2020 (3) TMI 957 - AT - Income Tax

Addition u/s 68 - amount received in the bank account of the assessee treating the same as unexplained credits - assessee to prove the identity and creditworthiness of the lenders as well as the genuineness of the transaction - HELD THAT - Amount has been received through proper banking channels and for establishing the aforesaid fact, the assessee had also submitted the copy of bank statements. By submitting the aforesaid evidences and explanations, in my view, the assessee has discharged his initial onus for disclosing the identity of the loan provider by submitting the copy of the passport, confirmations, copy of resident identity card of Sh. Babu Jethani. Now the onus shifts on to the department to conduct further enquiries with respect to the unsecure loan and establish that why assessee's case cannot be accepted - where the assessee had led evidences in support of the identity of the third party and his capability the initial burden which lies upon him stand discharged. It will not before the assessee thereafter to explain further how or in what circumstances the third party obtained the money and how or why he came to make a deposit of the same with the assessee. In such a situation the burden will shift on to the department to show why the assessee's case cannot be accepted and why it must be held that the entry, for purporting to be in the name of a third party still represents the income of the assessee. Thus where in a given case the assessee for his part produced the confirmations and identity proofs of Sh. Babu Jethani, which would be sufficient for the assessee to discharge his initial burden. Then it would be for the AO to bring material if he wants to negate the same. - Decided in favour of assessee.

Summary

Issues:
Appeal against CIT(A) order on addition of unexplained credits under Section 68 of the Act.

Detailed Analysis:

Issue 1: Grounds raised by the assessee
The appeal filed by the assessee against the order of the Ld. Commissioner of Income Tax [Appeals-34] raised 8 grounds on legal and merit issues. The Ld. Counsel for the assessee argued only ground no. 7 on merit, leading to the dismissal of other grounds. Ground no. 8 was of a general nature and did not require adjudication.

Issue 2: Background of the case
The assessee, a Director in a company, faced a survey revealing cash credits from related parties. The AO made an addition of ?22,70,000, which was later deleted in the company's hands. However, the CIT(A) directed verification of the source of investment in the assessee's hands. Subsequently, the AO reopened the case and made an addition of ?7,50,000 in the assessee's hands, alleging it was unexplained credits from M/s Federal Exchange.

Issue 3: Arguments before the Tribunal
During the hearing, the Ld. Counsel argued that the addition was wrongly confirmed by the CIT(A), despite detailed explanations and evidence proving the identity, creditworthiness of lenders, and genuineness of the transaction. The counsel submitted written arguments and a Paper Book with supporting documents for the assessee's case.

Issue 4: Tribunal's Decision
After hearing both parties and reviewing the evidence submitted, the Tribunal noted that the AO did not establish the amount as an accommodation entry. The assessee received the amounts from a friend, supported by proof of identity and confirmations. The Tribunal referred to a precedent where creditworthiness not proven does not automatically lead to additions under section 68. The Tribunal found the genuineness of transactions established through evidence submitted by the assessee.

Issue 5: Burden of Proof
The Tribunal emphasized that the assessee had discharged the initial burden by providing evidence of the lender's identity. Once the initial burden is met, the onus shifts to the department to disprove the assessee's case. The Tribunal cited a High Court decision supporting the assessee's position based on documentary evidence.

Issue 6: Tribunal's Decision
Considering the facts and precedents, the Tribunal deleted the addition in dispute by allowing ground no. 7 argued by the Ld. Counsel for the assessee. Consequently, the appeal of the assessee was partly allowed.

In conclusion, the Tribunal ruled in favor of the assessee, deleting the addition of unexplained credits under Section 68 of the Act based on the evidence provided and legal precedents cited during the proceedings.