2014 (9) TMI 703 - HC - Income Tax

Court overturns Tribunal, upholds Revenue in lack of evidence case.

The Court set aside the Tribunal's order and restored the Assessment Officer's decision, ruling in favor of the Revenue and against the assessee. The ... Non-speaking order by Tribunal or not - Unexplained cash credits u/s 68 – Held that:- Section 68 empowers the AO to treat the income credited in the books of accounts of the assessee for any previous year if there is no plausible explanation by the assessee about the nature and source of such income or if the explanation given is not satisfactory - Once it is explained, it is for the AO to consider the same and form an opinion about the genuineness of the whole transactions - Such an opinion must be based on cogent evidence i.e. material produced by the assessee - insofar as the identity is concerned, the assessee could not produce the PAN Number of both the parties - The purpose for which the loans were taken, have not been spelt out by the assessee in his affidavit or otherwise - The Paying back of the so called loans by way of an Account payee cheque is not conclusive, more so, if the aspects narrated above, are considered cumulatively - The facts have to be seen in the context of Section 68 of the Act - Suffice to state, the identity of the parties have not been proved, their creditworthiness not established and genuineness of transactions not demonstrated - CIT(A) and the Tribunal have committed an error in not properly approaching the issue which fell for their consideration out of the findings rendered by the AO - they have committed substantial error of law in interfering with the order of the AO without any proper basis – thus, the order of the Tribunal is set aside and the matter is remitted back to the AO – Decided in favour of revenue. Issues Involved:1. Whether the Income Tax Appellate Tribunal was right in dismissing the appeal of the Revenue upholding deletion of addition of Rs. 28,00,000 under Section 68 of the Income Tax Act, 1961.Detailed Analysis:1. Background and Assessment Order:The appeal pertains to the assessment year 2005-06 and arises from the order dated June 14, 2011, by the Income Tax Appellate Tribunal, Delhi. The respondent assessee filed its return of income declaring a loss of Rs. 44,70,307, which was processed under Section 143(1) of the Act. Subsequently, a notice under Section 143(2) initiated scrutiny assessment proceedings. The Assessment Officer (AO) assessed the total loss at Rs. 16,70,307, making an addition of Rs. 28,00,000 pertaining to unsecured loans credited in the books of the assessee as income from undisclosed sources under Section 68 of the Act.2. CIT(A) Order:The CIT(A) framed two issues: whether the AO erred in treating unsecured loans of Rs. 28,00,000 as the assessee's income and the initiation of penalty proceedings under Section 271(1)(c). The CIT(A) allowed the appeal, concluding that the identity, creditworthiness, and genuineness of the transactions were adequately proved. The CIT(A) noted that the loans were received and repaid by cheques, and the bank statements confirmed these transactions. The CIT(A) relied on the Delhi High Court judgment in CIT v/s Dwarkadhish Investment Pvt. Ltd., which held that once the identity and genuineness of the transaction are proved, the onus shifts to the Revenue.3. Tribunal's Order:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s findings. The Tribunal found that the assessee had submitted necessary evidence, including affidavits and bank statements, to prove the receipt and repayment of loans by cheques.4. Revenue's Grounds of Appeal:The Revenue contended that the orders of the CIT(A) and the Tribunal were non-speaking and failed to consider that no credible evidence was provided to establish the identity, genuineness, and creditworthiness of the firms. The Revenue argued that the reliance on the assessee's affidavit and bank statements was misplaced and that the parties were non-existent at the given addresses.5. Legal Position and Court's Analysis:Section 68 of the Income Tax Act empowers the AO to treat unexplained credits as income if the assessee fails to provide a satisfactory explanation. The burden of proving the source of such income lies on the assessee. The Court noted that while the assessee could not produce the PAN numbers of the parties, the AO obtained bank statements showing transactions through account payee cheques. However, the AO's attempts to serve the parties at the given address were futile, and the introducer of the accounts was not produced.The Court emphasized that the identity, creditworthiness, and genuineness of the transactions were not satisfactorily established. The Court referenced the Calcutta High Court's judgments in CIT Vs. Precision Finance (P) Ltd. and CIT Vs. Korley Trading Co. Ltd., which held that mere furnishing of particulars is insufficient to prove the genuineness of cash credits. The Court also cited its judgment in CIT Vs. Oasis Hospitalities (Pvt.) Ltd., which outlined the requirements for proving the identity, genuineness, and creditworthiness of transactions.6. Conclusion:The Court concluded that the CIT(A) and the Tribunal erred in their approach and failed to properly consider the AO's findings. The Court set aside the Tribunal's order and restored the AO's order, deciding the question of law in favor of the Revenue and against the assessee.7. Disposition:The appeal was disposed of with no costs.