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2015 (12) TMI 1291 - HC - Income TaxAddition u/s 68 - Held that - As far as the present case is concerned, the Assessee has indeed discharged its onus of proving the creditworthiness and genuineness of the lender (TIL). There was no requirement in law for the Assessee to prove the genuineness and credit worthiness of the sub-creditor, which is in this case was TCL. - Decided in favour of the Assessee
Issues Involved:
1. Interpretation and application of Section 68 of the Income Tax Act, 1961. 2. Examination of the creditworthiness of M/s. Tuq Credits Ltd. and genuineness of the transaction. 3. Evaluation of the ITAT's order in light of the Assessing Officer's findings. Detailed Analysis: Issue 1: Interpretation and Application of Section 68 of the Income Tax Act, 1961 The Revenue appealed against the ITAT's decision to delete additions made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961. The AO had treated Rs. 38 lakhs as unexplained income and disallowed Rs. 1,01,007 as interest payable on the said loan, questioning the genuineness of the transactions and the creditworthiness of the lender, M/s. Tuq Credits Ltd. (TCL). The ITAT upheld the deletion of these additions, which was contested by the Revenue. Issue 2: Examination of the Creditworthiness of M/s. Tuq Credits Ltd. and Genuineness of the Transaction The AO had doubts about the creditworthiness of Tom Investment Limited (TIL), which had lent money to the Assessee, as TIL had borrowed the amount from TCL. The AO's investigation revealed that TCL could not provide sufficient documentation to prove its creditworthiness, leading to the conclusion that the entire chain of lending and borrowing was bogus. However, the CIT (A) and ITAT found that the Assessee had provided adequate documentation, including confirmations from TIL, bank statements, and audited balance sheets. The ITAT also noted that the Department had accepted the genuineness of TIL's tax returns and the interest payments made by the Assessee. Issue 3: Evaluation of the ITAT's Order in Light of the Assessing Officer's Findings The ITAT dismissed the Revenue's appeal, emphasizing that the Assessee had discharged its onus of proving the identity, genuineness, and creditworthiness of the creditor (TIL). The ITAT referred to the decision in Mod. Creations Pvt. Ltd. v. Income Tax Officer, where it was held that the Assessee is not required to prove the genuineness of the transactions between the creditor and sub-creditors or the creditworthiness of the sub-creditors. The Court concurred with this view, stating that the Assessee had fulfilled its burden under Section 68 by providing sufficient evidence regarding the transactions with TIL. Conclusion: The Court upheld the ITAT's decision, affirming that the Assessee had adequately demonstrated the creditworthiness and genuineness of the lender (TIL). The Court clarified that the Assessee is not obligated to prove the creditworthiness of the sub-creditor (TCL). Consequently, the Court answered the framed questions in favor of the Assessee and dismissed the Revenue's appeal without any order as to costs.
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