2016 (5) TMI 1426 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - burden of proof - Held that - Provisions of sec. 68 places initial burden of proof upon the assessee. In the instant cases there is no dispute between the parties that the identity of the loan creditors has been established. Even though the assessing officer has expressed doubt about the credit worthiness of the creditors on the basis of low income reported by them yet the Ld CIT(A) has rightly appreciated the fact that these companies have used their own capital funds for advancing loan to the assessee company. The quantum of own funds held by these companies has also been discussed by Ld CIT(A). In our view the Ld CIT(A) was justified in holding that the income declared by these loan companies are not the criteria but the source for giving the loans to the assessee company is the determinative of the credit worthiness. Thus the Ld CIT(A) has rightly held that the credit worthiness of the loan creditors has also been established. The Courts have held that the assessee is required to discharge the initial burden of proof placed on his shoulders. In the instant case we are of the view that the assessee has discharged the initial onus placed upon it. Hence the burden of proof gets shifted to the assessing officer. Tax authorities have not discharged the burden of proof shifted upon their shoulders by bringing any material on record to disprove the claim of the assessee - Decided against revenue

Issues Involved:
1. Admission of additional evidence by the revenue.
2. Addition made under Section 68 of the Income Tax Act regarding unsecured loans.

Issue-wise Detailed Analysis:

1. Admission of Additional Evidence by the Revenue:

The revenue petitioned for the admission of additional evidence in the form of a sworn statement from Shri Jagdish Prasad Purohit. The statement was taken during a search action conducted in the Pride Group of Pune, where Purohit admitted that the Pride Group approached him to invest in their group as an accommodation entry through M/s ACPL. The revenue argued for the inclusion of this statement as additional evidence. However, the assessee objected to the admission, arguing that Purohit did not implicate the assessee and had retracted his statement through an affidavit.

The Tribunal noted that the statement was not considered by the Assessing Officer (AO) and that under the Income Tax Act, once an assessment order is passed, the AO becomes functus officio. Therefore, any new material or information must follow the prescribed course of action under the Act. The Tribunal found the additional evidence to be debatable and not considered by the AO. Consequently, the Tribunal declined to admit the additional evidence and dismissed the revised grounds urged by the revenue.

2. Addition Made Under Section 68 of the Income Tax Act Regarding Unsecured Loans:

The assessee, a partnership firm engaged in the business of builders and developers, declared unsecured loans amounting to Rs. 57.20 crores, including Rs. 11.40 crores from three Kolkata-based companies: M/s Albright Consultant Pvt Ltd (ACPL), M/s Nataraj Vinimay Pvt Ltd (NVPL), and M/s Spectrum Vintrade Pvt Ltd (SVPL). The AO verified these loans and found that the companies were not available at the given addresses, questioning their identity and the genuineness of the transactions. Despite the assessee providing various documents to prove the identity, creditworthiness, and genuineness of the transactions, the AO assessed the loans as income of the assessee.

Before the CIT(A), the assessee furnished confirmation letters and additional documents. The CIT(A) called for a remand report and further investigations, which revealed that the companies were represented by a common authorized representative and had common addresses and directors. Despite these findings, the CIT(A) held that the identity and creditworthiness of the companies were established but expressed doubts about the genuineness of the transactions due to the non-charging of interest by NVPL and SVPL.

The Tribunal noted that the primary onus under Section 68 is on the assessee to prove the identity, creditworthiness, and genuineness of the transactions. The Tribunal found that the assessee had discharged this onus by providing necessary documents and that the transactions were routed through banking channels. The Tribunal disagreed with the CIT(A)'s doubts about the genuineness of the loans from NVPL and SVPL, stating that the burden of proof had shifted to the tax authorities, who failed to disprove the assessee's claims.

Consequently, the Tribunal upheld the deletion of the addition related to the loan from ACPL and directed the AO to delete the additions related to loans from NVPL and SVPL, concluding that the tax authorities did not discharge their burden of proof.

Conclusion:

In the result, the appeal filed by the assessee was allowed, and the appeal of the revenue was dismissed. The Tribunal pronounced the order in the Open Court on 9.5.2016.

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