2022 (7) TMI 537 - AT - Income Tax

Unsecured loan u/s 68 - Bogus cash credits - As per assessee primary onus cast by law to establish identity, genuiness of transaction creditworthiness is discharged by the assessee filling confirmation, PAN, copy of Return of Income, bank statements along with audited report of depositor companies - HELD THAT - Assessee - Company has miserable failed to prove identity, as explained by ld DR that assessing officer vide letter dated 27.02.2015 directed the assessee to produce the Principal Officers of the 12 lender companies but no compliance was made by the assessee, therefore identity of these Lender Companies has not been proved. We note that out of twelve lender companies, none appeared before assessing officer. We also find merit in the submission of ld DR to the effect that the fact that loan has been repaid in subsequent years, has not been examined by the assessing officer That is, ld DR argued before us that the said issue may be remitted back to the file of the assessing officer to examine whether loan has been repaid out of own sources or by taking further accommodation entry. The expression 'burden of proof really means two different things. It means sometimes that a party is required to prove an allegation before judgment can be given in his favour. It also means that on a contested issue, one of the two contending parties has to introduce evidence. In the first sense, if the burden is not discharged, the party must eventually fail. In the second case, where the parties have joined issue and have led evidence and the conflicting evidence can be weighed to determine which way to issue can be decided, the question of burden of proof becomes an abstract question and is therefore academic. The section 101 to 114 of Indian Evidence Act, 1872 deals with burden of proof. The section 102 of the Evidence Act provides that the burden of proof lies on that party who would fail if no evidence at all were given on either side. Thus, if an assessee claims that money or bullion found in his possession at the time of the search or survey does not belong to him but someone else, the onus is on him to establish it because the ordinary presumption is that he is the owner as the money etc. was found in his possession. Similarly, in all cases where a particular receipt is sought to be taxed as income, the initial onus is on the Assessing Officer to prove that it is taxable. Where, however, the assessee claims exemption, the burden is on the assessee to prove it to be exempt. Same is the position in case of allowances, deductions, or claims of loss, etc. Similarly, where there is a statutory rebuttable presumption against the assessee, as in case of cash credits etc., u/s 68 or unexplained investment u/s 69, the initial burden of proof is on the assessee to show that the cash credit is genuine or the investment is not unexplained. The AO should, therefore, always examine as to who has to discharge the burden of proof. Therefore, based on these facts and circumstances, we remit the lis back to the file of the assessing officer for fresh adjudication in accordance with law. Assessee Appeal is allowed for statistical purposes.

Issues Involved:
1. Addition of Rs. 2,40,00,000/- as unsecured loans under Section 68 of the Income Tax Act.
2. Denial of cross-examination opportunity to the assessee.
3. Failure to prove the identity of depositors.
4. Allegation of depositor companies being conduits for unaccounted income.
5. Levy of interest under Section 234A/B/C & D of the Act.
6. Initiation of penalty proceedings under Section 271(1)(C) of the Act.

Detailed Analysis:

1. Addition of Rs. 2,40,00,000/- as unsecured loans under Section 68 of the Income Tax Act:
The assessee-company received unsecured loans totaling Rs. 2,40,00,000/- from 12 Kolkata-based companies. The Assessing Officer (AO) issued notices under Section 133(6) of the Act and found that these companies had meager income or losses, no regular business activity, and their only source of funds was share capital/share premium. The Investigation Wing, Kolkata, revealed that these companies did not exist at the given addresses and were involved in providing entries on a commission basis. Consequently, the AO added the amount under Section 68 of the Act, concluding that these companies did not have the capacity to make such investments.

2. Denial of cross-examination opportunity to the assessee:
The assessee argued that the AO relied on statements from depositors without providing an opportunity for cross-examination. The CIT(A) held that the AO had provided the findings of the Investigation Wing and the statements of the entry operators to the assessee, fulfilling the conditions of natural justice. The AO also relied on his own analysis and findings from the examination of tax returns, financial statements, and bank account statements.

3. Failure to prove the identity of depositors:
The AO directed the assessee to produce the Principal Officers of the 12 lender companies, but the assessee failed to comply. The CIT(A) noted that the assessee could not prove the identity of the lenders, as none of them appeared before the AO. The AO's inquiries revealed that these companies were 'paper companies' with no genuine business activities.

4. Allegation of depositor companies being conduits for unaccounted income:
The AO observed that the lender companies had no fixed assets, meager income, and no real business activity. The Investigation Wing found that these companies were used to provide accommodation entries. The CIT(A) confirmed that the loans were a colorable device to bring back the unaccounted money of the assessee. The AO's analysis of bank statements showed that the accounts were used for immediate transfers with no substantive balance, indicating that the transactions were not genuine.

5. Levy of interest under Section 234A/B/C & D of the Act:
The assessee contested the levy of interest under Section 234A/B/C & D of the Act. However, this issue was not elaborated upon in the judgment.

6. Initiation of penalty proceedings under Section 271(1)(C) of the Act:
The assessee also contested the initiation of penalty proceedings under Section 271(1)(C) of the Act, but this issue was not further discussed in the judgment.

Conclusion:
The Tribunal noted that the assessee failed to prove the identity of the lender companies and remitted the case back to the AO for fresh adjudication. The AO was directed to examine whether the loans were repaid out of the assessee's own sources or by taking further accommodation entries. The appeal filed by the assessee was allowed for statistical purposes. The order was pronounced in the open court on 24/06/2022.

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