2022 (12) TMI 1268 - AT - Income Tax

Unsecured loans - assessee is not able to prove loans taken from certain persons and thus, out of unsecured loans - HELD THAT - Assessee has satisfactorily explained the identity, genuineness of transaction and creditworthiness of loan creditors. AO without appreciating the fact simply made additions to part of loan taken from creditors, even though, he has accepted the fact that the assessee has filed all evidences to prove identity of the creditors. It is a well settled principle of law by the decision of various courts, including the decision in the case of CIT v. Lovely Exports Pvt. Ltd. 2008 (1) TMI 575 - SC ORDER that once name and address of creditors are furnished to the AO, then, it for the AO to proceed in accordance with law to re-open the assessment of creditors, but sum received from creditors cannot be regarded as unexplained credit/ income of the assessee. In this case, the assessee has furnished all evidences to prove the identity of creditors and also satisfactorily explained the genuineness of transactions and creditworthiness of creditors. Therefore, we are of the considered view that the AO is erred in making additions towards unsecured loans from 7 parties and thus, we direct the AO to delete the additions made towards loans.Appeal filed by the assessee is allowed.

Summary

Issues:
Assessment of unsecured loans, Creditworthiness and genuineness of transactions, Penalty proceedings under section 271(1)(c).

Assessment of unsecured loans:
The appeal was against the order of the Commissioner of Income Tax (Appeals) pertaining to the assessment year 2013-14. The assessee had received unsecured loans from various individuals, and the Assessing Officer (AO) made additions to the total income of the assessee based on discrepancies in establishing the creditworthiness and genuineness of the transactions. The AO found that the assessee failed to prove loans taken from certain individuals, leading to additions of Rs. 79,90,000 out of the total unsecured loans of Rs. 1,17,90,000. The AO considered statements from loan creditors and concluded that the assessee could not fully establish the creditworthiness and genuineness of the transactions.

Creditworthiness and genuineness of transactions:
The AO highlighted specific instances where loans were obtained under questionable circumstances, such as gold loans not matching bank details, loans from family members of deceased individuals without proper documentation, and loans from individuals with questionable financial capacity. The AO treated unexplained loan amounts from seven individuals as income from other sources. The Commissioner of Income Tax (Appeals) upheld the AO's decision, rejecting the assessee's arguments and confirming the additions made towards unsecured loans. The assessee argued that all loans were obtained through proper banking channels and provided evidence to support the transactions. The Tribunal reviewed the evidence and found that the assessee had satisfactorily explained the identity, genuineness of transactions, and creditworthiness of the loan creditors, contrary to the AO's findings. The Tribunal cited legal precedents to support its decision and directed the AO to delete the additions made towards the loans.

Penalty proceedings under section 271(1)(c):
The AO initiated penalty proceedings under section 271(1)(c) due to the assessee's alleged concealment of income. However, the Tribunal's decision to delete the additions made towards the unsecured loans implied that the penalty proceedings were not warranted, as the loans were deemed explained and genuine. The appeal filed by the assessee was allowed, overturning the decisions of the lower authorities.