2019 (11) TMI 1141 - AT - Income Tax

Addition u/s 68 - as considered the entire case and confirmations filed for 162 persons and came to a conclusion that there is no creditworthiness, the transactions are not genuine as the loans obtained from the farmers, milk suppliers and commission agents and therefore the entire amount borrowed by the assessee is added to the total income of the assessee - HELD THAT - The assessee carrying small time cashew processing business. He has borrowed small amounts from local people who are milk vendors, ryotvaari coolies and commission agents to carry his business. In the assessment order, the Assessing Officer has found that assessee has borrowed money from 1357 persons, but he filed confirmation letters in respect of 162 persons. By examining the confirmation letters filed by the assessee, the Assessing Officer came to a conclusion that these people from whom the assessee borrowed funds, have no creditworthiness for the reason that they are small time milk vendors, ryotvaari coolies and commission agents. In our opinion, AO has committed a mistake in observing above for the reason that if at all he is having any doubt, he should have to issue summons to the parties and examine them, without doing that simply disbelieving the confirmation letters is not correct. On appeal before the ld. CIT(A) the assessee has filed the confirmation letters from all the remaining creditors. CIT(A) called the remand report from the Assessing Officer and in the remand report, the Assessing Officer has observed that most of the creditors are agriculturists, daily labours and persons working in unorganised sectors. He has also observed that payments should have been made through banking channel, but the assessee has borrowed the funds by taking cash and repaid the same in cash. We find there is nothing wrong in borrowing funds from daily labourers, agriculturists and milk vendors, if at all Assessing Officer is having doubt, he should have called them by issuing summons and examine them. Simply on the basis of that they are not filing returns of income, therefore the amounts borrowed by the assessee cannot be considered as not genuine transaction, is not correct. The Assessing Officer himself observed that the assessee has already repaid ₹ 67,70,700/- to 367 people and 173 creditors were repaid by cash mode amounting to ₹ 31,58,000/- and remaining 194 creditors were repaid through cheque amounting to ₹ 36,12,700/-. Still 34 creditors are yet to be repaid amounting to ₹ 6,21,000/-. By considering the facts and circumstances of the case, we are of the opinion that the assessee has filed the confirmation letters from the loan creditors though small loan creditors who are agriculturists, milk vendors commission agents. All the details are available with the Assessing Officer. Without issuing summons and without examining them, simply on the basis of assumptions and presumptions, confirmations given by the assessee cannot be discarded. - Decided in favour of assessee

Summary

Issues:
Delay in filing appeal, Addition of borrowed amount to total income, Examination of loan creditors, Discharge of burden of proof by assessee, Deletion of addition by CIT(A), Dismissal of cross objection.

Delay in filing appeal:
The Revenue filed an appeal with a delay of 28 days, seeking condonation of the delay. The Tribunal examined the affidavit and found sufficient cause to condone the delay, thus allowing the appeal to proceed.

Addition of borrowed amount to total income:
The Assessing Officer added an amount borrowed by the assessee from various individuals to the total income, stating lack of creditworthiness and questioning the genuineness of the transactions. This addition was challenged by the assessee.

Examination of loan creditors:
The Assessing Officer examined a portion of the loan creditors and noted repayment details, lack of interest received, and the nature of the creditors mainly being from rural areas and unorganized sectors. The officer raised doubts on the genuineness of the transactions.

Discharge of burden of proof by assessee:
The assessee submitted confirmation letters from all creditors to the CIT(A), who observed that the assessee had fulfilled the burden of proof by providing detailed information about creditors' income sources, family details, and proof of identity. The CIT(A) found no defects in the confirmation letters.

Deletion of addition by CIT(A):
After considering the remand report and examining the facts, the CIT(A) concluded that the assessee had proven the identity and creditworthiness of the creditors, as well as the genuineness of the transactions. The CIT(A) directed the Assessing Officer to delete the addition made to the total income.

Dismissal of cross objection:
The cross objection filed by the assessee was dismissed due to a delay of 3 days without a condonation application. Consequently, both the appeal by the Revenue and the cross objection by the assessee were dismissed by the Tribunal.

This detailed summary covers the delay in filing the appeal, the addition of borrowed amount to total income, the examination of loan creditors, the burden of proof discharged by the assessee, the deletion of the addition by the CIT(A), and the dismissal of the cross objection.