2020 (11) TMI 46 - AT - Income Tax

Tribunal upholds assessee's appeal, dismisses Revenue's case under Section 68 of Income Tax Act

The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s decision to delete the addition of Rs. 9,85,00,000/- under Section 68 of the Income ... Section 68 - burden to prove identity, genuineness and creditworthiness - Unexplained cash credit - Investigation report versus independent enquiry by the Assessing Officer - Shifting of onus to Revenue after assessee's prima facie discharge - Proviso to section 68 - prospective application (not applicable to AY 2011-12)Section 68 - burden to prove identity, genuineness and creditworthiness - Investigation report versus independent enquiry by the Assessing Officer - Shifting of onus to Revenue after assessee's prima facie discharge - Deletion of addition of Rs. 9,85,00,000 made by the Assessing Officer under section 68 for AY 2011-12 by treating the receipt from Minaxi Suppliers Pvt. Ltd. as unexplained cash credit. - HELD THAT: - The Tribunal held that under pre amendment Section 68 the assessee bore the initial onus to prove identity of the creditor, genuineness of the transaction and the creditor's creditworthiness. The assessee furnished corporate documents, PAN, bank statements, confirmations, audited financial statements and assessment orders of the creditor, together with an affidavit from the creditor asserting the payment under a joint venture arrangement. The CIT(A) found, and the Tribunal agreed, that these documents discharged the assessee's primary onus. Once that prima facie case was established, the onus shifted to the Revenue to bring cogent material dislodging the evidence. The AO relied principally on an investigation wing report alleging layering through shell entities but did not undertake independent enquiries (for example, by placing corroborative evidence on record, issuing effective statutory summons or conducting field verification) to test the veracity of the assessee's documents. The Tribunal applied consistent precedents to conclude that additions cannot be sustained on suspicion, surmise or conjecture where the assessee has produced the requisite evidence and the AO has not carried out or produced independent verificatory material. The proviso to Section 68 (requiring proof of source of source) was held to be prospective and inapplicable to the year under appeal, so the assessee was not required to prove source of source for AY 2011 12. [Paras 8, 9, 10]The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s deletion of the addition of Rs. 9,85,00,000 under section 68.Final Conclusion: Appeal dismissed; the Tribunal upheld the CIT(A)'s deletion of the addition under section 68 for AY 2011-12, holding that the assessee discharged the initial onus and the AO failed to produce independent cogent material to rebut the evidence. Issues Involved:1. Deletion of unexplained cash credit under Section 68 of the Income Tax Act.2. Failure of the assessee to discharge the primary onus under Section 68.3. Reopening of assessment based on information from the Investigation Wing.Detailed Analysis:Issue 1: Deletion of Unexplained Cash Credit under Section 68The Revenue challenged the deletion of an addition of Rs. 9,85,00,000/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, which was deleted by the Commissioner of Income Tax (Appeals) [CIT(A)]. The AO had added the amount as unexplained cash credit, alleging that the assessee had routed its own unaccounted money through non-existent and shell companies.The CIT(A) found that the assessee had provided sufficient evidence to prove the identity, creditworthiness of the lender (Minaxi Suppliers Pvt. Ltd.), and the genuineness of the transaction. The evidence included incorporation certificates, PAN, bank statements, and financial statements of the lender. The CIT(A) noted that the AO's addition was based solely on the investigation wing's report without any independent corroborative evidence.The CIT(A) emphasized that the provisions of Section 68 require the assessee to prove the identity, genuineness, and creditworthiness of the creditor. The assessee had discharged this burden by submitting necessary documents. The AO had failed to conduct a thorough investigation or bring any material evidence to counter the assessee's submissions.Issue 2: Failure of the Assessee to Discharge the Primary Onus under Section 68The AO argued that the assessee failed to discharge the primary onus under Section 68 by not providing adequate details to prove the genuineness of the transaction and the creditworthiness of the lender. The AO contended that the lender was a shell company involved in hawala transactions.However, the CIT(A) and the Tribunal found that the assessee had submitted comprehensive documentation, including bank statements, affidavits, and financial statements, which demonstrated the lender's financial capacity and the genuineness of the transaction. The Tribunal noted that the AO did not conduct any independent inquiry or issue statutory notices to verify the lender's details.Issue 3: Reopening of Assessment Based on Information from the Investigation WingThe case was reopened based on information from the Deputy Director of Income Tax (Investigation), Kolkata, indicating that the assessee had received funds from shell companies. The AO issued a notice under Section 148, and the assessee filed a return of income declaring Rs. 48,790/-.During the assessment proceedings, the AO relied heavily on the investigation wing's report, which alleged that the funds were routed through multiple layers of non-existent entities before reaching the assessee. The AO concluded that the transactions were not genuine and added the amount under Section 68.The CIT(A) and the Tribunal found that the AO's reliance on the investigation wing's report was not sufficient to justify the addition. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had provided all necessary documents to prove the identity, creditworthiness, and genuineness of the transaction. The Tribunal emphasized that the AO failed to conduct a proper investigation or bring any substantive evidence to support the addition.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order to delete the addition of Rs. 9,85,00,000/- under Section 68. The Tribunal found that the assessee had adequately discharged the burden of proof by providing comprehensive documentation, and the AO had failed to conduct a thorough investigation or provide any corroborative evidence to support the addition. The decision was based on similar facts and legal principles as in the case of the assessee's sister concern, where the Tribunal had also ruled in favor of the assessee.