Deletion under Section 68 upheld after assessee produced account-payee cheques and disclosed lenders' PANs AO failed to verify creditors' returns

HC upheld the ITAT's deletion of the addition under s.68. The court held that once the assessee produced account-payee cheques and disclosed lenders' PANs, the initial burden under s.68 was discharged. It was the AO's duty to verify from the creditors' income-tax returns whether such funds were shown and lent; failing to do so and reimposing the burden on the assessee was erroneous. The AO's action was set aside and the deletion in favour of the assessee was confirmed.

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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.

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