Appeal partially allowed due to proven creditworthiness and genuine transaction, burden shifts to Revenue

The tribunal partially allowed the appeal, finding that the assessee had proven the creditworthiness of the creditor and the genuineness of the transaction. Consequently, the additions and disallowances made by the Assessing Officer and upheld by the CIT(A) were overturned. The tribunal concluded in favor of the assessee, emphasizing that the burden to disprove the transaction shifted to the Revenue, which failed to counter the evidence presented. The decision was pronounced on 17/02/2023.

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Issues Involved:
1. Lack of opportunity provided to the assessee by the Assessing Officer (AO).
2. Addition of Rs. 36 lakhs on account of unsecured loan under Section 68 of the Income Tax Act, 1961.
3. Disallowance of interest expense of Rs. 50,597 under Section 36(1) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Lack of Opportunity Provided to the Assessee:
The assessee argued that the AO did not provide any opportunity to present their case regarding the additions made in the assessment order, which is against the principles of natural justice. The CIT(A) did not address this ground. The tribunal noted that the assessee filed its return on 19.07.2016, and the case was selected for scrutiny. Despite various notices, the assessee submitted written submissions only on 25-10-2018. The AO observed that the assessee obtained an unsecured loan of Rs. 36 lakhs from Divesh Goyal and issued a notice under Section 133(6) to him, which was not complied with before the assessment order due to the attachment of Goyal's bank account by the AO. The bank account was released on 14.12.2018, and the necessary documents were submitted on 26.12.2018, after the assessment order was passed. The tribunal concluded that the initial onus of proving the creditworthiness of the creditor was not discharged by the assessee before the assessment order.

2. Addition of Rs. 36 Lakhs on Account of Unsecured Loan:
The AO made an addition of Rs. 36 lakhs under Section 68, citing the non-furnishing of the bank statement and the creditor's inability to prove his creditworthiness due to a declared business loss of Rs. 20,85,522. The CIT(A) upheld this addition, emphasizing that mere filing of confirmation, PAN, and ITR does not establish the creditworthiness of the loan transaction. The tribunal, however, noted that the assessee provided substantial evidence, including the creditor's bank statement showing sufficient funds and regular filing of returns and balance sheets. The tribunal referenced several judicial precedents, including decisions by the jurisdictional High Court, which established that once the assessee proves the identity and genuineness of the transaction, the burden shifts to the Revenue to disprove it. The tribunal found that the assessee had discharged the initial onus, and the Revenue failed to counter the evidence. Consequently, the tribunal did not concur with the CIT(A) and allowed this ground in favor of the assessee.

3. Disallowance of Interest Expense:
The AO disallowed the interest expense of Rs. 50,597 paid to Divesh Goyal, reasoning that the unsecured loan was not proved. The CIT(A) upheld this disallowance. The tribunal, however, noted that the assessee had credited interest to Goyal and deducted TDS. Given that the loan transaction was found genuine, the disallowance of interest was deemed unjustified. The tribunal referenced several judicial precedents, including decisions by the jurisdictional High Court, which supported the assessee's position. Thus, the tribunal allowed this ground in favor of the assessee.

Conclusion:
The tribunal allowed the appeal partly, concluding that the assessee had established the creditworthiness of the creditor and the genuineness of the transaction, thus overturning the additions and disallowances made by the AO and upheld by the CIT(A). The order was pronounced in the open court on 17/02/2023.

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