2019 (12) TMI 405 - AT - Income Tax

Addition of income - allegation that primary ingredients of section 68 not fulfilled - fresh unsecured loans received from four parties - failure to discharge its onus of proving the creditworthiness of parties who advanced the loans - Ld. AO came to a conclusion that although the assessee established the identity of the lenders but failed to establish the creditworthiness of the lenders and also genuineness of the said transactions since the assessee did not furnish necessary documentary evidences such as copy of return of income of the lenders, statement of total income, Balance Sheet Profit Loss account etc. of the lenders - scrutiny assessment - principles of natural justice. HELD THAT - The basic facts as enumerated in preceding paragraphs are not under dispute. It is quite evident that no independent inquiry has been made by Ld. AO to ascertain the genuineness of the transactions from loan creditors either in original assessment proceedings or in remand proceedings. It transpires that the additions were made by Ld. AO merely on doubts without bringing on record any corroborative material which would suggest that the loans represented assessee s unaccounted money - In fact, the identity of the loan creditors was accepted by Ld. AO in the assessment proceedings itself. The documents furnished by the assessee with respect to loan creditors include copies of return of income of the lenders, computation of income, Balance Sheet, ledger extracts and bank statements etc., which we have carefully perused. Regarding loans from Shri Prashant Kamat, the assessee has placed on record Income Tax Return of the said lender, Computation of income, financial statements and ledger confirmations which matches with the outstanding balance reflected by the assessee. Regarding last entity i.e. M/s Shardha Energy Infraproject Private Limited, the assessee has placed on record the copy of Income Tax Return, Audited financial statements, ledger confirmation - In fact, no fresh loans have been obtained by the assessee from this entity during the year under consideration and the amount of ₹ 211.71 Lacs represent opening balance. The perusal of all these documents would establish that the assessee was successful in demonstrating the fulfilment of primary ingredients of Section 68. There are no reason to interfere in the impugned order - appeal dismissed - decided against Revenue.

Summary

Issues:
1. Addition of unsecured loans under Section 68 of the Income Tax Act.
2. Failure to serve notice under Section 143(2) for scrutiny assessment proceedings.

Analysis:

Issue 1: Addition of unsecured loans under Section 68 of the Income Tax Act
The appeal by the revenue contested the deletion of the addition of unsecured loans received from four parties, arguing that the assessee failed to prove the creditworthiness of the lenders. The Assessing Officer (AO) added the loan amounts as unexplained cash credit under Section 68. The assessee contended that the loans were genuine, providing documentary evidence of the transactions. The first appellate authority upheld the assessee's claim, noting that the transactions were routed through banking channels and the source was legitimate. The authority found no evidence to suggest the loans were unaccounted income. The Tribunal concurred, emphasizing that the AO did not conduct an independent inquiry into the transactions' genuineness and accepted the identity of the lenders. The Tribunal dismissed the revenue's appeal, affirming that the assessee fulfilled the requirements of Section 68.

Issue 2: Failure to serve notice under Section 143(2) for scrutiny assessment proceedings
The assessee raised objections regarding the validity of assessment proceedings, claiming that the notice under Section 143(2) was not served. However, the AO provided evidence of the notice's dispatch and rejected the objections. The first appellate authority upheld the AO's actions, stating that the law was duly followed. The Tribunal found no merit in the assessee's challenge, as no substantial evidence was presented to demonstrate the failure to serve the notice. Consequently, the Tribunal dismissed the cross-objections, concurring with the lower authorities.

In conclusion, the Tribunal upheld the deletion of the addition of unsecured loans under Section 68, as the assessee successfully demonstrated the genuineness of the transactions. Additionally, the Tribunal dismissed the challenge to the validity of assessment proceedings, as no concrete evidence supported the claim of non-service of the notice under Section 143(2).