2023 (1) TMI 671 - HC - Income Tax

Unexplained investment u/s 69B - survey operation u/s 133A - incriminating documents found and seized during the course of search proceedings in the case of the Director of the assessee company - identity as well as the genuineness of the transactions questioned - HELD THAT - Initially, in inquiry under Section 133(6) of the IT Act, in the remand reports which have been tendered by the Assessing Officer pursuant to the directions issued by the CIT Appeals, he does not dispute the identity as well as the genuineness of the transactions. The only question was with regard to the creditworthiness. We are in agreement with both the authorities which have concurrently held that the initial burden, even if not discharged at the level of the assessing officer, but by production of documents before the CIT (Appeals) where two remand reports have been called for, every transaction having been made through banking channel, there was no reason to also question the creditworthiness. No question of law even otherwise arises for this Court to consider and hence the question (B) is not entertained. Question (C) being only the explanation to question (B), the same is also not entertained.

Summary

Issues Involved:
1. Justification of ITAT's decision in deleting the addition of Rs. 1,35,00,000/- under Section 69B of the IT Act.
2. Justification of ITAT's decision in deleting the addition of Rs. 1,62,44,073/- under Section 68 of the IT Act.
3. Consideration of the creditworthiness of lenders for the unexplained loans.

Issue-wise Detailed Analysis:

1. Justification of ITAT's Decision in Deleting the Addition of Rs. 1,35,00,000/- under Section 69B of the IT Act:

The appeal questions the ITAT's decision to uphold the CIT(A)'s deletion of Rs. 1,35,00,000/- added by the Assessing Officer (AO) as unexplained investment under Section 69B. The AO based this addition on incriminating documents found during a search at the Director's premises, indicating unaccounted cash payments for land and other expenses. The CIT(A) admitted additional evidence from the assessee and, after obtaining remand reports, concluded that no evidence supported the addition. The ITAT endorsed the CIT(A)'s reasoning, leading to the deletion of the addition. The High Court found prima facie substance in the department's argument and issued a notice for further hearing.

2. Justification of ITAT's Decision in Deleting the Addition of Rs. 1,62,44,073/- under Section 68 of the IT Act:

The AO added Rs. 1,62,44,073/- as unexplained unsecured loans under Section 68, asserting that the assessee failed to prove the identity, creditworthiness, and genuineness of the lenders. The assessee contended that the loans were received and repaid through account payee cheques, and the lenders confirmed the transactions. The CIT(A) examined the evidence and concluded that the assessee had discharged its onus of proving the loans' identity, sources, and genuineness, shifting the burden to the AO, who failed to provide contrary evidence. The ITAT concurred with the CIT(A), noting that the assessee furnished necessary details, and the AO accepted the identity and genuineness but doubted the creditworthiness. The High Court upheld the ITAT's decision, emphasizing that once the primary onus is discharged, the AO must prove otherwise, which was not done in this case.

3. Consideration of the Creditworthiness of Lenders for the Unexplained Loans:

The High Court addressed the AO's doubt about the lenders' creditworthiness, despite accepting their identity and the genuineness of transactions. The CIT(A) and ITAT found that the transactions were made through banking channels, and the lenders confirmed the transactions. The High Court referred to precedents, including the Supreme Court's decision in CIT V/s Mohankala and the Gujarat High Court's decision in CIT vs Chanakya Developers, emphasizing that once the assessee discharges the initial burden, the AO must conduct further inquiries. The High Court concluded that the AO's remand reports did not dispute the identity or genuineness but only the creditworthiness, which was adequately established by the assessee. Thus, the High Court found no reason to question the creditworthiness and dismissed the department's appeal on this ground.

Conclusion:

The High Court upheld the ITAT's decisions on both issues, finding no substantial question of law for further consideration. The notice for final disposal was issued only for question (A), returnable on 23.1.2023.