2022 (7) TMI 1295 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - unsecured loan - HELD THAT - Pune ITAT in the case of Sanjay Waman Co. 2001 (11) TMI 273 - ITAT PUNE held that it is part of the duty of the assessee to furnish evidence regarding the creditworthiness of the creditors. Delhi ITAT in the case of Anandtex international (P.) Ltd. 2022 (3) TMI 831 - ITAT DELHI held that where assessee received share application money and claimed that same was invested by its director by taking advance from a company P, however assessee failed to establish creditworthiness of share applicant or genuineness of transaction, AO was justified in making additions under section 68 and concluding that assessee routed its own money in books of account through conduit of investor companies. In the instant facts, in our view, the assessee has not been able to establish the creditworthiness of lender nor has he been able to establish the genuineness of transaction. A perusal of the statement taken on record of the creditor raises serious doubt both on the creditworthiness of the party and genuineness of the transaction. Therefore since the assessee has failed to establish both the genuineness of transaction and creditworthiness of party, in our view, he has not been able to discharge the onus cast upon him u/s 68 - Therefore, we are of the considered view that Ld. CIT(A) has not erred both in law and on the facts of the case in confirming the action of AO of making an addition as unexplained cash credit u/s.68 in respect of loan taken from lender. - Decided against assessee.

Issues Involved:
1. Addition of ?1,78,66,925 under section 68 of the Income Tax Act.
2. Establishment of identity, genuineness, and creditworthiness of the creditor.
3. Interpretation of the creditor's statement.
4. Consideration of additional evidence and subsequent transactions.

Detailed Analysis:

1. Addition of ?1,78,66,925 under section 68 of the Income Tax Act:
The primary issue in this case revolves around the addition of ?1,78,66,925 to the assessee's income under section 68 of the Income Tax Act. The Assessing Officer (AO) noted that the assessee received a loan of ?1,78,66,925 from M/s S. M. Traders, a proprietary firm of Shri Hareshbhai R. Parmar. Despite providing the PAN, confirmation, and bank statements, the AO concluded that the genuineness and creditworthiness of the transaction were not established, treating the amount as the assessee's own funds.

2. Establishment of identity, genuineness, and creditworthiness of the creditor:
The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, emphasizing that while the identity of the creditor was established, the genuineness and creditworthiness were not. The creditor, Shri Hareshbhai R. Parmar, was found to lack the means to provide such a substantial loan. He had no movable or immovable property, had not filed income tax returns, and could not recall essential details about the loan, raising doubts about his financial capacity.

3. Interpretation of the creditor's statement:
The creditor's statement revealed significant inconsistencies and a lack of clarity about his financial transactions. He admitted to being unemployed for eight months due to an accident, had no recollection of the loan amount, and maintained only a 'kachha book' (informal record) which was lost. These factors led the CIT(A) to conclude that the creditor's creditworthiness was far from established.

4. Consideration of additional evidence and subsequent transactions:
The assessee's argument that sales to the creditor in subsequent financial years (2009-10 and 2010-11) justified the advance was rejected. The CIT(A) noted that the creditor never claimed the amount was an advance for purchases, and the gap of five years between the advance and the sales further weakened this argument. The mere filing of ledger extracts was insufficient to establish the creditworthiness of the creditor during the relevant financial year.

Legal Precedents and Tribunal's Conclusion:
The Tribunal referred to several legal precedents, including:
- Sadiq Sheikh v. Commissioner of Income Tax, Bangalore, where the Supreme Court emphasized the need to establish the creditor's capacity to raise substantial amounts.
- Sunil Thomas v. ITO, where the Supreme Court ruled that mere confirmation of a transaction by a donor is insufficient without proving the donor's financial capacity.
- Pr. CIT v NRA Iron & Steel (P.) Ltd, where the Supreme Court upheld the addition under section 68 due to the failure to establish the creditworthiness of investor companies.

The Tribunal concluded that the assessee failed to establish the genuineness of the transaction and the creditworthiness of the creditor. The creditor's statement raised serious doubts, and the assessee did not discharge the onus cast upon him under section 68 of the Act. Consequently, the Tribunal upheld the CIT(A)'s decision to add ?1,78,66,925 as unexplained cash credit.

Final Order:
The appeal of the assessee was dismissed, and the addition of ?1,78,66,925 under section 68 of the Income Tax Act was confirmed. The order was pronounced in the open court on 27-07-2022.

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