2017 (6) TMI 1389 - AT - Income Tax

Assessee wins Section 68 case after proving identity genuineness creditworthiness of loan creditors with proper documentation

The ITAT Mumbai ruled in favor of the assessee regarding addition under Section 68 for unexplained loans. The AO had made additions claiming the assessee ... Addition u/s 68 - unexplained loan - as per AO assessee has failed to prove the identity, genuineness and creditworthiness of the loan creditors and the loan creditors are not found at the address given and loan creditors are showing nominal income and hence, accumulation of fund to such an extent is not possible - contention of the assessee that he had discharged initial burden cast upon him by filing confirmation letters along with other evidences to prove the identity, genuineness of the transaction and creditworthiness of the parties. Once, three ingredients are proved, the assessee doesn't required to prove the sources of source. HELD THAT:- Assessee has furnished confirmation letters in respect of all loan creditors. We further observed that the assessee has filed income tax returns along with bank statements of all loan creditors. All the loan creditors are assessed to Income tax and loans has been given by cheque. We further observed that the A.O has summoned trustees of the trust who had appeared before the A.O and given a statement u/.s 131, wherein they have clearly admitted that they have advanced loan to the assessee. In respect of remaining three parties, though they are not appeared before the A.O, the assessee has filed necessary details that these loans have been repaid by cheque in the next financial year. Therefore assessee has discharged his initial burden cast upon him by filing identity, genuineness and creditworthiness of the parties. Once, three aspects has been proved, then the onus shifts to the A.O to prove otherwise. In this case, the A.O ignoring all evidences filed by the assessee, simply made additions on the simple reason that creditors are not having sufficient source of income to explain loan given to the assessee. If at all, the A.O having any doubt on the capacity of the loan creditors, he is free to proceed against the loan creditors as per the law, but he cannot make additions towards, loan creditors u/s. 68 of the Act, once the assessee has discharged his initial burden. In this case, on perusal of the facts available on record, we find that the assessee has filed necessary evidences to prove the identity, genuineness of the transaction and creditworthiness of the parties. Therefore, we are of the considered view that the A.O was erred in making additions towards unsecured loans u/s. 68 - Decided in favour of assessee. Issues:Assessment of unsecured loans under section 68 of the Income Tax Act, 1961.Detailed Analysis:Issue 1: Assessment of Unsecured Loans- The assessee, engaged in share trading, declared a total income of Rs. Nil for the assessment year 2009-10.- The Assessing Officer (AO) noted a loss from trading in shares and derivatives, along with unsecured loans taken.- After verification, the AO issued a show cause notice questioning the loans' genuineness and creditworthiness.- The assessee provided details, including confirmation letters, income tax returns, and bank statements of loan creditors.- The AO rejected the explanations, made additions under section 68 of the Act, and disallowed interest on loans.- The assessee appealed to the CIT(A), arguing that the loans were genuine and repaid by cheque in the subsequent year.- The CIT(A) upheld the additions, stating the creditors lacked income sources to justify the loans.- The ITAT found that the assessee had proven identity, genuineness, and creditworthiness of the parties through evidence like confirmation letters and bank statements.- The ITAT held that the AO erred in making additions without sufficient grounds and directed deletion of the additions.Conclusion:The ITAT allowed the assessee's appeal, emphasizing that the initial burden of proof was discharged through documentation, and the AO's additions were unwarranted. The judgment highlights the importance of substantiating transactions and creditor details to avoid unjust assessments under section 68 of the Income Tax Act, 1961.