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of <h1>Assessee must prove creditors' creditworthiness & explain profits received to avoid adverse inferences.</h1> <h3>Ishwar Dass, Prop. M/s Mahadev Steel Corporation Versus The Income Tax Officer, Ward IV (3), Malerkotla</h3> Ishwar Dass, Prop. M/s Mahadev Steel Corporation Versus The Income Tax Officer, Ward IV (3), Malerkotla - Tmi Issues:Challenge to addition under section 68 of the Income Tax Act, 1961 based on unsecured loans received from related parties.Analysis:1. The assessee introduced cash credits as unsecured loans from related parties. The Assessing Officer directed the assessee to produce creditors for verification, but they failed to appear. The Assessing Officer considered the documents provided as an attempt to defraud the Revenue. The assessee received commodity profits from certain firms, but they also failed to attend the proceedings, leading to the addition of Rs. 9,27,000 under section 68 of the Act.2. The assessee contended before the CIT (Appeals) that documentary evidence, including affidavits and bank statements, proved the creditworthiness of the creditors. However, the CIT (Appeals) held that mere filing of documents was insufficient to establish genuineness. The failure of the commodity firms to attend further weakened the assessee's case, leading to dismissal of the appeal ground.3. The ITAT found that the assessee did not produce any creditors for verification, despite being related to them. The commodity firms were not members of the Multi Commodity Exchange of India, indicating suspicious transactions. The ITAT noted that profits were immediately transferred to the assessee as unsecured loans, indicating non-genuine transactions. The ITAT allowed the assessee one more chance to produce creditors for examination.4. The ITAT set aside previous orders and directed the assessee to produce all creditors for verification. The assessee must prove creditworthiness and explain the commodity profits received. Failure to produce creditors may lead to adverse inferences. The ITAT allowed the appeal for statistical purposes, emphasizing the importance of proving genuineness and creditworthiness in such cases.
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