2024 (6) TMI 458 - AT - Income Tax

Unexplained loan transaction/advances - Onus of proof - assessee has failed to give any cogent explanation as to the source of loan advanced to Shri Vaibhav Chordia and also mentioned in his order that the assessee had not been able to rebut the observations/ findings of the AO that these persons do not appear as debtors as on 31-03-2023 - HELD THAT - The business of the assessee is providing safety deposit services and vaults services. Basic service of the income is locker rent from customers and interest on bank deposit. The proceedings u/s. 148 of the Act were initiated on the ground that the assessee asessee had given a Loan Advance (wrongly referred as debtors) of Rs. 18,01,000/- to its Director Shri Vaibhav Chordia and the source of the same is not explained. Subsequently the AO made an addition of Rs. 18,01,000/- in the hands of the company. It is noticed from the available record that the assesse had given advanced to the above mentioned persons which was received back from them through account payee cheques. The confirmation copies of refund of advances are available at pages 27-30 of the paper book and the all these persons are income tax assessee having PAN. It may be noted that opening balances are reflected in the audited balance sheet of the company from year to year. As imperative to mention that AO had the powers u/s 133(6) to call these four persons to enquire into the matter and also recording the matter but it has not been done by the AO.We have also seen from the records that assessee vide his letter dated 19-12-2016 made a specific request to the AO to issue to these persons but it was not done. Assessee has discharged his burden of proof by the submitting the PAN and confirmation of the persons to whom advances have been given. As decided in Orissa Corporation Pvt. Ltd., 1986 (3) TMI 3 - SUPREME COURT Without issuing summons u/s 131 to a party who filed confirmation, no adverse inference can be drawn by the AO. In the light of the facts and circumstances of the case addition made by the AO and sustained by the CIT(A) deserves to be deleted. Assessee appeal allowed.

Summary

Issues Involved:
1. Confirmation of addition of Rs. 18,01,000/-.
2. Failure to prove the genuineness of transactions and creditworthiness of parties.
3. Non-compliance with procedural requirements by the Assessing Officer (AO).

Summary:

Issue 1: Confirmation of Addition of Rs. 18,01,000/-

The assessee filed an appeal against the order of the CIT(A), Jaipur, confirming the addition of Rs. 18,01,000/- received from four individuals. The assessee argued that these individuals were debtors of the company, and the amounts were received back through account payee cheques. The AO, however, treated the amount as unexplained income, as the assessee failed to produce the individuals for examination and did not provide sufficient evidence to prove the genuineness and creditworthiness of the transactions.

Issue 2: Failure to Prove Genuineness and Creditworthiness

The AO issued a notice u/s 142(1) and a show cause notice asking the assessee to file the source of the loan. The assessee's submission was not accepted by the AO, who noted that merely filing confirmation of the parties was insufficient. The AO added Rs. 18.01 lacs to the total income, observing that the assessee failed to explain the nature of credit entries and business relevancy. The CIT(A) upheld this addition, stating that the assessee failed to provide cogent explanations and evidence during both assessment and appellate proceedings.

Issue 3: Non-Compliance with Procedural Requirements by AO

The assessee contended that the AO did not issue summons u/s 131 or notices u/s 133(6) to the concerned parties despite a specific request. The Tribunal noted that the assessee had discharged its burden by submitting PAN and confirmation copies of the accounts. The Tribunal emphasized that the AO had the power to summon the parties but failed to do so.

Conclusion:

The Tribunal, referring to the decision in the case of M/s. Suraj Stones Corporation Ltd. vs ITO, found that the assessee had satisfactorily explained the credits in question. The Tribunal held that the addition made by the AO and sustained by the CIT(A) was based on surmises and conjectures without issuing necessary summons to the confirming parties. Consequently, the appeal of the assessee was allowed, and the addition of Rs. 18.01 lacs was deleted.

Order:

The appeal of the assessee is allowed. Order pronounced in the open court on 18/01/2024.