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2020 (2) TMI 1181 - AT - Income TaxUnexplained loan u/s 68 - disproportionate income of the creditors - loan amount have been taken from the family for purchase of property for family - HELD THAT - A.O, did not doubt the identity of the creditors and their creditworthiness. The A.O. merely doubted genuineness of the transaction because of the disproportionate income of the creditors as regards the loan advanced to the assessee. In case A.O. was having any doubt on any of the point, he could have summoned all the creditors and record their statements on oath under section 131 of the I.T. Act, 1961, to find-out the truth. Since all the creditors are having sufficient funds in their Bank accounts and they have confirmed giving loan to the assessee, initial burden upon assessee is discharged to prove all the three ingredients of Section 68 of the I.T. Act, 1961, i.e., identity of the creditors, their creditworthiness and genuineness of the transaction particularly when all the creditors are assessed to tax and transactions are routed through banking channel only. A.O, however, did not make any enquiry into the matter on the documentary evidences furnished by the assessee and merely rejected the claim of assessee on irrelevant reasons that the creditors have disproportionate income to that of the loan advanced to the assessee. A.O. failed to examine the creditworthiness of the creditors from the source explained in their Bank accounts. Since no further investigation have been carried out by the A.O. on the documentary evidences filed by assessee, therefore, A.O. cannot fasten the assessee with such liability under section 68 of the I.T. Act, 1961. The A.O. failed to carry his suspicion to logical conclusion by further investigation. In the present case has even proved source of the source of the creditors. Therefore, there is no question of considering it to be unexplained credits in the hands of the assessee. The A.O. suspected the loan amount because the assessee filed return of income at ₹ 30 lakhs only and made investment of ₹ 11.65 crores. Since the assessee explained that sufficient loan amount have been taken from the family for purchase of property for family, then in that event, A.O. shall have to consider the explanation of assessee in the light of fact that assessee made investment in purchase of property from the family source. In the absence of any investigation from the side of the A.O. on the documentary evidences filed on record, there were no justification to make the addition. We, accordingly, set aside the Orders of the authorities below and delete the entire addition. - Decided in favour of assessee.
Issues Involved:
1. Addition of ?10,20,45,840/- on account of unexplained loan under Section 68 of the I.T. Act, 1961. 2. Assessment of creditworthiness and genuineness of the transactions involving unsecured loans. 3. Compliance with the legal requirements for proving the identity of creditors, their creditworthiness, and the genuineness of transactions. Detailed Analysis: 1. Addition of ?10,20,45,840/- on account of unexplained loan under Section 68 of the I.T. Act, 1961: The Assessee filed a return of income of ?30,06,604/- for the assessment year 2016-2017. The case was selected for scrutiny to verify if investments and income relating to properties were duly disclosed. The Assessee purchased a property worth ?11,65,50,100/- using unsecured loans totaling ?10,20,45,840/- from various related and unrelated parties. The Assessing Officer (A.O.) noted that the amounts credited by these parties were highly disproportionate to their returned income and questioned the Assessee's capacity to repay such loans, leading to the addition of ?10,20,45,840/- as unexplained loans. 2. Assessment of creditworthiness and genuineness of the transactions involving unsecured loans: The A.O. scrutinized the financial details of the creditors, such as BRK Infotech & Developers Pvt. Ltd., Ranjitgarh Finance Co. Pvt. Ltd., and individuals like Rakesh Kapoor and Isha Kapoor. The A.O. found discrepancies in their income and the amounts they loaned to the Assessee. Despite the Assessee providing confirmations, acknowledgment of ITRs, and bank statements, the A.O. deemed these loans unexplained due to the disproportionate income of the creditors and their inability to substantiate the sources of funds proportionate to the loans advanced. 3. Compliance with the legal requirements for proving the identity of creditors, their creditworthiness, and the genuineness of transactions: The Assessee challenged the addition before the CIT(A), submitting that all necessary documents were provided to prove the genuineness of the loans. The Assessee argued that most loans were taken from family members, hence no interest was paid to them. The CIT(A) dismissed the appeal, upholding the A.O.'s findings. Tribunal's Findings: The Tribunal considered the rival submissions and reviewed the material on record. It was noted that the Assessee provided sufficient documentary evidence to prove the identity of the creditors, their creditworthiness, and the genuineness of the transactions. The loans were taken through banking channels, and the sources of the creditors' funds were explained, including matured FDRs and sale of properties. The Tribunal found that the A.O. did not conduct a thorough investigation into the documentary evidence provided by the Assessee and summarily rejected the claims based on irrelevant reasons. Legal Precedents Cited: - CIT vs. Kamdhenu Steel and Alloys Ltd. & Ors. (361 ITR 220 (Del.)): Highlighted that once adequate evidence is provided, the burden shifts to the Revenue to disprove it. - CIT vs. Winstral Petrochemicals P. Ltd. (330 ITR 603): Established that transactions through banking channels with duly incorporated entities cannot be deemed non-existent. - CIT vs. Value Capital Services Pvt. Ltd. (307 ITR 334 (Del.)): Emphasized that the Department must prove that the investment actually emanated from the Assessee's coffers. - Commissioner of Income Tax, Orissa vs. Orissa Corporation P. Ltd. (159 ITR 78 (SC)): The Supreme Court held that the Revenue must pursue the matter further if the initial burden is discharged by the Assessee. - DCIT vs. Rohini Builders (256 ITR 360 (Guj.)): The High Court ruled that the Assessee need not prove the source of the source of the creditors' funds. Conclusion: The Tribunal concluded that the Assessee had discharged the initial burden of proving the identity, creditworthiness, and genuineness of the transactions. The A.O. failed to carry out a detailed investigation and relied on irrelevant reasons to make the addition. Therefore, the Tribunal set aside the orders of the authorities below and deleted the entire addition of ?10,20,45,840/-. The appeal of the Assessee was allowed.
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