2015 (12) TMI 379 - AT - Income Tax

Tribunal orders fresh scrutiny for unexplained cash credit case, emphasizing creditor creditworthiness proof.

The Tribunal allowed the revenue's appeal, restoring the matter to the AO for fresh adjudication. The addition of unexplained cash credit u/s 68 from M/s ... Unexplained cash credit u/s 68 - CIT(A) deleted the addition - Held that:- In view of the decision of Hon’ble Delhi High Court in the case of Nova Promoters & Finlease (P) Ltd. ( 2012 (2) TMI 194 - DELHI HIGH COURT) and in the case of Empire Buildtech Pvt. Ltd. (2014 (2) TMI 135 - DELHI HIGH COURT), unless all the three ingredients for invoking section 68 are fully satisfied, addition cannot be deleted merely on the ground that the identity had been established. We find that in order to establish the creditworthiness the assessee had claimed that the investor company was assessed to tax. However, as rightly pointed out by ld. CIT(DR), the investor had returned income of ₹ 530/-. Therefore, it is necessary that what was the source of investment of the investor has to be clearly brought on record. Mere filing of return cannot establish the creditworthiness.Therefore, we restore this matter to the file of AO to provide one more opportunity to assessee to establish the genuineness and creditworthiness of M/s Well Wish Credits Pvt. Ltd., as requested by ld. counsel for the assessee. Decided in favour of revenue for statistical purposes. Issues:1. Addition of unexplained cash credit u/s 68 in respect of share capital received from M/s Well Wish credits Pvt. Ltd.2. Deletion of the addition by the CIT(A) based on the decision in CIT Vs. Lovely Exports (P) Ltd.3. Discharge of onus of proving the existence/creditworthiness of creditors and genuineness of transactions.4. Restoration of the matter to the AO for fresh adjudication.Issue 1: Addition of unexplained cash credit u/s 68:In the case, the assessee company had not carried out any business activity during the year and received share capital from M/s Well Wish credits Pvt. Ltd. The AO added &8377; 15,00,000 as unexplained cash credit u/s 68. The AO observed that the company was an accommodation entry provider managed by an individual who admitted to providing such entries. The assessee failed to establish the creditworthiness of the company, leading to the addition of the amount as unexplained cash credit.Issue 2: Deletion of the addition by CIT(A):The CIT(A) deleted the addition based on the decision in CIT Vs. Lovely Exports (P) Ltd. The CIT(A) considered the submissions and case laws presented by the assessee, concluding that the necessary details were provided to establish the identity of the share applicant. The CIT(A) found no discrepancies in the evidence and ruled in favor of the assessee, deleting the addition.Issue 3: Discharge of onus of proving existence/creditworthiness:The department appealed the CIT(A)'s decision, arguing that the assessee failed to discharge the onus of proving the existence and creditworthiness of the creditors and the genuineness of the transactions. The department highlighted that the investor company had a meager income, raising doubts about the creditworthiness of the investment. The department emphasized the importance of establishing creditworthiness beyond mere disclosure of identity.Issue 4: Restoration of the matter to the AO:Considering the arguments presented, the Tribunal found merit in the department's submissions. Citing relevant case law, the Tribunal emphasized the need to satisfy all requirements for invoking section 68. As the creditworthiness of the investor company was not adequately proven, the Tribunal decided to restore the matter to the AO for fresh adjudication, providing the assessee with another opportunity to establish the genuineness and creditworthiness of M/s Well Wish Credits Pvt. Ltd.In conclusion, the Tribunal allowed the revenue's appeal for statistical purposes, emphasizing the importance of establishing the creditworthiness of transactions involving unexplained cash credits under section 68 of the Income Tax Act, 1961.