2023 (11) TMI 789 - AT - Income Tax

Addition u/s 68 - unexplained unsecured loan - capacity/creditworthiness of creditor - creditor being non-filer of income tax returns (ITR) - HELD THAT - On a careful consideration, we find the assessee has filed three documents to AO which are un-disputably accepted by both AO and CIT(A), namely (i) A/c confirmation, (ii) Bank Pass-Book and (iii) PAN card. The A/c confirmation is duly signed by creditor and contains full address as well as PAN of creditor. Thus, the identity of creditor is duly proved by these primary documents. Bank Pass Book clearly shows that the creditor received a sum through clearing and the loan was given to assessee out of it. Therefore, the capacity/creditworthiness of creditor to give loan to assessee is proved. The creditor has given loan to assessee out of proceeds held in Bank A/c from clearing of cheque and not from his income. Therefore, it is prima facie wrong to judge the capacity/creditworthiness of creditor with his income. Regarding non-filing of income-tax return by creditor, the point is well decided in Metachem Industries 1999 (9) TMI 21 - MADHYA PRADESH HIGH COURT where it has been categorically held Whether that person is an income-tax payer or not or from where he has brought this money is not the responsibility of the firm . The last element of genuineness of loan is also established by the Bank Pass-Book which clearly reflects that the loan has been taken through banking channel and there is no involvement or flow of cash. Thus, all elements of section 68 are satisfied. Regarding the contention of revenue that the assessee has not paid any interest, the same is fully corroborated by the A/c Confirmation acknowledged by the creditor which does not contain any entry of interest payment. Obviously, the assessee has received interest-free loan from creditor. Lastly, we also find sufficient merit in the contention of Ld. AR that the assessee has discharged primary burden cast upon it and still if the AO was not satisfied, he could very well make enquiry or field enquiry from/of the creditor. AO has not done any enquiry, much less field-enquiry, from/of creditor and fastened the tax liability upon assessee by treating the loan as unexplained without any basis. This approach of AO is not acceptable as decided by Hon ble Delhi High Court in Gangeshwari Metal 2013 (1) TMI 624 - DELHI HIGH COURT Even this approach does not get support from NRA Iron 2019 (3) TMI 323 - SUPREME COURT . Thus addition made/confirmed by lower authorities is not sustainable. Decided in favour of assessee.

Summary

Issues involved:
The judgment involves the addition of unexplained unsecured loan by the Assessing Officer (AO) and its confirmation by the Commissioner of Income-Tax (Appeals) (CIT(A)).

Details of the Judgment:

Issue 1: Addition of Unexplained Unsecured Loan
The assessee declared a total income for the relevant assessment year, which was subjected to scrutiny assessment. The AO made an addition of Rs. 9,50,000 under section 68 for an unexplained unsecured loan taken from a creditor. The AO found that the creditor had not filed an income tax return, the bank account was opened solely for giving unsecured loans, no loan repayment was made, and no interest was charged. The AO concluded that the assessee failed to prove identity, genuineness, and creditworthiness, leading to the addition. The CIT(A) upheld the AO's decision, emphasizing the lack of evidence regarding the creditor's income-earning activities and incomplete address details in the account confirmation. The CIT(A) relied on legal precedents to support the decision.

Issue 2: Assessee's Defense
The assessee provided documents including account confirmation, bank passbook, and PAN card to prove the loan's legitimacy. The account confirmation was signed by the creditor, contained full address and PAN details, while the bank passbook showed the loan amount was given from received funds. The assessee argued that the creditor's income tax return status was not relevant, citing a jurisdictional High Court decision. The assessee contended that the AO failed to conduct necessary inquiries despite the submitted documents, as highlighted in a Delhi High Court decision.

Issue 3: Judicial Analysis and Decision
The Tribunal analyzed the documents submitted by the assessee and found the identity, creditworthiness, and genuineness of the loan were adequately proven. The bank passbook demonstrated the loan was given through banking channels, and the absence of interest payments was supported by the account confirmation. The Tribunal criticized the AO's lack of inquiry and reliance on presumptions, citing legal precedents to support the decision. The Tribunal concluded that the addition made by the lower authorities was unsustainable and ordered its deletion, ultimately allowing the assessee's appeal.

In conclusion, the Tribunal ruled in favor of the assessee, deleting the addition of the unexplained unsecured loan based on the satisfactory evidence provided and the AO's failure to conduct proper inquiries.