2020 (12) TMI 124 - AT - Income Tax

Addition u/s 68 - burden upon the assessee to prove identity of the creditors, genuineness of the transaction and creditworthiness of the creditors - HELD THAT - It is not in dispute that assessee filed confirmation of all the creditors supported by their computation of income, acknowledgment of filing of the returns, copy of the balancesheet, copy of the ledger account of the assessee in their books and bank statements. Copies of the same are also filed in the paper book which reveal that all the creditors are assessed to tax and have given loans to the assessee through banking channel. The name of the assessee appears in their balance-sheet as giving loans to the assessee. their capital and assets are sufficient to give small loan to the assessee. There are no cash deposits found in the bank accounts of the creditor. All entries are through banking channel. The assessee has also furnished details of their capital and assets before the Ld. CIT(A) which have not been disputed by the authorities below. All the evidences on record clearly indicates that assessee has received genuine loans from all the three parties and in case of one party even amount have been returned in assessment year under appeal which have not been doubted by the A.O. Thus, the initial burden upon the assessee to prove identity of the creditors, genuineness of the transaction and creditworthiness of the creditors have been discharged by the assessee. It is well settled Law that assessee need not to prove source of the source. Since the A.O. did not conduct any enquiry on the documentary evidences filed by the assessee and merely disbelieved the entries in the bank accounts of the creditor without any justification, therefore, there were no justification for the authorities below to make or confirm the additions. Merely low income declared in the return of income by the creditors is no ground to reject the explanation of assessee because their creditworthiness is proved by the assessee beyond doubt. In view of the above, we are of the view that the issue is covered by the Order of the ITAT, Delhi G-Bench, Delhi in the case of M/s. Thirubala Chemicals Pvt. Ltd. 2020 (10) TMI 405 - ITAT DELHI - we set aside the Orders of the authorities below and delete the entire addition. - Decided in favour of assessee.

Issues Involved:
1. Addition under section 68 of the I.T. Act, 1961, on account of unsecured loans from M/s. Satyam Shivam Sundaram Trust.
2. Addition under section 68 of the I.T. Act, 1961, on account of unsecured loans from M/s. Pragati Real Estate Developers Pvt. Ltd.
3. Addition under section 68 of the I.T. Act, 1961, on account of unsecured loans from Smt. Urmil Agarwal.

Issue-wise Detailed Analysis:

1. Addition under section 68 of the I.T. Act, 1961, on account of unsecured loans from M/s. Satyam Shivam Sundaram Trust:

The assessee received unsecured loans amounting to ?8,10,000 from M/s. Satyam Shivam Sundaram Trust, out of which ?4,00,000 was repaid, leaving a balance of ?4,10,000. The assessee provided the lender's ledger account and bank statements but failed to submit the Income Tax Return (ITR). The Assessing Officer (A.O.) noted unusual deposit patterns in the lender's bank account and added ?4,10,000 to the assessee's income due to the unexplained nature of these deposits. The assessee argued that all transactions were through banking channels and provided sufficient documentation, including balance sheets proving the lender's financial soundness. However, the Ld. CIT(A) confirmed the addition, dismissing the assessee's appeal.

2. Addition under section 68 of the I.T. Act, 1961, on account of unsecured loans from M/s. Pragati Real Estate Developers Pvt. Ltd.:

The assessee received ?12,75,000 as an unsecured loan from M/s. Pragati Real Estate Developers Pvt. Ltd. The assessee furnished the ITR acknowledgment for A.Y. 2009-10 and part of the lender's bank statement. The A.O. observed that the lender's income was merely ?3,912 and noted unexplained RTGS deposits before issuing the loan to the assessee. Consequently, the A.O. added ?12,75,000 to the assessee's income. The assessee contended that all loans were through banking channels and that the lender's financial capacity was adequate, as evidenced by their balance sheet. Nevertheless, the Ld. CIT(A) upheld the A.O.'s addition.

3. Addition under section 68 of the I.T. Act, 1961, on account of unsecured loans from Smt. Urmil Agarwal:

The assessee received ?26,40,350 as an unsecured loan from Smt. Urmil Agarwal. The assessee provided the lender's account and bank statements, which revealed similar RTGS deposits before issuing the loan. The A.O. added the loan amount to the assessee's income due to unexplained deposits. The assessee maintained that all transactions were genuine and through banking channels, supported by comprehensive documentation. However, the Ld. CIT(A) confirmed the addition.

Tribunal's Findings:

The Tribunal considered the rival submissions and reviewed the material on record. It noted that the assessee had provided confirmations, ITR acknowledgments, balance sheets, ledger accounts, and bank statements for all creditors. The creditors confirmed giving loans, and their financial statements indicated sufficient capital. The Tribunal emphasized that the A.O. did not conduct adequate inquiries into the documentary evidence provided by the assessee and merely disbelieved the entries without justification. Citing precedents, the Tribunal reiterated that the assessee is not required to prove the "source of the source" and that low income declared by creditors is insufficient to reject the assessee's explanation if their creditworthiness is otherwise established.

The Tribunal referred to multiple judgments, including those of the Hon'ble Supreme Court and various High Courts, which support the principle that material collected at the back of the assessee without an opportunity for cross-examination cannot be used against the assessee. It concluded that the assessee had discharged the initial burden of proving the identity, creditworthiness, and genuineness of the transactions. The Tribunal found that the authorities below had erred in making and confirming the additions.

Conclusion:

The Tribunal set aside the orders of the authorities below and deleted the entire addition of ?43,25,350, thereby allowing the appeal of the assessee. The judgment underscores the importance of adhering to principles of natural justice and conducting thorough inquiries before making additions under section 68 of the I.T. Act, 1961.

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