2023 (5) TMI 27 - AT - Income Tax

Addition u/s 68 - assessee was unable to produce the Director of lender company so the identity of lender is not established - HELD THAT - The transactions have taken from banking channels and if there were sham transactions, then how merely appearance of a Director would have made a difference. It seems the Ld. Tax Authorities have fallen in error in laying too much stress on the failure of assessee to ensure presence of Director of the lender company. The Bench is of firm view that the Act does not mandate how the burden of proof u/s 68 of the Act, to prove genuineness of lender and transaction, is to be established. Each case has to be considered on basis of own facts. The burden on assessee to prove genuineness of lender and transaction is only to rebut the presumption but that does not entitle the Ld. Tax Authorities, to discredit the evidence produced, with a stroke of a whimsical need for a particular piece of evidence only. The quasi-judicial authorities are supposed to examine the evidence produced before them and draw inferences based on their relevance and credibility, to consider if the burden is discharged or not. However, the same seems to be not the case here as presuming the information received from the investigation wing to be sacramental, the Ld. Tax Authorities have failed to appreciate the relevant evidence produced by the assessee and have failed to consider it without impeaching the credibility of that evidence. Suspicion howsoever strong cannot take place of proof. Tax Authorities have fallen in error in citing suspicion alone instead of sifting truth from the evidence produced before it. When the interest income of M/s. Arti Securities and Services Pvt. Ltd. stands accepted by the Department, then the loan disbursed by it to earn that income cannot be considered to be tainted, by attributing suspicion to the identity or creditworthiness of sources of M/s. Arti Securities and Services Ltd. as a lender. Assessee has also provided the copy of order of CIT(A) in case of M/s. Arti Securities and Services P. Ltd. CIT(A) has deleted an addition made u/s 68 in the hands of this company - so called suspicious and dubious activities of the lender M/s.Arti Securities and Services P. Ltd. have been examined in earlier years and nothing was proved by the Department. Authorities below have fallen in error in concluding that the assessee had failed to discharge it s burden u/s 68 of the Act. Decided in favour of the assessee.

Summary

Issues Involved:
1. Jurisdiction and adherence to CASS guidelines.
2. Unexplained cash credit under Section 68 of the Income Tax Act.
3. Onus of proving the genuineness of transactions.
4. Charging of interest under Sections 234A, 234B, and 234C.

Summary:

Jurisdiction and Adherence to CASS Guidelines:
The assessee contended that the addition of Rs. 1,75,00,000/- was beyond the scope of limited scrutiny and not in accordance with CASS guidelines issued by CBDT. However, this ground was not pressed by the assessee and was accordingly disposed of.

Unexplained Cash Credit under Section 68:
The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] concluded that the unsecured loan of Rs. 1,75,00,000/- from M/s. Arti Securities & Services Ltd. was unexplained due to the failure of the assessee to produce the Director of the lender company, thereby questioning the identity and creditworthiness of the lender. The CIT(A) upheld the addition citing various judgments, emphasizing that merely submitting documents like PAN and bank statements was insufficient to prove the genuineness of the transaction.

Onus of Proving the Genuineness of Transactions:
The Tribunal noted that the assessee had provided substantial documentary evidence, including the lender's certificate of registration as an NBFC, ITR acknowledgment, audited balance sheet, ledger account, confirmation from the lender, and bank statements. The Tribunal found that the AO and CIT(A) erred in placing undue emphasis on the non-production of the lender's Director and failing to appreciate the evidence provided. The Tribunal highlighted that the lender's interest income had been accepted in its return, and the loan was repaid through banking channels. The Tribunal also referenced a coordinate bench's decision in a similar case where the loan transaction with the same lender was considered genuine.

Charging of Interest under Sections 234A, 234B, and 234C:
The assessee argued that the interest charged under Sections 234A, 234B, and 234C was without proper application of mind and opportunity. However, this issue was not elaborated upon in the Tribunal's decision.

Conclusion:
The Tribunal concluded that the assessee had sufficiently discharged its burden under Section 68 of the Act by providing credible evidence of the lender's identity and the genuineness of the transaction. The Tribunal allowed the appeal, deleting the addition of Rs. 1,75,00,000/- and ruling in favor of the assessee. The order was pronounced in the open court on 26th April 2023.