2021 (10) TMI 499 - AT - Income Tax

Addition u/s. 68 - Accommodation entries taken by assessee - initial burden to prove - assessee s name appeared in the list of beneficiaries who have taken loans from the concerns operated by the PKJ - addition made as no evidence to say transactions are genuine, creditors identity and creditworthiness is not proved - HELD THAT - AO has gone only by the statement recorded from Shri Pravin Kumar Jain who said to have been deposed that he is only providing accommodation entries and no real business is carried on by the entities. AO has not made any efforts to make independent enquiries with the lender company - AO has not provided the statements of Shri Pravin Kumar Jain to the assessee for his rebuttal. Nothing is placed on record to suggest that the information furnished by the assessee in the form of copy of affidavit, establishing identify of the lender, copy of the ledger giving details of loans confirmation taken and also repayment in subsequent years, copy of bank statement highlighting the natures of loan taken and repayment in subsequent years to establish the genuineness of the transactions copy of ITR V filed establishing creditworthiness of the lender are non-genuine. The assessee has discharged his primary onus on providing complete details in respect of the loan transaction and the Assessing Officer failed to carry out any fruitful investigation. Therefore, no addition can be made towards unexplained unsecured loan. In the case on hand assessee provided various evidences to establish the transactions are genuine, creditors identity and creditworthiness is proved by providing all the information to the Assessing Officer the assessee has discharged the initial onus of providing genuineness of the transactions under u/s 68 - once the initial burden is discharged by the assessee the burden shifts to the revenue to disprove the claim of the assessee. It is noticed that AO did not make any sort of enquiries to disprove the genuineness of the transaction on the evidences furnished by the assessee. He has completely ignored even the statement retracted by the PKJ. The addition is made merely on surmises and conjectures without probing further by the Assessing Officer. - Decided in favour of assessee.

Issues Involved:
1. Addition under Section 68 of the Income Tax Act.
2. Identity, genuineness, and creditworthiness of the lender.
3. Reliance on the statement of a third party.
4. Provision of cross-examination.
5. Burden of proof and initial onus on the assessee.
6. Judicial precedents and legal principles.

Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act:
The primary issue in the appeal was the addition of ?25,00,000/- under Section 68 of the Income Tax Act, 1961, by the Assessing Officer (AO), which was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The addition was made on the grounds that the loan transaction was deemed to be an accommodation entry based on the statement of Shri Pravin Kumar Jain (PKJ) recorded under Section 132(4) of the Act.

2. Identity, Genuineness, and Creditworthiness of the Lender:
The assessee provided various documents to establish the identity, genuineness, and creditworthiness of M/s. Josh Trading Private Limited, the lender. These included:
- Name, address, and PAN of the lender.
- Signed loan confirmation.
- Bank statements of both the lender and the assessee.
- Income tax return, balance sheet, and profit and loss account of the lender.
Despite these submissions, the AO was not convinced and relied on PKJ's statement to treat the loan as an accommodation entry.

3. Reliance on the Statement of a Third Party:
The AO's decision was primarily based on PKJ's statement that his group provided only accommodation entries and did not conduct genuine business. However, the assessee argued that the AO did not provide an opportunity to cross-examine PKJ, nor did the AO conduct independent inquiries to verify the genuineness of the transaction.

4. Provision of Cross-Examination:
The assessee contended that the AO failed to provide the opportunity to cross-examine PKJ, whose statement was used against the assessee. This was a significant procedural lapse, as the assessee's right to cross-examine the witness was denied.

5. Burden of Proof and Initial Onus on the Assessee:
The assessee discharged the initial onus by providing documentary evidence to prove the identity, genuineness, and creditworthiness of the lender. Once the initial burden was discharged, the onus shifted to the AO to disprove the assessee's claim. The AO, however, did not bring any contrary evidence to disprove the loan transaction.

6. Judicial Precedents and Legal Principles:
The judgment cited several judicial precedents to support the assessee's case, including:
- Principal Commissioner of Income Tax-4 v. Hi-Tech Residency (P.) Ltd. [2018] 96 taxmann.com 403 (SC)
- Jalaram Enterprises (P.) Ltd. v. Income-tax Officer [2019] 104 taxmann.com 134 (Bombay)
- Nu Power Renewables (P.) Ltd. v. Deputy Commissioner of Income-tax [2018] 94 taxmann.com 29 (Bombay)
- Hubtown Ltd. v. Deputy Commissioner of Income-tax [2016] 74 taxmann.com 18 (Bombay)
- Commissioner of Income-tax-15 v. Haresh D. Mehta [2017] 86 taxmann.com 22 (Bombay)
- Gujarat Television (P.) Ltd. v. Assistant Commissioner of Income-tax [2018] 94 taxmann.com 400 (Gujarat)

These cases emphasized that the AO must conduct independent inquiries and cannot solely rely on the statements of third parties. The courts have consistently held that once the assessee provides sufficient evidence to prove the identity, genuineness, and creditworthiness of the lender, the burden shifts to the AO to disprove the claim. The AO's failure to provide cross-examination and reliance solely on PKJ's statement without further investigation rendered the addition unsustainable.

Conclusion:
The Tribunal concluded that the assessee had adequately demonstrated the identity, genuineness, and creditworthiness of the lender through documentary evidence. The AO's reliance on PKJ's statement without providing cross-examination and without conducting independent inquiries was insufficient to justify the addition under Section 68. Therefore, the appeal was allowed, and the addition made by the AO was deleted.

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