No addition on capacity ground if identity and genuineness of loan creditor is proved – ITAT

If identity and genuineness of loan transactions proved addition on capacity ground can be made only in the hands of investor-ITAT follows SC

The appellant assessee had preferred the instant appeal against the order of the CIT(A) in upholding the additions on account of unexplained loan u/s 68 of the Income tax Act, 1961 (the Act) made by the Assessing Officer (ITO/AO).

ABCAUS Case Law Citation:
ABCAUS 2336 (2018) (05) ITAT

The return of the assessee was processed u/s 143(1) of the Act at returned income. The case was selected for scrutiny for the reason the assessee had received unsecured loans from persons who had not filed return of income.

The AO noticed that the assessee had received unsecured loan from a party (loan creditor). However as revealed by the bank statement of the loan creditor, it was noted that he had deposited cash in his account on the same date he advanced unsecured loan to the assessee.

The AO asked the assessee to produce the loan creditor and also the details of source of cash deposited before giving loan to the assessee. However, no compliance was made and as a result, the AO concluded that the assessee had failed to prove the creditworthiness in respect the said loan to the extent of cash deposited.

The AO opined that the onus was on the assessee as required u/s 68 of the Act and the assessee failed to discharge the burden cast upon him in this respect. Hence, the AO made the addition of an amount equal to the cash deposited and assessed the income of the assessee accordingly u/s 143(3) of the Act.

The CIT(A) dismissed the appeal of the assessee by upholding the action of the AO.

The Tribunal observed that the assessee had filed copy of response submitted by the loan creditor; confirmed copy of account in the books of loan creditor, copy of the Income Tax Return of loan creditor alongwith Pan Card; copy of the bank statement of the loan creditor, etc. It was noted that those documents were before the AO as well as CIT(A), but they had not appreciated it properly.

The ITAT observed that there was no evidence with the income tax authorities directly or indirectly that assessee’s unaccounted cash had been routed in the bank account of the loan creditor and in the absence of such evidence, no addition could be sustained in the income of the assessee merely on suspicion and the identity of the shareholders and genuineness of transactions had been established by the assessee.

The Tribunal opined that at most in case of doubt about the capacity, the addition could have been made in the hands of loan creditor, as per principles laid down by the Hon’ble Supreme Court of India.

The Tribunal opined that as per the settled law, if the identity of the shareholders and genuineness of transactions had been established by the assessee, the addition could have been made in the hands of investors/shareholders. Therefore, the assessee had duly explained the source of money received and the assessee was not answerable for the source of money in the hands of investors, who had already died.

The ITAT deleted the addition

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