2022 (2) TMI 1183 - AT - Income Tax

Addition u/s 68 - unsubstantiated unsecured loans - whether assessee had discharged the primary onus cast upon it ? - CIT -A deleted the addition - HELD THAT - In the present case the AO has granted the impugned relief simply of the basis that amounts are received through banking channels and the supported by the balance confirmation and bank statement etc. which, accordingly to CIT(A), by itself prove genuineness of the transaction. Such an approach however is clearly unsustainable in law in view of the fact that the amounts having come through banking channels and the balance confirmation being on record cannot by itself prove or establish genuineness of the transaction while on the aspect of the matter we may usefully refer to following observations of the coordinate bench in the case of DCIT vs. Leena Power Tech Pvt Ltd. 2021 (9) TMI 1124 - ITAT MUMBAI Viewed thus the approach of the learned CIT(A) is clearly superficial and it does not need our judicial approval. Just because the money is received the through banking channels and the confirmations are on record, such facts by itself do not establish genuineness of transactions. We therefore deem it fit and proper to remit the matter to the file of the CIT(A) for fresh consideration in the light of the above legal position. While re-examining the matter learned CIT(A) will categorically deal with the stand of the Assessing Officer with respect to genuineness of the transaction and pass a speaking order and accordance with the law by way of speaking order on this point as well. - Decided in favour of Revenue.

Issues Involved:
1. Deletion of addition of ?3,05,00,000/- made by the Assessing Officer (AO) under Section 68 for unsubstantiated unsecured loans.
2. Discharge of primary onus by the assessee regarding the unsecured loans.
3. Evaluation of the documents furnished by the assessee in light of antecedent circumstances.
4. Deletion of disallowance of interest of ?17,80,807/- claimed to have been paid to the lenders.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68:
The AO challenged the deletion of ?3,05,00,000/- added as unexplained cash credits under Section 68 of the Income Tax Act, 1961. The AO observed that the assessee failed to establish the creditworthiness and genuineness of the transactions. The AO noted that the parties from whom loans were borrowed had low income and no substantial financial capacity. Despite transactions being routed through banking channels, the AO found inconsistencies and immediate corresponding deposits in the lenders' bank accounts, indicating potential accommodation entries. The AO concluded that the assessee did not discharge its burden of proof under Section 68, which requires establishing the identity, creditworthiness, and genuineness of the transactions.

2. Discharge of Primary Onus by the Assessee:
The AO argued that the CIT(A) erred in holding that the assessee had discharged the primary onus without addressing significant improbabilities identified by the AO. The AO emphasized that mere submission of bank statements and income tax returns is insufficient to prove the genuineness of the transactions. The AO cited judicial precedents, including the Supreme Court's decisions in CIT v. P. Mohanakala and A. Govindarajulu Mudaliar v. CIT, which emphasize the assessee's burden to provide satisfactory explanations for cash credits.

3. Evaluation of Documents in Light of Antecedent Circumstances:
The AO contended that the CIT(A) failed to appreciate the antecedent circumstances and surrounding facts before concluding the genuineness of the transactions. The AO highlighted that the lenders had minimal income and no regular source of funds, with deposits matching the loan amounts credited just before the transactions. The AO argued that the CIT(A)'s reliance on banking channels and balance confirmations was superficial and did not address the underlying financial realities and human probabilities.

4. Deletion of Disallowance of Interest:
The AO also challenged the deletion of ?17,80,807/- disallowed as interest paid on the unsecured loans. The AO argued that since the loans were unsubstantiated, the interest claimed on such loans should also be disallowed. The AO emphasized that the assessee failed to prove the genuineness of the transactions and the creditworthiness of the lenders, making the interest payments non-deductible.

Tribunal's Findings:
The Tribunal found that the CIT(A) granted relief based solely on the transactions being through banking channels and supported by balance confirmations, which is insufficient to establish the genuineness of the transactions. The Tribunal referred to the case of DCIT vs. Leena Power Tech Pvt Ltd., emphasizing that the onus is on the assessee to prove the genuineness of the transactions, which involves demonstrating the identity, creditworthiness, and genuineness of the creditors. The Tribunal noted that the CIT(A)'s approach was superficial and did not address the AO's concerns regarding the financial capacity and genuineness of the lenders.

Conclusion:
The Tribunal remitted the matter back to the CIT(A) for fresh consideration, directing the CIT(A) to categorically address the AO's concerns and pass a speaking order in accordance with the law. The Tribunal allowed the AO's appeal and restored the matter to the CIT(A) for re-examination. The decision for the assessment year 2010-11 was applied mutatis mutandis to the remaining assessment years, and all five appeals were allowed for statistical purposes. The judgment was pronounced on December 23, 2021.

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