2025 (6) TMI 1740 - AT - Income Tax

Addition u/s 68 - unexplained cash credit being unexplained unsecured loans - HELD THAT - Assessee has furnished before us the details of loans taken and the creditworthiness of persons giving loan to the assessee. DR has not provided any materials to dislodge the claim of the assessee regarding the identity genuineness and creditworthiness of the transactions. CIT(A) held that once the assessee has furnished the identity details of the investor alongwith their bank account statement showing credit worthiness and genuineness. The onus shifted on the AO to prove that the investor did not have sufficient balance of funds to provide the money to the assessee company. We are of the considered view that no adverse inference can be drawn from such findings of the CIT(A) and the conclusions of the CIT(A) cannot be faulted with. Since the assessee has successfully explained the three ingredients necessary to discharge the onus cast upon her section 68 of the Act is clearly not applicable. Appeal of revenue dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the Assessing Officer was justified in making an addition of Rs. 3,15,18,000/- under section 68 of the Income Tax Act, treating unsecured loans as unexplained cash credits, when the assessee claimed these loans were genuine and supported by evidence.

(b) Whether the assessee adequately established the identity, genuineness, and creditworthiness of the lenders who provided the unsecured loans, including furnishing relevant documents such as Income Tax Returns (ITRs), bank statements, and confirmations.

(c) Whether the CIT(A) erred in deleting the addition made by the Assessing Officer without properly appreciating the facts and evidences on record, and whether reliance solely on favorable judicial precedents without considering binding Supreme Court decisions was justified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Justification of Addition under Section 68 on Unexplained Cash Credits

Relevant Legal Framework and Precedents: Section 68 of the Income Tax Act empowers the Assessing Officer to treat any sum credited in the books of an assessee as income if the assessee fails to satisfactorily explain the nature and source of such credit. The burden to explain the credit initially lies upon the assessee. Judicial precedents such as the Supreme Court's ruling in Kale Khan Mohammad Hanif v. CIT and the Punjab & Haryana High Court decision in Som Nath Maini v. CIT emphasize that if the assessee fails to prove satisfactorily the source and nature of the amount, the AO is entitled to treat it as assessable income. However, once the assessee discharges the initial burden, the onus shifts to the Revenue to make further inquiries.

Court's Interpretation and Reasoning: The Tribunal observed that the Assessing Officer initially made the addition treating the unsecured loans as bogus to cover up various unexplained investments and expenses. However, the CIT(A) directed the Assessing Officer to conduct further enquiry on the evidence submitted by the assessee. Upon remand, the Assessing Officer reported that the assessee had furnished documents supporting the identity, genuineness, and creditworthiness of the lenders, including bank statements evidencing the source of funds.

Key Evidence and Findings: The assessee provided confirmations from lenders, bank statements showing the flow of funds, and details of the lenders' creditworthiness. The Assessing Officer's remand report acknowledged these documents and did not dispute the genuineness of the transactions. The Revenue failed to produce any contrary material to disprove the assessee's claim.

Application of Law to Facts: The Tribunal applied the principle that the burden of proof under section 68 is not static but shifts once the assessee discharges the initial onus by furnishing credible evidence. Since the assessee had successfully explained the three essential ingredients-identity, genuineness, and creditworthiness-the addition under section 68 was unwarranted.

Treatment of Competing Arguments: The Revenue argued that the assessee failed to provide complete ITRs and bank details of the lenders, and relied on Supreme Court decisions to assert that unexplained credits must be added to income. The Tribunal noted that these arguments were considered by the CIT(A) and that the Assessing Officer's remand report supported the genuineness of the loans. The Tribunal found no material to dislodge the assessee's explanations and held that adverse inference could not be drawn.

Conclusion: The addition of Rs. 3,15,18,000/- under section 68 was not justified as the assessee satisfactorily explained the nature and source of the unsecured loans.

Issue (b): Adequacy of Proof Regarding Creditworthiness of Lenders

Relevant Legal Framework and Precedents: The identity and creditworthiness of lenders are critical to satisfy the requirements of section 68. Courts have held that the assessee must produce evidence such as bank statements and ITRs of lenders to establish that the funds originated from genuine sources.

Court's Interpretation and Reasoning: The Tribunal examined whether the assessee furnished adequate evidence to prove creditworthiness. It was found that the assessee submitted bank statements and details of the lenders, and the Assessing Officer's remand report confirmed that the loans were given out of the lenders' bank accounts. The Tribunal held that the onus shifted to the Revenue to prove insufficiency of funds, which was not done.

Key Evidence and Findings: The remand report by the Assessing Officer acknowledged the submission of bank statements and other documents. The Revenue did not provide any contradictory evidence to challenge the creditworthiness of lenders.

Application of Law to Facts: The Tribunal applied the principle that once the assessee furnishes credible evidence of creditworthiness, the Revenue must demonstrate otherwise. Since no such evidence was produced, the assessee's explanation stood unrefuted.

Treatment of Competing Arguments: The Revenue contended that the absence of complete ITRs and bank details rendered the proof incomplete. The Tribunal rejected this contention due to the Assessing Officer's own acceptance in the remand report and lack of any contrary material.

Conclusion: The assessee adequately established the creditworthiness of the lenders, satisfying the requirements under section 68.

Issue (c): Reliance on Judicial Precedents and the Scope of CIT(A)'s Deletion of Addition

Relevant Legal Framework and Precedents: The Revenue contended that the CIT(A) erred by relying on favorable judgments without considering binding Supreme Court rulings such as in Kale Khan Mohammad Hanif v. CIT and Som Nath Maini v. CIT, which emphasize the Revenue's right to add unexplained credits as income if the assessee fails to prove genuineness.

Court's Interpretation and Reasoning: The Tribunal noted that the CIT(A) did not merely rely on precedents but also considered the remand report and evidences furnished by the assessee. The deletion was based on a holistic assessment of facts, evidences, and the Assessing Officer's own findings post remand. The Tribunal found no error in the CIT(A)'s approach or reasoning.

Key Evidence and Findings: The CIT(A) relied on multiple Supreme Court decisions and considered the remand report which supported the genuineness of the loans. The Tribunal found that the CIT(A) applied the law correctly and did not ignore any binding precedents.

Application of Law to Facts: The Tribunal reiterated that judicial precedents require the assessee to discharge the initial burden and then shift the onus to the Revenue. Here, the assessee discharged the burden and the Revenue failed to rebut the claim. Hence, the CIT(A)'s deletion was justified.

Treatment of Competing Arguments: The Revenue's argument that the CIT(A) ignored Supreme Court rulings was rejected as the Tribunal found that the CIT(A) had duly considered them and applied the principles correctly.

Conclusion: The CIT(A) was justified in deleting the addition after proper consideration of the evidences and judicial precedents.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"No doubt, the initial onus is upon the assessee to explain the credit transaction in its books of account in the light of provisions of section 68 of the Act. However, this burden of proof is not permanent but keeps oscillating, meaning thereby, that once the initial burden has been discharged by the assessee, the burden shifts upon the revenue to make further enquiry."

"The Assessing Officer has also reported that the unsecured loans have been given out of bank accounts of the lenders and details are clearly mentioned. The assessee has also furnished before us the details of loans taken and the creditworthiness of persons giving loan to the assessee company. The ld DR has not provided any materials to dislodge the claim of the assessee regarding the identity, genuineness and creditworthiness of the transactions."

"We are of the considered view that no adverse inference can be drawn from such findings of the CIT(A) and the conclusions of the CIT(A) cannot be faulted with."

"Considering the facts of the case in totality, we are of the view that since the assessee has successfully explained the three ingredients necessary to discharge the onus cast upon her, section 68 of the Act is clearly not applicable."

Accordingly, the Tribunal dismissed the Revenue's appeal and upheld the deletion of the addition of Rs. 3,15,18,000/- under section 68, affirming the principle that the burden of proof under section 68 is initially on the assessee but shifts to the Revenue once credible evidence is furnished, and in absence of any contradictory material, the addition cannot be sustained.