2023 (4) TMI 93 - AT - Income Tax

Addition u/s 68 - Unexplained cash credit - Discharge of onus - HELD THAT - Assessee has produced the details of the creditors before the AO, the creditors have independently confirmed the transaction before the AO and no evidence is found by the AO to disprove the confirmation given by the creditors. Assessee has discharged its burden of proving the identity, creditworthiness and genuineness of the transaction in respect of the loan from six creditors - The addition as made by the AO and confirmed by the CIT(A) stands deleted. Appeal filed by the assessee stands allowed.

Summary

Issues Involved:
1. Applicability of Section 68 of the Income Tax Act.
2. Genuineness of loan transactions.
3. Burden of proof regarding identity, creditworthiness, and genuineness of creditors.

Summary:

1. Applicability of Section 68 of the Income Tax Act:
The primary issue was whether the loans taken by the assessee from six persons, including three individuals and three HUFs, could be treated as unexplained cash credits u/s 68 of the Act. The Assessing Officer (AO) had invoked Section 68, treating the loans as unexplained cash credits due to cash deposits in the lenders' bank accounts before granting the loans.

2. Genuineness of Loan Transactions:
The assessee provided evidence including copies of returns of income, computation of total income, balance sheets, bank statements, and confirmations from the lenders. The AO, however, deemed the transactions as bogus due to the cash deposits preceding the loans. The Revenue relied on the Gujarat High Court's decision in Blessing Construction vs. ITO, which held that the genuineness of transactions was not established when sizable cash amounts were deposited shortly before issuing cheques to the assessee.

3. Burden of Proof:
The assessee argued that they had proved the identity, creditworthiness, and genuineness of the transactions, citing the Gujarat High Court's decision in DCIT vs. Rohini Builders, which stated that the assessee is not expected to prove the source of the source. The Tribunal observed that the lenders had substantial investments and income, and their bank balances were not meager. The Tribunal noted that the AO did not disprove the confirmations given by the creditors and that the assessee had discharged its burden of proof.

Conclusion:
The Tribunal concluded that the assessee had adequately proved the identity, creditworthiness, and genuineness of the loan transactions. The addition made by the AO and confirmed by the CIT(A) was deleted. The appeal filed by the assessee was allowed.