2023 (6) TMI 89 - HC - Income Tax

Unexplained cash credits alleged from a purported sham lender were rejected after lender genuineness and creditworthiness were proved, relieving the assessee.

Assessment reopening premised on alleged unexplained cash credit from a sham lender failed because the lender's identity, genuineness and creditworthiness ... UnexplaIned cash credit u/s. 68 - assessee had obtained accommodation entries in form of loan and advances - AO held that the assessee could not satisfy the conditions of sections 68 of the Act to show the identity, creditworthiness and genuineness of the transaction - allegation against the assessee that it had obtained accommodation entry in form of loan from a party not genuine company [one of the 20 fake companies amongst the group of companies created by one Dalmiya] HELD THAT:- As could be seen from the facts noted and recorded by the appellate authority and the Income Tax Appellate Tribunal, the said party extending loan to assessee has been held to be a genuine party. Its identity, genuineness and creditworthiness were established. When party as found to be a genuine lender, the entire basis for proceedings against the assessee would vanish. Revenue was not justified in proceeding against the assessee on the ground that the loan taken from the said party was unexplained credit and that the lender was not genuine. Since the factual foundation for reopening the assessment of the respondent-assessee is absent, the action taken by the appellant-Revenue against the respondent-assessee cannot be endorsed to. Decided in favour of assessee. Issues:- Appeal under section 260A of the Income Tax Act, 1961 regarding deletion of addition of Rs. 8,71,00,000 made on account of unexplained cash credit u/s. 68 of the Act.- Identity, genuineness, and creditworthiness of the lender M/s. Basant Marketing Private Ltd.- Reopening of assessment based on alleged accommodation entries.Analysis:Issue 1: Appeal under section 260A of the Income Tax Act, 1961The appellant-Revenue challenged the deletion of addition of Rs. 8,71,00,000 under section 68 of the Act. The Assessing Officer treated the loan as unexplained credit due to lack of supporting evidence. However, the Appellate Authority and Tribunal found that the appellant proved the identity and genuineness of the creditor through regular banking channels. The Tribunal confirmed the lender's creditworthiness, leading to the deletion of the addition. The Tribunal's decision was upheld as the lender was deemed genuine, rendering the Revenue's action unjustified.Issue 2: Identity, genuineness, and creditworthiness of M/s. Basant Marketing Private Ltd.The Assessing Officer questioned the identity, genuineness, and creditworthiness of M/s. Basant Marketing Private Ltd. due to alleged involvement in money laundering. However, the appellant provided evidence of transactions through regular banking channels, including confirmation from the creditor. The Appellate Authority and Tribunal established the lender's authenticity based on detailed findings from previous assessments and enquiries, dismissing the Revenue's claims of the lender being fake.Issue 3: Reopening of assessment based on alleged accommodation entriesThe assessment was reopened based on information suggesting accommodation entries through a loan from M/s. Basant Marketing Private Ltd. The Assessing Officer's decision to treat the loan as unexplained credit was overturned by the Appellate Authority and Tribunal. The Tribunal's scrutiny of previous assessments and the lender's credibility led to the conclusion that the appellant's actions were legitimate, resulting in the dismissal of the Revenue's appeal.In conclusion, the High Court dismissed the appeal, emphasizing the lender's genuineness and the lack of substantial legal questions. The judgment highlighted the importance of establishing the identity, genuineness, and creditworthiness of transactions to prevent unjustified actions by tax authorities.