Failure of AO to issue summons u/s 131(1) on request of assessee to discharge his onus is fatal

Failure of AO to issue summons u/s 131(1) on request of assessee in order to enable him to discharge his prima facie onus is fatal to the assessment proceedings

ABCAUS Case Law Citation:
ABCAUS 3130 (2019) (08) ITAT

Important case law relied upon by the parties:

(a) Sona Electric Co. vs. CIT (1984) 152 ITR 507 (Del.) (b) Aravali Trading Co. vs. ITO (2008) 8 DTR (Raj.) 199 (c) Kanhaialal Jangid vs. ACIT (2008) 217 CTR (Raj.) 354 (d) CIT Vs Diamond Products Limited (2009) 177 Taxman 331 (Del) (e) Sargoi Credit Corporation vs. CIT (1976) 103 ITR 344 (Pat.) (f) Meghaji Narain& Co. vs. ITO (1990) 37 TTJ (Ind.) 624 (g) CIT vs. Daulatram Rawatmal (1973) 87 ITR 349 (SC) (h) Kishan Chand Chelaram vs. CIT (1980) 125 ITR 713 (S.C.) (i) CIT Vs. Ranchhod Jivabhai Nakhava in Appeal No. 50 of 2011 (Guj. H.C) (j) CIT Vs. M/s. Dataware (P) Limited in ITAT No. 263 of 2011 GA No. 2856 of 2011 (Calcutta High Court) (k) Munnalal Murli Dhar Vs CIT (1971) 79 ITR 540 (All.)

In the instant appeal, the assessee inter alia challenged the action of the CIT(A) in sustaining addition under section 68 of the Income Tax Act, 1961 (the Act). The Assessing Officer (AO) had made the addition on account of his finding that the loan creditor had no capacity and creditworthiness to advance the sum of Rs. 3 crores to the assessee and the same was unexplained cash credit assessable in the hands of the assessee under section 68 of the Act.  

During the year assesse had received a sum of Rs. 3 crores towards advance against property from one private limited company. Before the Assessing officer, assessee submitted copy of agreement along with confirmation and requested the Assessing officer that personal financial records pertaining to the creditor such as its ITR and bank statement may be obtained from the party directly.

The Assessing officer acceding to the request of the assessee issued notice u/s 133(6) of the Act, obtained such details from the party. However, the AO held that the transaction did not appear to be genuine and made the addition of said amount to the income of the assesse.

Before the Tribunal the assessee submitted when the CIT(A) had remitted the evidences furnished to the AO, request was also made to issue summons under section 131(1) of the Act to examine the creditor as by that time had repaid the advance and it was under these circumstances that the assessee requested for issue of summons but no attempt was made to examine the creditor.

The Tribunal noted that as per notices issued u/s 142(1), the assessee was only required to furnish details and confirmation, ITR and Bank Statement of the creditor and failing which assessee was apprised that addition under section 68 will be made.

The Tribunal further noted that before making of the assessment the Assessing officer was in receipt of confirmation, Income Tax Return and Bank Statement of the creditor on his records and there was no question remaining to be complied by the assessee. The confirmation and Bank Statement were furnished by the assessee and AO issued notice u/s 133(6) of the Act to creditor and obtained details directly from creditor. The return of Income was also obtained from the System of the Department. Thus, after having primary evidences on records of the Department confirming the advance received by the assessee the burden got shifted to the revenue to prove that the confirmation is not genuine.

The AO in the assessment order had noted that creditor had no means to have advanced such credit, the Agreement was undated, unnotarized and unregistered in respect of property to be purchased in future and was not held by the assessee and that the Assessee was a Contractor not a builder. According to the AO, all these facts proved that it was not a genuine business advance.

However, the Tribunal found that no query of such nature was issued on the basis of which addition is made and sustained. Assessee was never put to notice in respect of grounds adopted for making the addition assessee was never called upon to prove the creditworthiness of the creditor. None of the point of objection on which Agreement was discarded was neither conveyed to the assessee nor was his explanation sought in this regard. No enquiry was made from the creditor in respect of points of doubts entertained by the learned Assessing officer. Therefore, the addition was based on considerations on which the Assessing officer never sought explanation from the assessee. Such an approach on part of the authorities below could not be appreciated in law.

The Tribunal further observed that on the scope of section 68 various High Court had held as under:

Delhi High Court

section 68 makes it clear that the entry can be rejected and the explanation offered by the assessee can be rejected by the ITO on cogent grounds. When such grounds are them self-based on no evidence the question of presumption does not arise.

Rajasthan High Court


once the existence of the creditors is proved and such persons own the credits which are found in the books of the assessee, at the assessee’s onus stands discharged and the latter is not further required to prove the source from which the creditors could have acquired the money deposited with him either in terms of s. 68 or on general principle

Rajasthan High Court


while it was the assessee’s burden to furnish explanation relating to such cash credits, the assessee’s burden does not extend beyond proving the existence of the creditor and further proving that such creditor owns to have advanced the amount credited in the account of assessee to him

Calcutta High Court

the Assessing officer of the assessee cannot take the burden of assessing the profit and loss account of the creditor when admittedly the creditor himself is an income tax assessee. After getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence. So long it is not established that the return submitted by the creditor has been rejected by its Assessing Officer, the Assessing officer of the assessee is bound to accept the same as genuine when the identity of the creditor and the genuineness of transaction through account payee cheque has been established.

The Tribunal pointed out that it is trite law in view of section 68 of the Act which creates a deeming fiction and which requires the assessee to prima-facie prove the three ingredients of the said section.

(a) Identity of the Person

(b) Genuineness of the transaction and

(c) Creditworthiness of the Creditor   

The Tribunal opined that in terms of evidences available on records, identity of the Company who had advanced money to the assessee was proved beyond doubt as it was a body corporate and filing its Income Tax Return which was downloaded by the Assessing officer on his own from the system. The genuineness of the transaction was proved from the amount received from the party was duly reflected in the audited accounts of the assessee. Assessee during the course of assessment proceedings had furnished confirmation duly signed by the Director of the Company who had made the advance to the assessee. Even in enquiry undertaken under section 133(6) of the Act, it was not denied by the creditor.

The Tribunal opined that even if the agreement was excluded for the purpose of consideration, the fact remained that amount was received and confirmed by the creditor. Thus, no material was brought on records on either of the two occasions by the Assessing officer and also by the first appellate authority to impeach the genuineness of the transaction except referring to the terms which were based on unilaterally drawn presumptions without confronting the assessee and therefore, had to be excluded for the purpose of consideration of merits of the addition.

The Tribunal further noted that in order to establish the creditworthiness of the company, the assessee had produced the audited balance sheet of the company. The AO and the CIT(A) had grossly erred in taking adverse view by altogether ignoring the creditworthiness of the company and the fact that its balance sheet disclosed advances of Rs. 5.50 crore towards land.

Failure of AO to issue summons u/s 131(1) on request of assessee is fatal

The Tribunal stated that if the authorities below entertained any doubt and required clarification with regard to any of the affair of the creditor in that eventuality summons under section 131(1) could have been issued which despite request made by the assessee was not issued. Failure to issue summons under section 131(1) on the request of the assessee in order to enable him to discharge his prima facie onus is fatal to the proceedings. Without such request, there was no duty cast on the Assessing Officer to issue summons under section 131, unless the Assessing Officer on its own deems it proper to do so. But as soon a request is made, it becomes incumbent on the Assessing Officer to issue such summons in order to enable the assessee to avail of such opportunity. After such issuance of summons, if those were not responded to or returned without service, the Assessing Officer was free to take his own decision as he may deem fit and proper.

The Tribunal found that such action of the authorities below was in direct conflict with the principles of law laid down by the Hon’ble Allahabad High Court wherein it was held that failure to issue summons for attendance or witnesses vitiated the assessment.

Thus, the Tribunal opined that the assessee had discharged his onus in the matter. None of the evidence furnished by the assessee had been found to be nongenuine and the evidence had been discarded on the basis of conjectures and hypothesis only. There was nothing in the matter to apply the test of preponderance and probabilities.

The Tribunal noted that the assessee in fact had made request both at assessment stage as well as appellate stage for examination of the party, but his request was not acceded to without assigning any reason, much less for valid and convincing reason.

The Tribunal opined that the assessee could not be punished merely for the reason that advance was received in cash whereas he could do so under the law, prevailing at that time and therefore, the transaction was fully in accordance with the law. The transaction was duly disclosed in the Audited Balance Sheet.

The Tribunal held that in the totality of facts and in the circumstances of the case the assessee had sufficiently discharged the burden which lay upon it in terms of section 68 of the Act and no evidence had been brought on records to prove that the amount of Rs. 3 crores represented undisclosed money of the assessee.

Accordingly, the Tribunal deleted the impugned addition.

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