2019 (7) TMI 1598 - AT - Income Tax

Tax Appeal: Burden of Proof on Assessee for Unsecured Loans

The Commissioner of Income Tax (Appeals) erred in granting relief to the assessee on account of bogus unsecured loans, despite the Assessing Officer's ... Bogus unsecured loans - loan creditors not been found at the addresses given by the assessee - CIT-A allowed relief to assessee - mandation fair opportunity to those who are parties in the controversy for correcting or contradicting anything prejudicial to their view - HELD THAT:- In the instant case, as mentioned earlier the assessee filed the details before the AO on 26.12.2016 which was received in the office of the AO on 27.12.2016. The AO completed the assessment on 30.12.2016. A perusal of the appellate order passed by the Ld. CIT(A) dated 27.06.2017 clearly indicates that reliance has been placed by him on the submissions by the assessee. The Ld. CIT(A) could have directed the AO u/s 250(4) of the Act to conduct proper inquiry of the details filed by the assessee. He has not done so. Thus following the ratio laid down in NRA Iron & Steel (P.) Ltd. [2019 (3) TMI 323 - SUPREME COURT] & Jansampark Advertising & Marketing (P.) Ltd. [2015 (3) TMI 410 - DELHI HIGH COURT] we set aside the order of the Ld. CIT(A) and restore the matter to the file of the AO to make an order afresh, after allowing the assessee to cross-examine the aforesaid parties. We direct the assessee to file the relevant documents/evidence before the AO. Needless to say, the AO would give reasonable opportunity of being heard to the assessee before finalizing the order. - Revenue appeal is allowed for statistical purposes. Issues Involved:1. Whether the Commissioner of Income Tax (Appeals) [CIT(A)] erred in allowing relief to the assessee on account of bogus unsecured loans.2. Whether the Assessing Officer (AO) was justified in making additions under Section 68 of the Income Tax Act, 1961 based on the non-existence of loan creditors at the provided addresses and their financial incapacity to provide loans.Issue-wise Detailed Analysis:1. Relief on Account of Bogus Unsecured Loans:The Revenue's primary contention was that the CIT(A) erred in granting relief to the assessee despite conclusive findings that the loan creditors were not found at the addresses provided by the assessee. The AO had conducted an investigation through the Deputy Director of Income Tax (Inv.), Unit 1(2), Kolkata (DDIT), which revealed that 9 out of 11 loan parties were not found at the given addresses, and the remaining two were merely entry providers. The AO had provided the assessee with the commission report and a show-cause notice, but the assessee's response failed to convince the AO of the existence and genuineness of the loan parties. Consequently, the AO made an addition of Rs. 4,54,62,081/- under Section 68 of the Act, including interest of Rs. 49,62,081/-.The CIT(A), however, observed that the AO did not verify the paid-up capital, net worth, or investments of the loan creditors. The CIT(A) concluded that the assessee had satisfied all three ingredients required to prove the satisfactory nature of the loan transactions: identity, genuineness, and creditworthiness of the loan creditors. The CIT(A) stated that the AO had not provided any cogent material to show that the loans were unexplained and had failed to give the assessee an opportunity to cross-examine the witnesses. Thus, the CIT(A) deleted the addition made by the AO.2. Justification of Additions under Section 68:The Revenue argued that the AO was justified in making the additions under Section 68, citing the Supreme Court judgment in Pr. CIT v. NRA Iron & Steel (P.) Ltd., which held that the onus to establish the creditworthiness of investor companies lies with the assessee, and merely filing primary evidence does not discharge this onus. The Revenue emphasized that the loan creditors had very low income in their profit and loss accounts, making it implausible for them to provide such substantial loans.The assessee countered that they had provided correct addresses, bank statements, confirmations, and other relevant documents to prove the identity, genuineness, and creditworthiness of the loan creditors. The CIT(A) had examined these documents and found them satisfactory. The assessee also argued that the AO had not issued notices under Section 133(6) or summons under Section 131 to the new addresses provided and had not allowed cross-examination of the witnesses, thus failing to conduct a thorough inquiry.Tribunal's Decision:The Tribunal noted that the onus to prove the identity, capacity, and genuineness of the transaction lies with the assessee. Once the assessee provides prima facie evidence, the onus shifts to the Department. The Tribunal observed that the AO had not provided the assessee with an opportunity to cross-examine the witnesses, which is a violation of natural justice. The Tribunal also noted that the CIT(A) had relied heavily on the submissions made by the assessee without directing the AO to conduct a proper inquiry.Following the principles laid down in the Supreme Court judgment in NRA Iron & Steel (P.) Ltd. and the Delhi High Court judgment in CIT v. Jansampark Advertising & Marketing (P.) Ltd., the Tribunal set aside the order of the CIT(A) and restored the matter to the AO for a fresh order. The AO was directed to allow the assessee to cross-examine the parties and provide a reasonable opportunity of being heard before finalizing the order.Conclusion:The appeal was allowed for statistical purposes, and the matter was remanded to the AO for a fresh assessment, ensuring that the assessee is granted the opportunity to cross-examine the witnesses and present relevant documents.