2022 (4) TMI 1310 - AT - Income Tax

Addition u/s 68 - interest free loan taken by the assessee - creditworthiness remains unproved to the satisfaction of the AO - HELD THAT - As could be seen that the assessee has furnished various documentary evidences before lower authorities to establish the primary requirements of Sec.68. These documents have been listed in preceding para 5.2 and the copies of these documents have been placed on record. It could be seen that the assessee has received advances from Shri P. Ravi through banking channels on various dates. The assessee has even repaid amount of ₹ 5 Lacs to the lender during the year, lender has filed copy of PAN Card, confirmation letter and its bank statements. It could be seen that there are no cash deposits in the bank account of lender before advancing the amount to the assessee. The credits to assessee have been sourced by lender out of banking channels only. Similarly, the transactions with Abhishek Mundhra HUF are through banking channels. The copy of PAN and confirmation letter is on record. The loan has been partly satisfied in the subsequent year by repayment and transfer entries. The copy of Income Tax Return and bank statement is also on record. No cash transactions have been observed in the account of lender before transfer of money to the assessee. The last entity Mundhra Bullion Private Ltd. has confirmed the transactions. The transactions are through banking channels only. The copy of PAN and Income Tax return of the lender is on record. The perusal of bank statement would reveal that there are no immediate cash deposits and the payments to the assessee have been sourced out of banking channels only. On the basis of all these documents, it could be well said that the assessee had duly discharged the onus of establishing the identity of the lenders, their respective creditworthiness as well as genuineness of the transactions. So far as the allegations of Ld. AO that the loans are interest free is concerned, the circumstances under which the loans were obtained by the assessee was duly explained before lower authorities and the same has already been enumerated in preceding para 5.1. Therefore, the impugned additions, in our considered opinion, has rightly been deleted by Ld. CIT(A). Accordingly, the impugned order could not be faulted with. The revenue has relied on the decision of Hon ble Supreme Court in the case of Pr.CIT Vs. NRA Iron Steel Pvt. Ltd. 2019 (3) TMI 323 - SUPREME COURT which is completely on different facts. In that case, the assessee had received share capital / premium and as per field enquiries, the investor entities were found to be non-existent entities. The primary onus as casted u/s 68 could not be discharged by the assessee and the entire transactions were held to be bogus and lacked credibility. The facts of the case before us are totally different wherein the entities have filed confirmation letters and filed requisite documents as required under law. The investor entities have appeared before Ld. AO in response to summons and confirmed the transactions. Therefore, the ratio of cited decision is not applicable here. - Decided against revenue.

Issues Involved:
1. Erroneous order by CIT(A) on facts and law.
2. Admission of additional evidence by CIT(A) without AO's opportunity.
3. Creditworthiness and genuineness of loan from Abhishek Mundhra HUF.
4. Creditworthiness and genuineness of loan from Mundhra Bullion Pvt. Ltd.
5. AO's failure to conduct basic inquiries.
6. CIT(A) not directing AO to verify additional evidence.
7. Circumstantial evidence failing to prove genuineness of transactions.

Issue-wise Detailed Analysis:

1. Erroneous Order by CIT(A) on Facts and Law:
The Revenue contended that the CIT(A)'s order was erroneous both on facts and law. The core issue was whether the CIT(A) correctly assessed the evidence and circumstances surrounding the loans received by the assessee.

2. Admission of Additional Evidence by CIT(A) Without AO's Opportunity:
The Revenue argued that the CIT(A) admitted additional evidence (bank statement of Sri P. Ravi) without providing the AO an opportunity to verify it. The CIT(A) should have directed the AO to examine this evidence as it was submitted post-assessment proceedings.

3. Creditworthiness and Genuineness of Loan from Abhishek Mundhra HUF:
The AO questioned the creditworthiness of Abhishek Mundhra HUF, who lent ?70,00,000 to the assessee without any security or interest. The AO found the transaction suspicious as the loan creditor could not explain the reasons for borrowing sums and lending them to the assessee.

4. Creditworthiness and Genuineness of Loan from Mundhra Bullion Pvt. Ltd.:
Similarly, the AO doubted the genuineness of the ?3,69,00,000 loan from Mundhra Bullion Pvt. Ltd., as the company lent a significant amount without any security or interest. The AO deemed the transaction beyond human probability and added the amount to the assessee's income.

5. AO's Failure to Conduct Basic Inquiries:
The CIT(A) observed that the AO did not conduct basic inquiries despite having statutory powers under sections 131 and 133(6). The Revenue challenged this observation, stating that one of the creditors did not appear in response to summons.

6. CIT(A) Not Directing AO to Verify Additional Evidence:
The Revenue argued that the CIT(A), having powers co-terminous with the AO, should have directed the AO to verify the additional evidence (bank statement of Sri P. Ravi) submitted during appellate proceedings.

7. Circumstantial Evidence Failing to Prove Genuineness of Transactions:
The Revenue contended that the circumstantial evidence failed to prove the genuineness of the transactions. The CIT(A) should have upheld the AO's additions based on the lack of satisfactory explanation and documentary evidence.

Assessment Proceedings:
During assessment, the AO scrutinized the loans received by the assessee from various parties. The AO accepted the credits from Maya Krishnan and Parvathanandhini S but disputed the loans from Sri P. Ravi, Abhishek Mundhra HUF, and Mundhra Bullion Pvt. Ltd.

Appellate Proceedings:
The assessee provided detailed explanations and documentary evidence during appellate proceedings. The CIT(A) noted that the assessee established the identity, creditworthiness, and genuineness of the transactions through banking channels, PAN details, confirmation letters, and bank statements.

Our Findings and Adjudication:
The Tribunal noted that under Section 68, the assessee must prove the identity of the lender, their creditworthiness, and the genuineness of the transaction. The Tribunal found that the assessee provided sufficient documentary evidence to meet these requirements. The Tribunal referred to various judicial pronouncements, including decisions by the Supreme Court and High Courts, which established that the assessee is not required to prove the source of the source.

Conclusion:
The Tribunal concluded that the assessee discharged the onus of proving the identity, creditworthiness, and genuineness of the transactions. The Tribunal upheld the CIT(A)'s decision to delete the additions made by the AO, as the AO's conclusions were based on suspicion and conjecture rather than concrete evidence. The appeal by the Revenue was dismissed.

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