Non-filing ITRs by lenders give rise to suspicion but not sufficient to draw inference against assessee

Non-filing of ITRs by lenders can give rise to suspicion for the lack of creditworthiness but not sufficient to draw inference against assessee

ABCAUS Case Law Citation
ABCAUS 3437 (2021) (01) ITAT

Important case law relied upon by the parties:
CIT Vs. Chanakya Developers reported 43 taxmann.com 91

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the order of the Assessing Officer (AO) treating the unsecured loans taken as unexplained cash credit under section 68 of the Income Tax Act, 1961 (the Act).

The assessee company had taken loan from various parties. The AO during the assessment proceedings found that the assessee failed to establish the creditworthiness of the aforesaid parties on the basis of documentary evidence.

Accordingly, the AO treated the impugned amount of loan shown by the assessee as unexplained cash credit under section 68 of the Act and added it to the total income of the assessee.

Aggrieved assessee preferred an appeal to the CIT(A) who confirmed the order of the AO.

Before the Tribunal, the assessee contended that it had discharged its obligation by furnishing the necessary details such as confirmation, PAN, bank statement which satisfies the conditions imposed under section 68 of the Act. It was also submitted that the assessee is not supposed to justify the source of source in the hands of the parties.

The Tribunal observed that the initial onus is upon the assessee to establish three things necessary to obviate the mischief of Section 68 of the Act are identity of the investors; their creditworthiness/investments; and genuineness of the transaction.

The Tribunal stated that the departments exercise starts only when these three ingredients are established prima facie, by the assessee and  the department is required to investigate into the facts presented by the assessee.

The ITAT said that as per the statutory provision of Section 68 of the Act and jurisprudence of the Hon’ble Courts, it is clear that the primarily onus is on the assessee to discharge that the credit received by it is from the sources whose identity can be proved, the genuineness of the transaction and the creditworthiness of the creditor is proved by documentary evidence. If the assessee presents all these details during the assessment proceeding before the AO, the responsibility shifts to the AO to prove it wrong.  If AO accepts such evidences without proving it wrong, it can be said that assessee has discharged its onus. If AO presents some contrary evidences, the responsibility again shifts upon the assessee to rebut such contrary evidences.

The Tribunal noted that the assessee had discharged its primary onus by furnishing the necessary details such as copy of PAN, confirmation of the parties, Bank extracts etc. to support the transactions. Similarly, there was also no dispute to the fact that all the transactions were carried out through the banking channel. Thus, the inference that results from a cumulative consideration of all the facts was that the assessee had discharged its onus imposed under Section 68 of the Act.

The Tribunal opined that the details filed by the assessee was not cross verified by the Revenue from the respective parties despite having the necessary details in its possession. Thus, the Revenue could not go to hold the addition under Section 68 of the Act in the given facts and circumstances.

Further, the Tribunal stated that non-filing of returns of income by the lenders can give rise to the suspicion for the lack of creditworthiness but that is not sufficient enough to draw an inference against the assessee. As such in such situations, the AO should investigate the matter in detail before arriving at an opinion that the lenders did not had creditworthiness.

Accordingly, the Tribunal directed the AO to delete the impugned addition and allowed the appeal in favour of the assessee.

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