2019 (5) TMI 1115 - AT - Income Tax

Revision u/s 263 - unsecured loan transactions - Lack of enquiry V/S inadequate enquiry - as per Pr. CIT AO failed to make proper enquiry with respect to unsecured loans reflected in the books of assessee - Pr. CIT in the impugned order has pointed specific instances where the lenders have common addresses raising an eye of suspicion and also creditworthiness of lenders has not been verified by the AO - HELD THAT - As per the list furnished by assessee there are 23 lenders of unsecured loan. As is evident from documents furnished before us the remaining 21 parties have not responded to the notice issued by Assessing Officer. Though the assessee has furnished various documents i.e. confirmations of the parties return of income filed by the lenders their ledger extracts etc. but their non-appearance before the Assessing Officer raises an eye of suspicion especially when majority of lenders are stated to be closely related to the assessee. In majority of cases loans have been advanced by the parties after similar amounts have been credited to their respective bank accounts. This finding has not been controverted by assessee. AO after having received relevant documents including confirmation has not taken pains to verify the veracity of loan transactions and the creditworthiness of the parties extending loan. AO after issuing notices u/s. 133(6) left the enquiry in between. Therefore it is case of lack of enquiry by Assessing Officer and not inadequate enquiry as has been asserted by the assessee. - Decided against assessee.

Summary

Issues:
Assessment under section 263 for unsecured loans.

Analysis:
The judgment involves an appeal against the order of the Principal Commissioner of Income Tax-1, Nashik, passed under section 263 of the Income Tax Act, 1961 for the assessment year 2011-12. The case pertains to the genuineness of unsecured loans and the creditworthiness of lenders. The Assessing Officer conducted detailed enquiries during the assessment proceedings, issuing notices under section 133(6) to unsecured creditors. The Assessing Officer, after receiving information and confirmations from the lenders, did not make any additions regarding unsecured loans. However, the Principal Commissioner of Income Tax set aside the assessment order, directing further enquiry into the creditworthiness of lenders and genuineness of transactions, leading to the appeal by the assessee.

The assessee's representative argued that the Assessing Officer had conducted thorough enquiries, issuing a questionnaire and notices to unsecured lenders. The representative provided details of the enquiries and submissions made during the assessment process. It was highlighted that the Assessing Officer, after examining the information provided, was satisfied with the creditworthiness and genuineness of the loan transactions, as evidenced by the lack of additions in the assessment order. The representative also pointed out that similar enquiries in a previous assessment year had resulted in no additions being made, emphasizing the consistency in the approach.

On the other hand, the Department's representative contended that the Assessing Officer had not conducted adequate enquiries, citing instances where lenders had not provided sufficient details in response to notices. The Department argued that the Assessing Officer had merely collected information from the assessee without delving deeper into the creditworthiness and genuineness of the loans. It was emphasized that lack of responses from several lenders raised suspicions, especially when loans were advanced after amounts were credited to their bank accounts.

The Tribunal observed that the Principal Commissioner of Income Tax invoked revisional jurisdiction under section 263 due to perceived lack of proper enquiry by the Assessing Officer regarding unsecured loans. The Tribunal noted that while some lenders responded to notices, a significant number did not, casting doubt on the transactions. Additionally, the Tribunal highlighted instances where loans were advanced after similar amounts were credited to lenders' bank accounts, indicating a lack of thorough verification by the Assessing Officer. Ultimately, the Tribunal upheld the order under section 263, dismissing the appeal for lack of merit.

In conclusion, the judgment underscores the importance of conducting detailed enquiries into unsecured loans to verify creditworthiness and transaction genuineness. The Tribunal's decision affirms the revisional jurisdiction exercised by the Principal Commissioner of Income Tax, emphasizing the need for thorough assessment procedures to ensure the integrity of financial transactions.