9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2025 (5) TMI 1169 - AT - Income TaxUnexplained credits u/s 68 - creditworthiness genuineness of transactions were not proved in this case - CIT(A) held that the as there is no credit outstanding in the books of the appellant in case of fully repaid loans these credits cannot be treated as unexplained credits - HELD THAT - Inspector submitted the Report stating that all the address of the various lender companies are found to be bogus . Apart from the same the Assessee has not produced any of the Directors and it is found that all those Companies were showing either loss of marginal profit and have no creditworthiness of lend such huge loan. Even during the first appellate proceedings the Assessee called for Remand Report. AO in his Remand Report categorically stated that the additional evidence produced by the Assessee should not be admitted since the same are not admissible as per Rule 46A of IT Rules. CIT(A) erroneously observed that after furnishing the documents by the Assessee the AO did not carry out any necessary enquiries independently . It is found that the AO indeed carried out enquiries and found that the addresses of the lender companies are bogus and there were immediate credits and debits in the accounts of those Companies. Apart from the same the Assessee has also not produced any of the Directors before the AO to prove the genuineness of the transaction and creditworthiness of the parties. Onus on the Assessee to prove the identity and creditworthiness of the creditors and genuineness of the transaction which has not been discharged by the Assessee in the present case. CIT(A) has recorded factually incorrect finding and deleted the addition. In view of the same we set aside the order of the CIT(A) and remand the matter to the file of the CIT(A) with a direction to the Assessee to produce all the lenders and substantiate its claim in order to contest the additions made by the AO. CIT(A) is directed to pass the order afresh in accordance with law after providing opportunity of being heard to the Assessee. Appeal of the Revenue is partly allowed for statistical purpose.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Appellate Tribunal (AT) in this appeal are: (a) Whether the credits representing fully repaid loans, which do not show any outstanding credit in the books of the assessee, can be treated as unexplained credits under the Income Tax Act. (b) Whether the addition of Rs. 535,23,19,470/- made by the Assessing Officer (A.O.) under section 68 of the Income Tax Act, 1961 ("the Act") was justified, given that the creditworthiness and genuineness of the transactions were not proved by the assessee. (c) Whether the addition of Rs. 9,44,59,921/- made under section 69C of the Act, pertaining to interest expenses claimed on fictitious loans, was rightly deleted by the Commissioner of Income Tax (Appeals) [CIT(A)]. (d) Ancillary procedural issues concerning the conduct of the appeal and the opportunity to amend grounds of appeal. 2. ISSUE-WISE DETAILED ANALYSIS Issue (a): Treatment of fully repaid loans as unexplained credits Relevant Legal Framework and Precedents: Section 68 of the Income Tax Act deals with unexplained cash credits. The legal principle is that if the assessee receives money from an identified person, the assessee must prove the identity, genuineness, and creditworthiness of the lender and the genuineness of the transaction. If the loan is fully repaid and no credit remains outstanding in the books, the question arises whether such credits can be treated as unexplained credits. Court's Interpretation and Reasoning: The CIT(A) held that since there was no credit outstanding in the books of the assessee for fully repaid loans, these credits cannot be treated as unexplained credits. The Tribunal noted that this finding was disputed by the Department, which argued that the genuineness and creditworthiness were not established regardless of the repayment status. Key Evidence and Findings: The assessee had received substantial unsecured loans from various companies. However, the field enquiry report submitted by the inspector deputed by the A.O. revealed that the addresses of these companies were bogus, and the companies showed marginal profits or losses, lacking creditworthiness to lend such huge sums. The assessee failed to produce any directors or representatives of these companies to prove genuineness. Application of Law to Facts: The Tribunal observed that the onus lies on the assessee to prove the identity, creditworthiness, and genuineness of the lenders and transactions. The absence of any outstanding credit in the books does not automatically negate the possibility of the credits being unexplained, especially when the lenders are fictitious entities. Treatment of Competing Arguments: The CIT(A) relied on the absence of outstanding credit to delete the addition, whereas the Department emphasized the lack of credible evidence supporting the genuineness of the loans. The Tribunal sided with the Department's position, noting that the CIT(A)'s finding was factually incorrect and disregarded the enquiry report and other material evidence. Conclusion: The Tribunal set aside the CIT(A) order on this issue and remanded the matter for fresh consideration with directions to the assessee to produce the lenders and substantiate the genuineness and creditworthiness of the loans. Issue (b): Addition under Section 68 of the Act regarding Rs. 535,23,19,470/- Relevant Legal Framework and Precedents: Section 68 empowers the Assessing Officer to treat unexplained cash credits as income if the assessee fails to prove the source and genuineness of such credits. The principle is well-established that the burden of proof rests on the assessee to establish the identity and creditworthiness of the lender and the genuineness of the transaction. Court's Interpretation and Reasoning: The A.O. made a substantial addition of Rs. 535,23,19,470/- on the basis that the loans were from companies with bogus addresses and no credible financial standing. The CIT(A) deleted this addition, observing that the assessee furnished documents and that the A.O. did not conduct independent enquiries. The Tribunal found this observation erroneous and factually incorrect. Key Evidence and Findings: The inspector's field enquiry report found the lender companies' addresses to be bogus. The companies showed marginal profits or losses, lacking creditworthiness. The assessee failed to produce any directors or representatives to prove genuineness. The A.O. also rejected additional evidence submitted during remand proceedings as inadmissible under Rule 46A of the Income Tax Rules. Application of Law to Facts: The Tribunal held that the A.O. did conduct enquiries and relied on the enquiry report. The assessee failed to discharge the onus of proving the genuineness and creditworthiness of the loans. The CIT(A)'s deletion of the addition was therefore unsustainable. Treatment of Competing Arguments: The Department argued for restoration of the addition based on the enquiry report and lack of credible evidence by the assessee. The CIT(A) favored the assessee's submissions without appreciating the enquiry findings. The Tribunal sided with the Department. Conclusion: The Tribunal set aside the CIT(A) order deleting the addition and remanded the matter for fresh adjudication after giving the assessee an opportunity to produce the lenders and substantiate its claim. Issue (c): Addition under Section 69C of the Act regarding Rs. 9,44,59,921/- claimed as interest expense on fictitious loans Relevant Legal Framework and Precedents: Section 69C deals with unexplained investments and expenses. Interest expenses claimed on loans that are found to be fictitious are liable to be disallowed and added to income. Court's Interpretation and Reasoning: The CIT(A) deleted the addition made by the A.O. on the ground that the interest expense was claimed on fictitious loans, but the CIT(A) accepted the assessee's contention. The Department challenged this deletion. Key Evidence and Findings: The enquiry report and other material indicated that the loans were from companies with bogus addresses and lacking creditworthiness, making the interest expense claim questionable. Application of Law to Facts: Given that the loans were found to be fictitious, the interest expense claimed thereon cannot be allowed. The Tribunal agreed with the Department that the CIT(A) erred in deleting the addition. Treatment of Competing Arguments: The Department relied on the enquiry report and the nature of the loans to assert the interest expense was fictitious. The CIT(A) accepted the assessee's submissions without adequately considering the evidence. Conclusion: The Tribunal set aside the CIT(A) order deleting the addition and remanded the matter for fresh consideration. Issue (d): Procedural aspects and opportunity to amend grounds The Department reserved the right to amend or modify grounds of appeal. The Tribunal noted the absence of the assessee and their representatives throughout the proceedings, despite repeated notices. The Tribunal decided to proceed with the hearing based on the Department's submissions and available record, ensuring procedural fairness. 3. SIGNIFICANT HOLDINGS "The onus is on the Assessee to prove the identity and creditworthiness of the creditors and genuineness of the transaction which has not been discharged by the Assessee in the present case." "The Ld. CIT(A) has recorded factually incorrect finding and deleted the addition. In view of the same, we set aside the order of the Ld. CIT(A) and remand the matter to the file of the Ld. CIT(A) with a direction to the Assessee to produce all the lenders and substantiate its claim in order to contest the additions made by the A.O." Core principles established include:
Final determinations:
|
