2014 (5) TMI 619 - AT - Income Tax

Deletion made u/s 68 of the Act Unsecured loan Held that - CIT (A) has found that the identity of the lenders in the cases of Shri Deepak Gupta, Ms Reena Jain and Shri Sunil Kumar Jain, HUF, stood established - the assessee had filed copies of their income-tax returns along with their confirmed account statements before the AO - documents could have been directly called for by the AO, which was not done - no suspicion or unnatural cash deposits were there - CIT (A) found substantial transactions to exist in most of the bank accounts of the lenders, from which, the credit worthiness of the lenders was available - when the AO had issued summons u/s 131 of the Act to M/s Arhan Commercial Corporation, M/s Kiran Enterprises and M/s Unnati Enterprises, the parties presented themselves for personal verification before the AO - Their income-tax returns, PANs, confirmations and bank statements, etc., were duly furnished. The AO had taken the amounts as unexplained only because their confirmations, ITRs and bank statements had been posted from the nearest Speed Post centre, the confirmations were in the same hand and they contained similar/same recitals, which was not possible - the factum of the assessee having duly identified the lenders and that of the assessee having proved the loans to be genuine, by filing the primary details before the AO, was nowhere rebutted by the AO - The contents of the confirmations issued by the creditors and their bank statements also remained unquestioned by the AO - the factum of the assessee having deducted TDS on the interest of the loans and having repaid the loans also remains undisputed - the addition made by the AO was made only on the basis of suspicion and nothing else - CIT (A) has correctly deleted the additions Decided against Revenue.

Summary

Issues:
Appeal against deletion of addition of unsecured loans under section 68 of the IT Act for Assessment Year 2007-08.

Analysis:
1. The appellant, engaged in trading, received unsecured loans during the year under consideration. The Assessing Officer (AO) added Rs. 32,25,000 under section 68 of the IT Act due to failure in establishing the source of these loans.
2. The appellant submitted confirmations, income tax returns, and bank statements of creditors to establish identity and genuineness, except for a few creditors. The AO issued summons for personal verification, but creditors did not attend.
3. The AO considered the appellant's submissions but found the burden of proof not discharged for specific loans. The AO called witnesses under section 131 of the IT Act to examine the matter further.
4. The AO noted missing bank statements for some creditors and made the addition of Rs. 32,25,000 based on suspicion.
5. The Commissioner of Income Tax (Appeals) deleted the additions, leading to the department's appeal. The department argued that the appellant failed to establish creditworthiness and genuineness of parties.
6. The appellant contended that loans were for business purposes, supported by documents like confirmations, PANs, ITRs, and bank statements. The appellant also highlighted proper interest payments and transactions through cheques.
7. Upon review, it was found that the identity of some lenders was established through filed documents, which the AO did not disprove. Loans were repaid with TDS and interest, and substantial transactions existed in lenders' bank accounts.
8. The AO's additions were deemed baseless and made on suspicion only. The Commissioner's decision to delete the additions was upheld, rejecting the department's appeal.

This judgment clarifies the burden of proof on the assessee regarding unsecured loans under section 68 of the IT Act, emphasizing the importance of establishing the source of funds. It also highlights the significance of providing necessary documentation to prove the genuineness of transactions and creditworthiness of parties involved.