2018 (7) TMI 1995 - AT - Income Tax

Revenue appeal dismissed, burden shifted to AO in creditor identity case. LegalPrecedents

DCIT, 25 (1), Mumbai Versus M/s. YRV International

The Tribunal dismissed the revenue's appeal, upholding the Ld CIT(A)'s decision to delete the addition under section 68 of the Act. The Tribunal found ... Addition u/s 68 - whether no identity of creditors by giving their complete addresses, GIR nos/PAN Nos.? - HELD THAT:- In the instant case, the assessee has taken loans from M/s A2 Jewels and M/s Daksh Diamonds. All the loan transactions have taken place through the banking channels and hence the genuineness of transactions is not in doubt. Both the above said creditors are assessed to Income tax and further the notices issued by the AO u/s 133(6) were duly served upon them and further they have also replied to the same. Hence the identity of the creditors is also stand proved. In order to prove the creditworthiness, the assessee has furnished the financial statements of these two creditors. The contention of the revenue is that the capital balance and the profit disclosed by them are low. These two concerns could not have given such kind of huge amounts as loan. However, in our view, both of them are not determinative factors. What is required to be seen is whether the creditor could prove the availability of funds with it or not. A perusal of the financial statements furnished by both the creditors would show that the loans given to the assessee have been duly disclosed and further these creditors were having sources by way of loans taken by them from others. Further both the concerns were carrying of business having huge turnover. Hence the movement of funds in their accounts and also the availability of funds with them cannot be doubted. Hence, we are of the view that the CIT(A) was justified in holding that the creditworthiness of these two creditors also stand proved. AO has also made independent enquiry with these two creditors by issuing notices u/s 133(6) and in response to the same, both these creditors have confirmed the loan transactions. AO did not find fault with the financial statements of these two creditors. AO has proceeded to make the addition u/s 68 only for the reason that Shri Ritesh Siroya has admitted that his group has provided bogus sales bills. As observed by CIT(A), Shri Ritesh Siroya has not implicated the assessee nor did not he mention that the loans given to the assessee were bogus. On the contrary, the very same Shri Ritesh Siroya has furnished affidavits, during the course of assessment proceedings, confirming the loan transactions. AO could not prove that these financial statements, confirmation letters and affidavits filed by Shri Ritesh Siroya are wrong. CIT(A) has rightly pointed out that the AO has ignored the documentary evidences furnished by the assessee. Thus the assessee has discharged the initial onus placed upon it u/s 68 of the Act. On the contrary, it is seen that the AO has failed to discharge the onus shifted upon its shoulders. CIT(A) has followed the principles laid down in various case laws extracted above. Before us, none of the case laws was controverted. The foregoing discussions also show that the AO has brushed aside various documents furnished by the assessee and proceeded to make the addition only on the basis of information received from the investigation wing and the statement given by Shri Ritesh Siroya. CIT(A) has rightly pointed out these facts and accordingly concluded that the addition made by the AO was not justified. Decision rendered by CIT(A) does not call for any interference, since the first appellate authority has rendered his decision by considering the legal principles enunciated in various case laws relied upon by him and further applying the same to the facts of the present case. Thus we notice that the CIT(A) has reached his decision in a systematic manner. Accordingly we affirm the decision rendered by CIT(A). - Decided against revenue. Issues:Appeal against deletion of addition under section 68 of the Act related to loans obtained by the assessee from specific parties.Analysis:1. Issue of Addition under Section 68 of the Act:- The appeal was directed against the decision of Ld CIT(A) deleting the addition of Rs. 250.00 lakhs made by the AO under section 68 of the Act.- The AO reopened the assessment due to information regarding accommodation entries by a specific group, from which the assessee had taken loans.- The AO treated the loans as unexplained cash credits, but the Ld CIT(A) found that the assessee had proven the identity, capacity, and genuineness of the creditors, thereby discharging its onus.- The Ld CIT(A) cited relevant case laws and highlighted that the AO lacked substantial evidence to support the addition.- The Ld CIT(A) emphasized that the AO's reliance on a third person's statement without corroborative evidence was insufficient to treat the transactions as accommodation entries.- The Ld CIT(A) concluded that the AO's suspicion-based assessment lacked merit and shifted the burden of proof onto the AO, who failed to disprove the evidences furnished by the assessee.2. Judicial Precedents and Observations:- The Ld CIT(A) referred to various decisions supporting the assessee's position, including judgments from the Bombay High Court and ITAT Mumbai.- The Ld CIT(A) highlighted that the AO's failure to conduct a meaningful independent inquiry and disregard of documentary evidence led to an unjustified addition under section 68.- The Ld CIT(A) also relied on Supreme Court precedent to assert that unsatisfactory explanations do not automatically result in deeming the amount as income.- The Tribunal affirmed the Ld CIT(A)'s decision, emphasizing that the assessee had fulfilled the requirements under section 68, shifting the burden of proof to the AO, who failed to provide substantial evidence to justify the addition.3. Creditworthiness and Genuineness of Transactions:- The Tribunal examined the creditworthiness of the creditors and found that the loans were transacted through banking channels, with both creditors having sufficient funds and sources to lend the amounts.- The Tribunal noted that the creditors' financial statements, responses to notices, and confirmation letters supported the genuineness of the transactions, which the AO failed to disprove.- The Tribunal concluded that the AO's reliance on a third party's statement, without concrete evidence to contradict the assessee's proofs, was insufficient to sustain the addition under section 68.4. Final Decision and Outcome:- The Tribunal dismissed the revenue's appeal, upholding the Ld CIT(A)'s decision to delete the addition under section 68 of the Act.- The Tribunal affirmed that the Ld CIT(A) had systematically applied legal principles, considered relevant case laws, and found the AO's assessment lacking in substantial evidence to justify the addition.- The decision was based on a thorough analysis of the facts, legal precedents, and the burden of proof shifting from the assessee to the AO, ultimately leading to the rejection of the revenue's appeal.