2019 (12) TMI 1197 - AT - Income Tax

Addition u/s 68 - Documentary evidences to prove identity, genuineness and creditworthiness of the cash creditors - HELD THAT - Looking to the fact that the evidence to the best possible extent have been filed by the assessee to explain the cash creditors and the revenue authorities were competent enough to proceed against the cash creditors if they were not satisfied with statement on oath given by the cash creditors. It is clear that the assessee has proved all the ingredients of section 68 of the Act in order to clear the burden of proof. The onus thus shifted on the Revenue to rebut which remained unfulfilled. The persons advanced the loan are man of means and nearly 70% of loan creditors are assessed to tax and the remaining are agriculturists having sufficient agricultural land to earn agricultural income. The affidavit has been filed by all the cash creditors and this fact cannot be disputed. It is also brought to a notice that the alleged loans accepted through account payee cheque were repaid in a month time, has not been disputed by the revenue. AO was made a case of capital building since loans were repaid within a month. Sufficient material placed on record by the assessee during the course of hearing before both the lower authorities and before us including the statement on oath taken by the Ld. AO and other documentary evidences referred hereinabove, are of the considered view that assessee had proved identity, genuineness and creditworthiness of all the cash creditors beyond doubt for which impugned addition u/s 68 - Appeal of the Revenue stands dismissed.

Issues Involved:
1. Deletion of addition of ?1,94,98,000/- made on account of bogus loans under Section 68 of the Income Tax Act.
2. Ignoring the decision in Kamal Motors v CIT regarding the onus on the assessee to prove the cash creditor's means.
3. Ignoring the rotation of cash evident from the bank accounts of loan providers.
4. Ignoring the insufficient capacity of loan providers to prove creditworthiness.
5. Ignoring the discreet enquiries conducted under Section 131 of the Income Tax Act.
6. Ignoring the mismatch between the financial strength of creditors and the sums provided as loans.
7. Ignoring the proposition laid down by the Supreme Court in Durga Prasad More and Sumati Dayal regarding the test of human probabilities.
8. Ignoring the decision by the Delhi High Court in Pro CIT vs. Bikram Singh regarding insufficient financial strength of creditors.
9. Ignoring the decision in CIT vs. Precision Finance Ltd. that mere payment by account payee cheque does not make a transaction genuine.
10. Ignoring the decision in CIT vs. United Commercial and Industrial Co. (Pvt.) Ltd that the onus does not get discharged merely by filing confirmatory letters.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?1,94,98,000/-:
The Revenue's primary grievance was the deletion of the addition of ?1,94,98,000/- made under Section 68 of the Income Tax Act for unexplained cash credits. The Assessing Officer (AO) had observed that the assessee failed to produce sufficient evidence to prove the identities, creditworthiness, and genuineness of the transactions for certain loans. However, the Commissioner of Income Tax (Appeals) [CIT(A)] was satisfied with the submissions and documentary evidence provided by the assessee, which included loan confirmations, bank statements, and proof of income. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had fulfilled the burden of proof required under Section 68.

2. Ignoring the Decision in Kamal Motors v CIT:
The Revenue argued that the CIT(A) ignored the precedent set in Kamal Motors v CIT, which places the onus on the assessee to prove the cash creditor's means. The Tribunal found that the assessee had provided sufficient evidence, including confirmations and bank statements, to establish the financial capacity of the creditors.

3. Ignoring the Rotation of Cash:
The AO had noted a pattern of immediate cash deposits before the issuance of cheques to the assessee, suggesting a rotation of cash. The Tribunal observed that the assessee had provided detailed explanations and documentary evidence for the sources of these cash deposits, including agricultural income and salary savings.

4. Ignoring the Insufficient Capacity of Loan Providers:
The Revenue contended that the loan providers did not have sufficient capacity to provide the loans. The Tribunal found that the assessee had provided substantial evidence, including statements on oath, affidavits, and proof of agricultural land ownership, to demonstrate the financial capacity of the creditors.

5. Ignoring Discreet Enquiries Under Section 131:
The AO had conducted enquiries under Section 131, which were allegedly ignored by the CIT(A). The Tribunal noted that the CIT(A) had considered the results of these enquiries and found that the assessee had satisfactorily explained the cash credits.

6. Ignoring the Mismatch Between Financial Strength and Loan Sums:
The Revenue argued that there was a mismatch between the financial strength of the creditors and the sums provided as loans. The Tribunal found that the assessee had provided adequate evidence, including income tax returns and land ownership documents, to justify the financial capacity of the creditors.

7. Ignoring the Supreme Court's Proposition in Durga Prasad More and Sumati Dayal:
The AO had applied the test of human probabilities, as laid down by the Supreme Court in Durga Prasad More and Sumati Dayal. The Tribunal found that the assessee had provided sufficient evidence to satisfy this test, including detailed explanations and documentary proof of the sources of funds.

8. Ignoring the Decision in Pro CIT vs. Bikram Singh:
The Revenue cited the Delhi High Court's decision in Pro CIT vs. Bikram Singh, which dealt with the insufficiency of financial strength of creditors. The Tribunal found that the assessee had provided comprehensive evidence to establish the financial capacity of the creditors.

9. Ignoring the Decision in CIT vs. Precision Finance Ltd.:
The Revenue argued that mere payment by account payee cheque does not make a transaction genuine, as held in CIT vs. Precision Finance Ltd. The Tribunal found that the assessee had provided additional evidence, such as affidavits and statements on oath, to establish the genuineness of the transactions.

10. Ignoring the Decision in CIT vs. United Commercial and Industrial Co. (Pvt.) Ltd.:
The Revenue contended that the CIT(A) ignored the decision in CIT vs. United Commercial and Industrial Co. (Pvt.) Ltd., which states that the onus does not get discharged merely by filing confirmatory letters. The Tribunal found that the assessee had provided a plethora of evidence beyond confirmatory letters, including bank statements, income tax returns, and land ownership documents.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition of ?1,94,98,000/- under Section 68 of the Income Tax Act, finding that the assessee had satisfactorily proved the identity, genuineness, and creditworthiness of the cash creditors. The appeal of the Revenue was dismissed.

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