2020 (3) TMI 340 - HC - Income Tax

Addition u/s 68 - whether an assessee who has taken a loan is bound to produce the source of source? - HELD THAT - In the instant case, the assessee in support of identity, genuineness of transaction and credit worthiness of M/s Bhuwania Bros. Pvt. Ltd. had supplied a copy of the balance sheet and profit and loss account to the Assessing Officer. The appellant had also filed the copy of the return of income of M/s. Bhuwania Bros Pvt. Ltd. as well as copy of information letter. The appellant having proved the identity and credit worthiness of the party as well as the genuineness of the transaction had discharged its burden and it was for the revenue to conduct an enquiry and to prove that the transaction in question was not genuine and the identity of the creditor was not established and it had no credit worthiness. In the instant case, the revenue has not conducted any enquiry and has failed to discharge its burden. We answer the substantial question of law in favour of the assessee and against the revenue.

Issues:
1. Whether an assessee who has taken a loan is bound to produce the source of source.
2. Justification of reversing the finding of the Commissioner of Income Tax (Appeals) on addition under Section 68 of the Income Tax Act.
3. Expectation of proving the source of source and origin of funds of the creditor.
4. Whether the Tribunal should have remanded the matter to the Assessing Officer for further verification.

Analysis:
1. The appeal under Section 260A of the Income Tax Act, 1961 pertains to the assessment year 2005-06, focusing on whether an assessee taking a loan must provide the source of the source. The court admitted the appeal based on substantial questions of law, including the justification of reversing the Commissioner's finding on the addition under Section 68, the expectation to prove the credit, and the necessity of remanding the matter for further verification.

2. The appellant, a construction company, received a sum of ?55 lakhs from a company for a proposed contract but faced challenges finalizing the deal. Despite providing explanations and evidence, the Assessing Officer added the amount as unexplained cash credits. The Commissioner partially allowed the appeal, but the Tribunal sided with the revenue. The appellant argued that the Assessing Officer erred in assessing liquidity based on the balance sheet alone, emphasizing identity, genuineness, and creditworthiness. Legal precedents were cited to support the appellant's position.

3. The revenue contended that the assessee failed to prove the creditor's identity, transaction genuineness, and creditworthiness, justifying the addition of ?55 lakhs. The absence of crucial documents like the original agreement and cancellation deed was highlighted. Legal cases were referenced to support the revenue's stance.

4. The court referenced legal principles from previous judgments to analyze the case. It emphasized that the burden of proving the transaction's genuineness lies with the party claiming it. The appellant provided evidence of the creditor's identity and creditworthiness, shifting the burden to the revenue to conduct an inquiry. As the revenue failed to discharge its burden, the court ruled in favor of the assessee on substantial questions of law, quashing the tribunal's order and allowing the appeal.

5. The court differentiated the case from a cited decision interpreting an amended section, clarifying its inapplicability to the present case. Ultimately, the tribunal's order was overturned, and the appeal was allowed in favor of the assessee for the assessment year 2005-06.

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