2015 (9) TMI 1171 - AT - Income Tax

Addition u/s 68 - Held that - Keeping in view that the transactions are through banking channels and there is no material on record to prove the contrary, have no hesitation in holding that the assessee had discharged the burden of proving the genuineness of the cash credit. Under the law, the amount cannot be treated as the income from undisclosed sources of the assessee, when there is neither direct nor circumstantial evidence on record to hold that the said amount actually belonged to or was owned by the assessee. As regards the creditworthiness of the lender, the Assessing Officer admitted that the assessee had submitted a copy of I.T.R. filed in U.S.A. by Shri Susheel Shukla for the period 1.1.2004 to 31.12.2004 relevant to assessment year 2004, wherein annual income of 22,201 U.S. Dollar had been declared. A copy of return is available in assessment records of the assessee, which was produced during the course of proceedings before this Bench. It is relevant to observe here that both the authorities below have not questioned this document i.e. I.T.R. submitted by Shri Susheel Shukla. The officer who has framed the assessment of the assessee is Assessing Officer as well as Investigating Officer. He has not given any comments as regards the genuineness of the I.T.R. filed by Shri Susheel Shukla. The learned CIT (Appeals) has also not offered his views on this document. Thus, it can be concluded that the Revenue has accepted this document as genuine. In this return Shri Susheel Shukla has declared annual income of 22,201 U.S. Dollars for the year 2004. The source of income is shown from wages, salary, tips, etc. As per the said return, Shri Susheel Shukla was employed with firm namely V Paul Associates INC 1010 Rockville Pike Suit 206, Rockville MD 20852. Employers EIN No. is 52-178748 and Phone No. is 301- 315-9172. As per the said return the total tax to be paid was 1,784 U.S. Dollars. There is no dispute that Shri Susheel Shukla was residing in U.S.A. since long. Considering the above, financial capacity of the lender to pay 10,000 U.S. Dollars cannot be doubted. In view of the decision of Hon ble Gauhati High Court in the case of Nemi Chand Kothari v. CIT 2003 (9) TMI 62 - GAUHATI High Court a creditor s creditworthiness has to be judged vis- -vis transaction, which has taken place between the assessee and the creditor and, it is not the business of the assessee to find out the source of money of his creditor or genuineness of the transaction. Thus no addition is required to be made in the hands of the assessee under section 68 of the Act - Decided in favour of assesse.

Summary

Issues Involved:

1. Addition of Rs. 4,25,000/- under section 68 of the Income-tax Act, 1961.
2. Identity, creditworthiness of the lender, and genuineness of the transaction.

Issue-wise Detailed Analysis:

1. Addition of Rs. 4,25,000/- under section 68 of the Income-tax Act, 1961:
The core issue revolves around the addition of Rs. 4,25,000/- made by the Assessing Officer (AO) under section 68 of the Income-tax Act, 1961. The assessee had shown this amount as an unsecured loan from an NRI, Shri Susheel Shukla, in their books of account for the assessment year 2005-06. The AO required the assessee to prove the genuineness of the transaction and the financial capacity of the lender. The assessee provided a photocopy of the NRE account maintained with Centurion Bank of Punjab, showing the credit of the amount on 18.5.2004. However, the AO noted that the lender's account had a nil balance as on 1.4.2004 and questioned the source of the funds credited on 18.5.2004. Due to the lack of confirmation from the lender and insufficient evidence regarding the lender's financial capacity, the AO added the amount to the assessee's income under section 68. This addition was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)], leading to the appeal before the Tribunal.

2. Identity, creditworthiness of the lender, and genuineness of the transaction:
The Tribunal analyzed whether the assessee had discharged the burden of proving the identity, creditworthiness of the lender, and genuineness of the transaction as required under section 68. The Tribunal noted that the identity of the lender, Shri Susheel Shukla, was not in dispute. The lender was an NRI with an NRE account in Centurion Bank of Punjab. The assessee produced several documents, including a certificate from HDFC Bank (which had merged with Centurion Bank of Punjab), confirming the transfer of Rs. 4,25,000/- from the lender's NRE account to the assessee's account, and an affidavit from the lender attested by a Notary Public in the USA.

The Tribunal observed that the lender's NRE account was credited with Rs. 4,48,829/- on 18.5.2004 from abroad, which was used to advance the loan to the assessee. The assessee also provided the lender's income tax return for the year 2004, showing an annual income of 22,201 US Dollars, and details of the lender's employment in the USA. The Tribunal found that the AO's objection regarding the absence of the lender's bank account in the country of residence was irrelevant, as the remittance from abroad was certified by the bank. The Tribunal also referred to the Hon'ble Gauhati High Court's decision in Nemi Chand Kothari v. CIT, which held that the creditworthiness of a creditor should be judged vis-`a-vis the transaction with the assessee and not the source of the creditor's funds.

Based on the evidence provided, the Tribunal concluded that the assessee had satisfactorily discharged the burden of proving the genuineness of the transaction and the creditworthiness of the lender. The Tribunal held that the addition of Rs. 4,25,000/- under section 68 was not justified and deleted the addition.

Conclusion:
The Tribunal allowed the appeal of the assessee, concluding that the assessee had discharged the burden of proving the genuineness of the transaction and the creditworthiness of the lender. The addition of Rs. 4,25,000/- under section 68 was deleted. The order was pronounced in the open court on 14th July 2015.