Assessee not expected to prove the negative that he has not availed fictitious loan – ITAT
In a recent judgment, Chennai ITAT quashed revisionary proceedings u/s 263 holding that assessee cannot be expected to prove the negative that he has not availed fictitious loan in the absence of any entries in the books of accounts or bank account statement indicating any transaction related to accommodation entries.
ABCAUS Case Law Citation:
4371 (2025) (01) abcaus.in ITAT
Important Case Laws relied upon by Parties:
Malabar Industrial Co. Ltd. vs. CIT [2000]
L G Electronics India (P) Ltd. V. Principal Commissioner of Income-tax (SC)
In the instant case, the assessee had challenged the order passed by the CIT u/s 263 of the Income Tax Act (1961).
The appellant assessee was a company. After the assessment u/s 143(3) of the Act was completed, notice was issued u/s 148 of the Act on the information that assessee had received fictitious loan from another company and third person who was involved in NSEL scam.
The assessment was completed u/s 147 r.w.s. 144B of the Act by adding the amount of alleged fictitious loan received by the assessee from another company. Due to non-availability of any details or information on record with respect to the said third person, the AO proceeded to not to make any additions regarding alleged loan received from the said third person.
Thereafter, the PCIT initiated revisionary proceedings u/s 263 of the Act in order to examine the genuineness of loan received by the assessee from the third party.
The PCIT observed that as per the information available with the department, the assessee had loan transactions with another company and a third person. Further, the assessee itself had stated that the AO had duly communicated the reasons recorded for reopening containing the issue. It was the duty of the assessee to explain the loan transaction done by them during the financial year with evidences.
The PCIT noted that during the re-assessment proceedings, the assessee had denied loan transaction with the other company as well the third person. Thus, at the time of passing the assessment order, the entire loan transactions remained unexplained. However, the AO made addition in respect of the another company only.
The PCIT observed that after show cause, the Assessing Officer simply changed his stand added only amount related toanother company u/s 68 and did not make any addition in respect of the balance loan transactions without any evidence or explanation from the assessee. The Assessing Officer ought to have obtained from the assessee, explanation / reply regarding the identity genuineness and credit worthiness of loan transaction and more importantly the genuineness of the transactions in respect of the loan from the third person and instead condensing the amount of addition than what was communicated to the assessee through show cause notice is improper and therefore, the act of which is erroneous in so far as it is prejudicial to the interests of revenue.
The PCIT further observed that it was a well known fact that the said third person was involved in NSEL scam and many persons/entities were involved. When there is insight portal information available on record, it is the duty of the Assessing Officer to verify the loan transaction. The information was communicated in result of search operations u/s 132 which shall have concrete basis for the transactions and cannot be ignored without valid explanation.
The PCIT was of the view that the reassessment order passed u/s.147 r.w.s.144B of the Act was erroneous and prejudicial to the interest of Revenue in terms of clause (a) of Explanation 2 under sub-section (1) of section 263 of the Act.
In response to the show-cause notice issued by the PCIT, the assessee filed its written submissions. However, the objections of the assessee were rejected and PCIT passed the impugned order by setting aside the reassessment order and directing the AO to make necessary enquiries into unsecured loan received from third party and pass such orders after giving due opportunity of being heard to the assessee.
Before the Tribunal, the assessee submitted that the revisionary proceedings without any fresh material was legally not justifiable and needed to be quashed. It was submitted that during the course of reassessment proceedings, the assessee had denied any knowledge of loan taken from the said third person and had requested the AO to furnish the details if any available to prove the assessee had availed the loan. Since the AO could not produce the necessary details, the reopening of assessment was concluded without making any additions on account of so called fictitious loan.
It was further submitted that the PCIT in the revisionary order had not stated anywhere that he was in possession of certain material that assessee had availed the afore mentioned fictitious loan and therefore, the assessment needs to be redone. It was submitted that the assessee cannot be expected to prove the negative that he had not availed afore mentioned fictitious loan since the assessee had totally denied having received the loan.
The Tribunal observed that though the AO had not discussed in detail in the reassessment order about the reply and documents filed by the assessee, it is a matter on record that assessee had produced all the details as well as books of accounts and bank account statements to show that no such entry was reflected in the books of accounts or in the bank account statement of the assessee.
The Tribunal opined that the PCIT for initiating proceedings u/s 263 of the Act ought to have brought on record some material to reflect that assessee had actually received said accommodation entries. The assessee’s books of accounts were properly maintained and duly audited u/s 44AB of the Act. Neither the AO nor the PCIT had found any entry in the books of accounts of the assessee in respect of these alleged accommodation entries nor from the bank statement of the assessee that assessee had received any sum from third person. Therefore, in the absence of any entries in the books of accounts or bank account statement indicating any transaction between assessee and third person, the invocation of revisionary proceedings u/s 263 of the Act merely on suspicion was not legally tenable.
The Tribunal held that when the books of accounts were audited and placed before the AO as well as before the PCIT, the AO or PCIT ought to have brought on record some tangible material to show that assessee company had actually received the amount. In other words, the assessee cannot be expected to prove negative.
Accordingly, the Tribunal quashed the order of PCIT passed u/s 263 of the Act the appeal was allowed.
Download Full Judgment Click Here >>
- Revisionary order u/s 263 quashed as no discussion was made on assessee’s submission
- ICAI defers applicability of Peer Review Mandate for CA Firms covered under Phase III & IV
- No delay in filing appeal as CPC intimation u/s 143(1) received on email after 30 days
- CBDT issues clarification on applicability of DTVSVS-2024 where appeal time was available
- No revision u/s 263 when assessment made after obtaining approval of the Range Head
