2017 (8) TMI 1138 - HC - Income Tax

Addition u/s 68 - unsecured loan - genuineness of the transactions and the creditworthiness - Merely because the transaction was by payments through cheque the ITAT presumes them to be genuine. - Contradictory statements by the assessee - Held that - The ITAT has erred in its approach towards dealing with the transactions and has incorrectly held that the Assessee has discharged his onus merely because the money was advanced through the banking channels. The ITAT has ignored all the contradictions and has ignored glaring circumstances such as Shri Amar Singh not even being an Incometax Assessee in holding that the transactions are genuine and creditworthiness is established. The explanation for advancing the loans is clearly contradictory in respect of two of the creditors. To accept such explanations would in effect result in turning a blind eye as has been done by the ITAT to transactions which clearly lacked bona fides. Thus the ITAT s order is erroneous and contrary to law and is accordingly set aside. The transactions in the present appeal are yet another example of the constant use of the deception of loan entries to bring unaccounted money into banking channels. This device of loan entries continues to plague the legitimate economy of our country. As seen from the facts narrated above the transactions herein clearly do not inspire confidence as being genuine and are shrouded in mystery as to why the so-called creditors would lend such huge unsecured interest free loans - that too without any agreement. In the absence of the same the creditors fail the test of creditworthiness and the transactions fail the test of genuineness. - Additions confirmed - Decided in favor of revenue.

Issues Involved:
1. Deletion of additions under Section 68 of the Income Tax Act, 1961.
2. Genuineness of the transactions.
3. Creditworthiness of the creditors.
4. Identity of the creditors.

Issue-wise Detailed Analysis:

1. Deletion of Additions under Section 68 of the Income Tax Act, 1961:
The Principal Commissioner of Income Tax challenged the ITAT's decision to delete additions made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961, concerning loans/advances received by the Assessee from eight individuals. The AO had added these amounts to the Assessee's income, citing failure to establish the identity, creditworthiness, and genuineness of the transactions.

2. Genuineness of the Transactions:
The AO concluded that the Assessee had routed unaccounted funds through bank channels in the names of these individuals. The CIT (A) upheld the AO's findings, noting the lack of documentary evidence to support the genuineness of the transactions. The ITAT, however, deleted the additions for four individuals (Amar Singh, Chandan Singh, Ram Charan, and Sunita) based on additional evidence and the relationships between the Assessee and these individuals.

3. Creditworthiness of the Creditors:
The AO and CIT (A) found that the creditors lacked the financial strength to lend such large sums. For instance, Amar Singh had a monthly income of Rs. 2,000-Rs. 2,500 and no PAN number, while Ram Charan had an annual income of Rs. 1.75-Rs. 1.8 lakhs and no savings. The ITAT, however, accepted the Assessee's submissions and additional documents, such as PAN cards and bank statements, to establish creditworthiness.

4. Identity of the Creditors:
The AO questioned the identity of the creditors due to the lack of supporting documents like PAN numbers and addresses. The CIT (A) noted inconsistencies in the creditors' statements and documents. The ITAT, however, accepted the identity of the creditors based on voter ID cards, PAN cards, and other documents provided by the Assessee.

Analysis and Reasoning:
The High Court analyzed the facts and legal precedents, emphasizing the Assessee's burden to prove the identity, genuineness, and creditworthiness of the creditors. The Court found that the Assessee failed to discharge this burden, as the documents and statements provided did not support the genuineness of the transactions or the financial strength of the creditors. The Court held that the ITAT erred in accepting the Assessee's explanations without proper scrutiny.

Conclusion:
The High Court set aside the ITAT's order, upholding the findings of the AO and CIT (A). The Court directed that the additions made by the AO concerning the transactions with Amar Singh, Chandan Singh, Ram Charan, and Sunita be added back to the Assessee's income under Section 68 of the Act. The appeal by the Revenue was allowed, reinforcing the requirement for the Assessee to establish the identity, genuineness, and creditworthiness of creditors in such transactions.

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