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2021 (3) TMI 220 - AT - Income TaxAssessment of trust - addition being loans from three parties - whether deemed income u/s 68 is applied for charitable purposes? - assessee society has been granted Registration under section 12AA and also granted exemption under section 80G - HELD THAT - The assessee has taken the loans from the above 05 parties out of which 03 are the Companies. The assessee admittedly filed confirmation of all the creditors, their ITRs, bank statements, ledger accounts and wherever balance-sheets of the companies were prepared have been filed, copies of the same are also filed in the paper book. The creditors have confirmed giving loan to the assessee through banking channel and their bank accounts shows sufficient balance with them to give loan to the assessee. In the balance-sheet of 03 creditors sufficient balances are available to show their net worth to give loan to the assessee. The loans are subject to payment of interest earned and TDS has also been deducted. Details of the TDS are filed and the assessee has filed the details to show that all the loan amounts have been utilised towards objects of the assessee society. Also loans have been later on returned to the parties. Initial onus upon the assessee to prove identity of the creditors, their creditworthiness and genuineness of the transaction have been discharged by the assessee. The decisions relied upon by the Learned Counsel for the Assessee before the authorities below clearly supports the explanation of assessee that assessee received genuine loans into the matter which were later on returned to the concerned parties. It may also be noted here that assessee has registration under section 12AA which is in force in assessment year under appeal and A.O. has also computed the income of the assessee as per Section 11 of the Income Tax Act, 1961 and accepted the NIL returned income filed by the assessee because the amount more than 85% have been incurred by the assessee towards its objects. Since assessee came into existence in part of the assessment year under appeal and it was the first year of charitable activities conducted by the assessee, therefore, it is highly unbelievable that assessee would earn huge undisclosed income in assessment year under appeal. Thus, no addition could be made against the assessee of such nature in assessment year under appeal particularly when the nature of the activities of the assessee is admittedly mentioned in the assessment order to run an Educational Institution. It is well settled Law that assessee need not to prove source of the source. A.O. entirely on different reasons that there is a common Director in 03 companies and common address disbelieved the explanation of assessee. It may not be relevant criteria to decide the issue under section 68 - A.O. has not brought any evidence against the assessee on record to disbelieve the documentary evidences. Whatever enquiry was conducted through Income Tax Inspector does not appear to have been confronted to the assessee or explanation of assessee have been called for. Therefore, such material cannot be used in evidence against the assessee - Decided in favour of assessee.
Issues Involved:
1. Sustaining addition of ?95 lakhs as loans from three parties. 2. Relevance of enquiries about the address of the director. 3. Sustaining addition of ?16.28 lakhs as loans from four parties. 4. Findings on identity and creditworthiness of parties. 5. Applicability of Section 68 for charitable purposes. 6. Loans taken within 2-3 months of constituting the society. Issue-wise Detailed Analysis: 1. Sustaining addition of ?95 lakhs as loans from three parties: The Assessee challenged the addition of ?95 lakhs as loans from three parties, supported by ITRs, confirmations, balance sheets, and bank accounts. The Assessing Officer (AO) added this amount under Section 68 of the Income Tax Act, 1961, as unexplained cash credits, citing the inability to verify the identity, capacity, and creditworthiness of the lenders. The AO noted that the addresses of these companies were not occupied by the claimed director, Sunil Kumar Gupta, and treated the loans as accommodation entries. The CIT(A) upheld this addition, agreeing with the AO's assessment that the creditors were not conducting real business. 2. Relevance of enquiries about the address of the director: The Assessee argued that the enquiries about the director's address were irrelevant and conducted without providing an opportunity for cross-examination. The AO's reliance on the Income Tax Inspector's report, which was not confronted to the Assessee, was contested. The Tribunal found that such material could not be used as evidence against the Assessee, citing the Supreme Court judgment in Kishanchand Chellaram vs. CIT. 3. Sustaining addition of ?16.28 lakhs as loans from four parties: The Assessee also contested the addition of ?16.28 lakhs as loans from four parties, supported by ITRs, confirmations, balance sheets, and bank accounts. The AO added this amount under Section 68, questioning the creditworthiness of the lenders. The CIT(A) upheld the addition, agreeing with the AO's findings. The Tribunal noted that the Assessee had provided sufficient documentation to prove the identity, creditworthiness, and genuineness of the transactions, including the repayment of loans and the deduction of TDS on interest payments. 4. Findings on identity and creditworthiness of parties: The CIT(A) recorded findings that the Assessee failed to prove the identity and creditworthiness of the parties, applying the ratio of cases like Sumati Dayal and Nova Promoters. The Tribunal, however, found that the Assessee had discharged the initial onus by providing confirmations, ITRs, bank statements, and balance sheets of the creditors. The Tribunal emphasized that the creditors' identities could not be disputed as they were assessed to tax, and the loans were given through banking channels with sufficient bank balances and net worth. 5. Applicability of Section 68 for charitable purposes: The Assessee argued that even if the addition was made under Section 68, it should be exempt under Section 11 as the loans were utilized for charitable purposes. The Tribunal agreed, noting that the Assessee had applied more than 85% of its income towards its charitable objects, and the loans were repaid before the scrutiny assessment. The Tribunal referred to judgments supporting the contention that loans used for charitable purposes should not attract Section 68 additions. 6. Loans taken within 2-3 months of constituting the society: The Assessee highlighted that the loans were taken within 2-3 months of constituting the society, making it improbable to have earned such income. The Tribunal found this argument persuasive, supported by the Supreme Court judgment in CIT vs. Bharat Engineering & Construction Co., which held that a newly commenced business could not have earned a huge profit within a short period. The Tribunal concluded that the Assessee's explanation was reasonable and the loans were genuine. Conclusion: The Tribunal set aside the orders of the authorities below and deleted the entire addition of ?1,11,28,000/- made under Section 68. The appeal of the Assessee was allowed, emphasizing that the Assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the transactions, and the loans were used for charitable purposes.
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