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2024 (5) TMI 740 - AT - Income TaxAddition u/s 68 - Creditworthiness of the Loan Lender - Genuineness of the Transaction - according to the CIT(A) the genuineness of the transaction and creditworthiness of the loan lender has not been proved by the assessee - HELD THAT - We are of the opinion that in the instant case the creditworthiness of the loan lender Mr. Patel has not been conclusively proved. Full enquiry could not be done by the AO regarding genuineness of the transactions and the creditworthiness of the lender, in absence of all documentary evidences before him. However, in view of the fact that the major part of the loan amount has remained unpaid till date, approximately seven years after receiving the loan (as per written submission of the Ld AR), it would be logical to conclude that the assessee and the loan creditor, are still connected with each other, and for all practical purpose the assessee should be still in a position to seek his cooperation, to establish the financial capacity of the loan creditor by obtaining and furnishing all necessary documents , like copies of the creditors tax returns in the country of his residence, bank statement containing full particulars with names. bank name, bank code, or any other papers and documents thought fit to establish the capacity of the loan creditor to advance the loan. Respectfully, enlightened by the observation of the Hon ble jurisdictional High Court,in Tirath Ram Gupta 2006 (9) TMI 166 - PUNJAB AND HARYANA HIGH COURT Jaspal Singh 2006 (9) TMI 143 - PUNJAB AND HARYANA HIGH COURT and Kiran Bala 2014 (5) TMI 968 - PUNJAB HARYANA HIGH COURT we deem it fit and proper, that principles of natural justice would be served , if the matter is set aside to the file of the AO for examining the credit worthiness of the unsecured loan amount and the assessee shall furnish all necessary documents and evidences, as per provisions of law before the AO to establish the authenticity and creditworthiness of the loan creditor. Needless to say, the assessee should be allowed reasonable and proper opportunity in set aside proceedings, of being heard and for submission of all supporting documentary evidences required for establishing his case. Appeal of the assessee is allowed for statistical purposes.
Issues Involved:
1. Legality of the CIT(A) order dated 22.12.2023. 2. Confirmation of AO's action in framing the assessment u/s 143(3) r.w.s. 263 read with section 144B. 3. Addition of Rs. 51,01,811 u/s 68 as unexplained credit. 4. Right to modify grounds of appeal. Summary: Issue 1: Legality of the CIT(A) Order The appellant contended that the CIT(A) order dated 22.12.2023 was against the law and facts of the case. The Tribunal examined the procedural aspects and found no procedural irregularities in the CIT(A) order. Issue 2: Confirmation of AO's Action The appellant argued that the AO erred in law and facts by framing the assessment order u/s 143(3) r.w.s. 263 read with section 144B without complying with mandatory conditions. The Tribunal noted that the PCIT had assumed jurisdiction u/s 263 and directed the AO to verify the fresh introduction of capital amounting to Rs. 1,12,40,519/-. The AO, after verification, found the identity, genuineness, and creditworthiness of a loan from Mr. Sailesh Patel unproved, leading to an addition of Rs. 51,01,811/- u/s 68. Issue 3: Addition of Rs. 51,01,811 u/s 68 The appellant claimed the addition was unjustified as the identity and movement of funds were established. The Tribunal observed that while the identity of the lender and the movement of funds were proved, the creditworthiness of the lender was not established. The Tribunal cited various judgments, including those of the Punjab and Haryana High Court, emphasizing that mere identification and movement of funds are insufficient without proving the lender's creditworthiness. The Tribunal found that the appellant failed to provide comprehensive bank statements, tax returns, or other documents to prove the lender's financial capacity. Issue 4: Right to Modify Grounds of Appeal The appellant reserved the right to add, modify, amend, or delete any grounds of appeal. The Tribunal allowed the appellant to furnish all necessary documents and evidence to establish the authenticity and creditworthiness of the loan creditor in the set-aside proceedings. Conclusion: The Tribunal set aside the matter to the file of the AO for re-examination of the creditworthiness of the loan amount of Rs. 51,01,811/-. The appellant was directed to provide all necessary documents and evidence to establish the lender's financial capacity. The appeal was allowed for statistical purposes, ensuring the principles of natural justice were served.
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