2022 (5) TMI 853 - AT - Income Tax

ITAT Chennai Upholds CIT(A) Decision on Section 68 Burden of Proof

The Asst. Commissioner of Income Tax, Non-Corporate Circle-3, Chennai. Versus Mr. Pakkeer Tulkarnai-Gulam Alam Shah, Chennai.

The Asst. Commissioner of Income Tax, Non-Corporate Circle-3, Chennai. Versus Mr. Pakkeer Tulkarnai-Gulam Alam Shah, Chennai. - TMI Issues:Identification of loan creditors, genuineness of transactions, creditworthiness of parties under section 68 of the Income Tax Act.Analysis:Issue 1: Identification of Loan CreditorsThe assessee, an individual conducting business, filed returns for AY 2016-17, disclosing total income. During scrutiny, the AO noted loans from various parties. The assessee provided confirmation letters, bank statements, and ITR acknowledgments to prove the loans were received through banking channels from known parties. The AO did not dispute the identity of creditors or genuineness of transactions but questioned creditworthiness, leading to additions under section 68.Issue 2: Creditworthiness of PartiesThe AO rejected the assessee's explanation, adding the loan amounts as unexplained credits. The Ld.CIT(A) found the assessee had fulfilled the burden under section 68 by proving identity, genuineness, and creditworthiness for most loans. However, for one loan from M/s.Rich Gold Hardware, the Ld.CIT(A) upheld the addition due to insufficient evidence on creditworthiness beyond confirmation letters.Issue 3: Legal Principles and PrecedentsThe Revenue challenged the Ld.CIT(A)'s decision, arguing that creditworthiness was not adequately proven. The Ld.AR supported the Ld.CIT(A), emphasizing that income declared by creditors does not solely determine loan amounts. The ITAT Chennai analyzed the evidence, emphasizing that once the assessee proves identity, genuineness, and creditworthiness, the onus shifts to the AO to disprove. Citing legal precedents, including the cases of Lovely Exports Private Limited and Steller Investment Ltd., the ITAT Chennai concluded that the AO erred in making additions based solely on creditors' declared income.ConclusionThe ITAT Chennai upheld the Ld.CIT(A)'s decision, dismissing the Revenue's appeal. The ITAT Chennai found that the assessee had adequately proven identity, genuineness, and creditworthiness for most loans, shifting the burden to the AO to provide contrary evidence. The ITAT Chennai emphasized that the AO's focus on creditors' income declarations was insufficient to justify the additions under section 68. The ITAT Chennai highlighted that loans from known parties, supported by proper documentation, should not be treated as unexplained credits solely based on income declarations.