2022 (2) TMI 1183 - AT - Income Tax

Tribunal remits case to CIT(A) for review, upholds AO's appeal for 2010-11 assessment year. Appeals allowed for statistical purposes. (A)

Deputy Commissioner of Income Tax-14 (2) (2) Mumbai Versus M/s Mishal Construction Pvt. Ltd.

Deputy Commissioner of Income Tax-14 (2) (2) Mumbai Versus M/s Mishal Construction Pvt. Ltd. - TMI Issues Involved:1. Deletion of addition of Rs. 3,05,00,000/- made by the Assessing Officer (AO) under Section 68 for unsubstantiated unsecured loans.2. Discharge of primary onus by the assessee regarding the unsecured loans.3. Evaluation of the documents furnished by the assessee in light of antecedent circumstances.4. Deletion of disallowance of interest of Rs. 17,80,807/- claimed to have been paid to the lenders.Issue-wise Detailed Analysis:1. Deletion of Addition under Section 68:The AO challenged the deletion of Rs. 3,05,00,000/- added as unexplained cash credits under Section 68 of the Income Tax Act, 1961. The AO observed that the assessee failed to establish the creditworthiness and genuineness of the transactions. The AO noted that the parties from whom loans were borrowed had low income and no substantial financial capacity. Despite transactions being routed through banking channels, the AO found inconsistencies and immediate corresponding deposits in the lenders' bank accounts, indicating potential accommodation entries. The AO concluded that the assessee did not discharge its burden of proof under Section 68, which requires establishing the identity, creditworthiness, and genuineness of the transactions.2. Discharge of Primary Onus by the Assessee:The AO argued that the CIT(A) erred in holding that the assessee had discharged the primary onus without addressing significant improbabilities identified by the AO. The AO emphasized that mere submission of bank statements and income tax returns is insufficient to prove the genuineness of the transactions. The AO cited judicial precedents, including the Supreme Court's decisions in CIT v. P. Mohanakala and A. Govindarajulu Mudaliar v. CIT, which emphasize the assessee's burden to provide satisfactory explanations for cash credits.3. Evaluation of Documents in Light of Antecedent Circumstances:The AO contended that the CIT(A) failed to appreciate the antecedent circumstances and surrounding facts before concluding the genuineness of the transactions. The AO highlighted that the lenders had minimal income and no regular source of funds, with deposits matching the loan amounts credited just before the transactions. The AO argued that the CIT(A)'s reliance on banking channels and balance confirmations was superficial and did not address the underlying financial realities and human probabilities.4. Deletion of Disallowance of Interest:The AO also challenged the deletion of Rs. 17,80,807/- disallowed as interest paid on the unsecured loans. The AO argued that since the loans were unsubstantiated, the interest claimed on such loans should also be disallowed. The AO emphasized that the assessee failed to prove the genuineness of the transactions and the creditworthiness of the lenders, making the interest payments non-deductible.Tribunal's Findings:The Tribunal found that the CIT(A) granted relief based solely on the transactions being through banking channels and supported by balance confirmations, which is insufficient to establish the genuineness of the transactions. The Tribunal referred to the case of DCIT vs. Leena Power Tech Pvt Ltd., emphasizing that the onus is on the assessee to prove the genuineness of the transactions, which involves demonstrating the identity, creditworthiness, and genuineness of the creditors. The Tribunal noted that the CIT(A)'s approach was superficial and did not address the AO's concerns regarding the financial capacity and genuineness of the lenders.Conclusion:The Tribunal remitted the matter back to the CIT(A) for fresh consideration, directing the CIT(A) to categorically address the AO's concerns and pass a speaking order in accordance with the law. The Tribunal allowed the AO's appeal and restored the matter to the CIT(A) for re-examination. The decision for the assessment year 2010-11 was applied mutatis mutandis to the remaining assessment years, and all five appeals were allowed for statistical purposes. The judgment was pronounced on December 23, 2021.