Appeal Dismissed: Tribunal upholds deletion of Rs.50 lakhs addition under Income-tax Act

The Tribunal dismissed the revenue's appeal against the deletion of an addition of Rs.50 lakhs under section 68 of the Income-tax Act, 1961 for Assessment Year 2012-13. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee had proven the identity, creditworthiness, and genuineness of the lenders. The loans were repaid before assessment proceedings, and the AO's doubts regarding the lenders' creditworthiness were deemed unjustified. The Tribunal highlighted that the AO should have verified the transaction with the creditor's AO before disregarding the documents provided by the assessee.

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Issues: Revenue's appeal against deletion of addition of Rs.50 lakhs under section 68 of the Income-tax Act, 1961 for Assessment Year 2012-13.

Analysis:
1. Issue of Deletion of Addition: The appeal was filed by the revenue against the order of the Commissioner of Income Tax (Appeals) regarding the deletion of an addition of Rs.50 lakhs under section 68 of the Income-tax Act, 1961. The assessee, a proprietor of a rice mill, had taken an unsecured loan of Rs.50 lakhs from two legal entities. The assessee provided various documents to prove the identity, creditworthiness, and genuineness of the transactions, including confirmation letters, audit reports, and bank account details of the lenders. The AO issued letters to the lender companies under section 133(6) of the Act, which were duly replied to. Additionally, the loans were repaid by the assessee before the assessment proceedings were initiated. The AO, however, concluded that the lenders were not creditworthy. The Tribunal noted that the AO's action was flawed and referred to a judgment emphasizing that the AO should have verified the genuineness of the transaction with the creditor's AO before disregarding the documents provided by the assessee.

2. Legal Precedent: The Tribunal relied on a judgment of the Hon'ble High Court, which highlighted that when the identity of the creditor and the genuineness of the transaction through account payee cheque are established, the AO should not doubt the transaction without verifying with the creditor's AO. The Tribunal found that the assessee had fulfilled the burden of proving the identity, creditworthiness, and genuineness of the lenders. The loans were returned through account payee cheques before the specified date, which the revenue did not refute. Consequently, the Tribunal upheld the factual findings of the CIT(A) and dismissed the appeal of the revenue.

3. Conclusion: The Tribunal dismissed the appeal of the revenue, emphasizing that the action of the AO in not accepting the documents provided by the assessee and deeming the lenders as not creditworthy was not justified. The Tribunal found that the assessee had met the burden of proof and had repaid the loans before the assessment proceedings, leading to the confirmation of the CIT(A)'s decision to delete the addition of Rs.50 lakhs. The judgment was pronounced on 14th August 2018.

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