income, was erroneous. The lender was a director in several companies with substantial paid-up capital and had raised significant funds. The CIT(A) also pointed out that the AO had the power to issue a notice under section 131 or commission under section 131(1)(d) if personal attendance was not feasible. The bank statements indicated nothing incriminating.

The CIT(A) cited several judicial pronouncements supporting the view that once the name, address, PAN, and ITR details are provided, section 68 cannot be invoked unless the AO brings adverse material on record. The CIT(A) concluded that the assessee had discharged his onus to fulfill all the ingredients of section 68, and there was no adverse material or evidence brought by the AO. Thus, the addition was directed to be deleted.

2. Justification of creditworthiness of the cash creditor:

The revenue contended that the assessee failed to prove the creditworthiness of the loan creditor. The AO had observed that the lender's returned income was about ?5.84 lakhs, which, according to the AO, did not establish the creditworthiness to provide a loan of ?2.08 crore.

The assessee argued that the AO ignored the fact that Shri Anand Kumar Agarwal was a director in many companies with substantial paid-up capital and loans from financial institutions amounting to ?789.27 crores. The AO should have considered the creditworthiness and funds availability of the companies in which Shri Anand Kumar Agarwal was a director. The assessee further contended that the AO should not have considered the lender's return of income in isolation. The group, which could raise an amount of ?818.14 crores in the form of share capital and loans, could be considered to have the capacity to provide a loan of ?2.08 crore.

The tribunal considered the rival contentions and the judicial pronouncements. It noted that the assessee had submitted sufficient documents to establish the identity, genuineness, and creditworthiness of the lender. The tribunal observed that the AO ignored the fact that the lender was a director in many companies with substantial financial backing. The tribunal also noted that the bank statements did not indicate any cash deposits before the loan was given, and the transactions were through proper banking channels.

The tribunal concluded that the CIT(A) had correctly deleted the addition, as the assessee had discharged his onus to prove all the ingredients of section 68. The detailed findings recorded by the CIT(A) were based on material on record and were not controverted by the revenue. Therefore, the tribunal upheld the CIT(A)'s order and dismissed the revenue's appeal.

Conclusion:

The tribunal upheld the CIT(A)'s order, which deleted the addition of ?2,08,45,000 made by the AO under section 68 of the Income Tax Act. The tribunal found that the assessee had established the identity, genuineness, and creditworthiness of the lender, and there was no adverse material brought by the AO to justify the addition. The appeal of the revenue was dismissed.

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