2022 (7) TMI 747 - HC - Income Tax

Addition u/s 68 - Whether assessee furnished full details regarding the creditors? - ITAT deleted the addition - HELD THAT - Fortunately, for the assessee, CIT(A) has done an elaborate factual exercise, took into consideration, the creditworthiness of the 13 companies the details of which were furnished by the assessee. More importantly, the CIT noted that all these companies responded to the notices issued under Section 133 (6) of the Act which fact has not been denied by the assessing officer. On going through the records and the net worth of the lender companies, the CIT has recorded the factual findings that the net worth of those companies is in crores of rupees and they have declared income. AO if in his opinion found the explanation offered by the assessee to be not satisfactory, he should have recorded so with reasons - no discussion on the explanation offered by the assessee qua, one of the lenders. Admittedly, the assessee was not issued any show cause notice in respect of other lenders. However, they are able to produce the details before the CIT(A) who had in our view rightly appreciated the facts and circumstances of the case. As pointed out earlier, the assessing officer brushed aside the explanation offered by the assessee by stating that merely filing PAN details, balance sheet does not absolve the assessee from his responsibilities of proving the nature of transactions. It is not enough for the assessing officer to say so but he should record reasons in writing as to why the documents which were filed by the assessee along with the reply dated 22.12.2017 does not go to establish the identity of the lender or prove the genuineness of the transaction or establish the creditworthiness of the lender. In the absence of any such finding, we have to hold that the order passed by the assessing officer was utterly perverse and rightly interfered by the CIT(A). Tribunal re-appreciated the factual position and agreed with the CIT(A). The tribunal apart from taking into consideration, the legal effect of the statement of Ashish Kumar Agarwal also took note of the fact that the notices which were issued by the assessing officer under Section 133 (6) of the Act to the lenders where duly acknowledged and all the lenders confirmed the loan transactions by filing the documents which were placed before the tribunal in the form of a paper book. These materials were available on the file of the assessing officer and there is no discussion on this aspect. Thus, we find that the tribunal rightly dismissed the appeal filed by the revenue.

Issues Involved:
1. Maintainability of the order passed by the Commissioner of Income Tax (Appeal).
2. Addition under Section 68 of the Income Tax Act, 1961 regarding unsecured loan and interest.
3. Onus on the assessee to establish the existence, genuineness, and creditworthiness of the new loan introduced.

Issue-wise Detailed Analysis:

1. Maintainability of the Order Passed by the Commissioner of Income Tax (Appeal):
The revenue questioned the maintainability of the CIT (A)'s order, which was in favor of the assessee. The CIT (A) had perused the evidence and documents produced by the assessee, including the identity of the lenders, genuineness of the transactions, and creditworthiness of the lenders. The CIT (A) concluded that the loan transactions were squared off within the same year and that the interest was paid at arm's length with tax deducted at source. The CIT (A) also noted that the replies received by the Assessing Officer to the notices issued under Section 133(6) of the Act were relevant and established the lenders' net worth, which was in crores of rupees. The CIT (A) held that the three factors under Section 68 of the Act—creditworthiness, identity, and genuineness of the transactions—had been established. The statement recorded from Shri Ashish Kumar Agarwal was deemed inadmissible, and the CIT (A) found that the Assessing Officer had violated principles of natural justice by branding all lender companies as "paper companies" without proper notice. The Tribunal re-examined the factual position and upheld the CIT (A)'s decision, dismissing the revenue's appeal.

2. Addition under Section 68 of the Income Tax Act, 1961 Regarding Unsecured Loan and Interest:
The Assessing Officer had added the unsecured loans availed by the assessee back to their income, branding the transactions as accommodation entries and not genuine. The assessee had provided documents to establish the identity of the lender, genuineness of the transaction, and creditworthiness of the lender. The Assessing Officer dismissed these documents, stating that mere filing of PAN details and balance sheets does not absolve the assessee from proving the transaction's nature. The CIT (A) and the Tribunal found that the Assessing Officer had not properly considered the explanation and documents provided by the assessee. The Tribunal noted that the notices issued under Section 133(6) of the Act were acknowledged by the lenders, who confirmed the loan transactions. The Tribunal concluded that the Assessing Officer's order was perverse and rightly interfered with by the CIT (A).

3. Onus on the Assessee to Establish the Existence, Genuineness, and Creditworthiness of the New Loan Introduced:
The revenue argued that the onus was on the assessee to establish the existence, genuineness, and creditworthiness of the new loan introduced, which the assessee had failed to satisfy. The Tribunal held that the assessee had discharged their initial burden by providing evidence regarding the identity of the lenders, genuineness of the transactions, and creditworthiness of the lenders. The burden then shifted to the Assessing Officer to examine the source of the credit. The Tribunal found that the Assessing Officer had not recorded reasons in writing as to why the documents provided by the assessee did not establish the identity of the lender, genuineness of the transaction, or creditworthiness of the lender. The Tribunal concluded that the Assessing Officer's order was arbitrary and capricious, and the CIT (A) and Tribunal had rightly interfered with it.

Conclusion:
The High Court found that no substantial question of law arose for consideration in the appeal. The appeal was dismissed, and the orders passed by the CIT (A) and Tribunal in favor of the assessee were upheld. The High Court emphasized that the Assessing Officer had ignored the basic tenets of law and had not properly considered the explanation and documents provided by the assessee. The High Court also noted that the Assessing Officer's use of the term "money laundering" was uncalled for, as there were no allegations of money laundering in the case.

← Previous Next →