2014 (5) TMI 549 - AT - Income Tax

Unexplained credits Creditworthiness of creditors not proved Held that - The assessee has not only produced confirmation letter of the creditor Mr. Mohd. Abdul Khuddus confirming loan of Rs. 10 lakhs but the loan transaction was through banking channel - Assessee has also furnished income tax assessment particulars of the creditor - in respect of loan of Rs.2,00,000/- from Mr. Faizuddin also assessee has furnished confirmation from the creditor - the assessee having discharged the initial burden cast upon him to prove the genuineness of loan transaction by identifying the creditors, furnishing evidence with respect to their creditworthiness - the burden shifts to the AO to prove that loan is not genuine, either because creditors are not identifiable or they do not have creditworthiness - From the assessment order it is clear that the AO has not done any such exercise to establish on record that the credits are unexplained thus, there is no reason to interfere with the finding of the CIT(A) Decided against Revenue.

Summary

Issues:
1. Addition of Rs. 12 lakhs towards unexplained credits due to lack of creditworthiness of creditors.

Analysis:
The appeal was filed against the Order of the CIT(A)-VI, Hyderabad for the A.Y. 2008-09 as the department challenged the deletion of Rs. 12 lakhs added as unexplained credits. The assessee, engaged in civil contract work and consultancy services, had investments in partnership firms. The AO reopened assessment due to discrepancies in agricultural income disclosures by the firms and partners. The AO disbelieved the explanation for investments in firms and added Rs. 12 lakhs as unexplained investment to the assessee's income. The CIT(A) deleted this addition based on the explanation provided by the assessee regarding loans obtained from creditors.

The assessee explained that a portion of the investments was made using loans from specific individuals and from own sources. The AO accepted one loan but treated the remaining amount as unexplained. During the appeal, the assessee clarified that a loan of Rs. 10 lakhs was from a different creditor than previously indicated. The CIT(A) sought a remand report and, based on the submissions and evidence, found the loans explained and deleted the Rs. 12 lakhs addition. The creditor confirmations and banking transactions supported the genuineness of the loans.

The Tribunal noted that the assessee had provided creditor confirmations and banking details, shifting the burden to the AO to prove the loans' lack of genuineness. However, the AO failed to establish the loans as unexplained, leading to the dismissal of the Revenue's appeal. The Tribunal upheld the CIT(A)'s decision, emphasizing the importance of establishing the genuineness and creditworthiness of creditors in such cases. The appeal of the Revenue was ultimately dismissed, affirming the deletion of the Rs. 12 lakhs addition as unexplained credits.