2012 (5) TMI 186 - HC - Income Tax

Court affirms Tribunal's decision on Income Tax Act Section 68 issue, emphasizes verification procedures

Commissioner of Income-tax Versus Ranchhod Jivabhai Nakhava

The Court upheld the Tribunal's decision to set aside the deletion of Rs.15 lac addition under Section 68 of the Income Tax Act by the Commissioner of ... Addition made on account of alleged unexplained income – ITAT deleted the addition - Held that:- Once the assessee has established that he has taken money by way of accounts payee cheques from the lenders who are all income tax assessees whose PAN have been disclosed, the initial burden under Section 68 of the Act was discharged - once the Assessing Officer gets hold of the PAN it was his duty to ascertain from whether in their respective return they had shown existence of such amount of money and had further shown that those amount of money had been lent to the assessee - without verifying such fact from the income tax return of the creditors, the action taken by the AO in examining the lenders of the assessee was a wrong approach - Tribunal below rightly set-aside the deletion made by the Assessing Officer, based on erroneous approach by wrongly shifting the burden again upon the assessee without verifying the Income Tax return of the creditors – in favour of assessee. Issues:Determining whether the Tribunal erred in confirming the deletion of Rs.15 lac addition under Section 68 of the Income Tax Act by the Commissioner of Income Tax (Appeals).Analysis:The primary issue in this case revolves around the Tribunal's decision to uphold the deletion of Rs.15 lac addition under Section 68 of the Income Tax Act by the Commissioner of Income Tax (Appeals). The Appellant, dissatisfied with the Tribunal's decision, contended that the Revenue had discharged its onus, shifting the burden onto the assessee to prove the genuineness and creditworthiness of the creditors. However, the Court disagreed, emphasizing that once the assessee established receiving money through accounts payee cheques from income tax assessees with disclosed PANs, the initial burden under Section 68 was discharged. The Court highlighted that the Assessing Officer's duty was to verify from the Assessing Officer of the lenders if they had disclosed the transactions in their returns, rather than examining the lenders directly without due verification.The Court criticized the Assessing Officer's approach of examining the lenders without first verifying their income tax returns, deeming it incorrect. It was noted that inconsistent statements made by the lenders further undermined the credibility of their claims. The Court supported the decisions of both the Commissioner of Income Tax (Appeals) and the Tribunal in setting aside the deletion, as the Assessing Officer failed to follow the prescribed procedure under Section 68. The Court emphasized that the Assessing Officer had no authority to dispute the assessments of the creditors when their Assessing Officers were satisfied with the transactions, highlighting the importance of proper verification before taking action.Ultimately, the Court found that the Tribunal rightly set aside the deletion, attributing the error to the Assessing Officer's misguided approach of shifting the burden back to the assessee without verifying the income tax returns of the creditors. The Court clarified that the outcome might have differed if the creditors were not income tax assessees or if their transactions were not disclosed in their returns. Concluding that no substantial question of law was involved, the Court dismissed the Appeal, finding no merit in the Revenue's contentions.