Once assessee discharges primary onus, it shifts to AO to bring evidence to contrary – ITAT

Once assessee discharges primary onus of providing basic documents in support of the identity, genuineness and the creditworthiness it shifts to AO to bring any evidence to the contrary – ITAT

In a recent judgment, ITAT has held that once the assessee discharges his primary onus of providing basic documents like Bank Statements, Confirmations of lenders, copies of ITRs, etc., in support of the identity, genuineness and the creditworthiness of the lending Companies, the onus would shift to the AO to bring any evidence to the contrary if the explanation of the assessee is to be disbelieved.

ABCAUS Case Law Citation:
5185 (2026) (07) abacus.in ITAT

A search and seizure action under section 132 of the Act was carried out on in the case of a Business Group and two and alleged entry providers. As per Investigation Wing, it was found that both persons were involved in providing various types of accommodation entries to large number of beneficiaries through non-descript entities managed and controlled by them.

During the course of search proceedings, books of account maintained in tally software were seized and it came to the knowledge of the Department that the assessee had also received money from alleged shell companies which were operated by the searched persons.

The assessee’s case was re-opened and the re-assessment of the assessee was completed under section 143(3) read with section 147 of the Act by making addition towards the amount of loans taken by the assessee from three parties treating them as unexplained cash credits under section 68 of the Income Tax Act, 1961 (the Act). Besides, the AO also added the interest paid by the assessee to all the said parties under section 69C of the Act. The AO also invoked the provisions of section 115BBE of the Act and initiated penalty proceedings under section 274 read with section 271AAC of the Act, separately.

The CIT(A) CIT(A) confirmed the reassessment order. Aggrieved, the assessee challenged it before the ITAT.

The assessee argued that there was no seized material with respect to the assessee or a specific nexus showing that the assessee was beneficiary of such accommodation entries. It was submitted that the re-assessment order was bad in law and were liable to be quashed because the re-opening was based on borrowed satisfaction, as the AO had simply adopted the conclusions of the Investigation Wing and had not formed any independent satisfaction prior to issuance of Notice for the purposes of re-assessment.

It was further argued that as far as the assessees are concerned, the assessees had fully discharged the onus cast upon them in terms of the provisions of section 68 of the Act, inasmuch as, the assessees had established the identity, genuineness as well as the creditworthiness of the Lender Companies by submitting ITR Acknowledgements, Audited Financial Statements, Bank Statements, Loan Confirmations, etc.

It was also submitted that all the three Lender Companies, were engaged in the regular business of granting loans and earning interest thereon and the loans advanced by them had subsequently been repaid to them and were in the normal course of lending transactions. 

It was contended that once the assessee had discharged the initial onus cast upon it, the onus shifts to the AO to bring evidence to the contrary before rejecting the submissions and explanations of the assessee.

The Tribunal observed that the assessees’ request for cross-examination of searched persons was denied by the AO by observing that the Department was not relying upon any oral submissions/statements and had independently co-related the seized material with books/bank accounts and, therefore, affected party did not have the right to demand cross examination.

The Tribunal noted that both the lower authorities proceeded to hold the impugned transactions as being accommodation entries for the sole reason of Investigation Wing report. However, the fact remained that there was no definite proof with the Department to suggest that the impugned transactions were bogus entries.  Further, the AO had not brought any evidence to the contrary to counter the claim of the assessee that the transactions of loans received by the assessees were not genuine.  

The Tribunal observed that the AO had completely disregarded the Bank Statements as well as Confirmations of the lenders.  The reason for not accepting the Confirmations filed by the lenders had not been specified.

The Tribunal further observed that all the impugned loans had been refunded by the assessee in the immediately succeeding assessment year along with interest due thereon after due deduction of tax at source.

The Tribunal noted that AO had observed that the preponderance of probability overwhelmingly suggested the intention of the assessee to indulge in deliberate wrongdoing through elaborate planning and meticulous execution by a whole gamut of stakeholders.  Apparently, the AO had proceeded to make the impugned additions just on some kind of premise that if the names of the lending Companies were appearing as accommodation entry providers in the Investigation Report of the Department, in all probability, the amounts lent by these Companies to the assessee-Companies were also in the form of accommodation entries.  

The Tribunal noted that Hon’ble Delhi High Court had downplayed the principle of preponderance of probability and has held that evidence produced by the assessee overpowers the principle of preponderance of probability.

The Tribunal opined that the approach of the AO was entirely based on some kind of suspicion and was not supported by any concrete evidence which had been brought on record by the AO to prove that the contention of the assessees was fallacious.

The Tribunal concurred with the argument of the assessee that once the assessees have discharged their primary onus of providing basic documents like Bank Statements, Confirmations of lenders, copies of ITRs, etc., in support of the identity, genuineness and the creditworthiness of the lending Companies, the onus would shift to the AO to bring any evidence to the contrary if the explanation of the assessee is to be disbelieved.

The Tribunal opined that AO could not have ignored the various documents furnished by the assessee in support of their contention that the impugned transactions were in fact unsecured loans. The materials supplied by the assessees could not have been brushed aside without bringing on record any evidence to the contrary.

Accordingly, the Tribunal held that the assessees had duly discharged their onus of establishing the creditworthiness and genuineness of the impugned lending transactions and, therefore, the order of CIT(A) was set aside and AO was directed to delete the entire additions.  

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