2006 (1) TMI 182 - AT - Income Tax

Tribunal Orders Fresh Review of Case Due to Insufficient Proof of Cash Credit by Assessee.

The Tribunal set aside the CIT(A)'s order, remanding the case to the AO for fresh adjudication. The assessee failed to discharge the onus of proving the ... Addition u/s 68 - Summons issued u/s 131 to the creditors - Burden Of Proof - unproved loan - interest - whether the onus cast on the assessee u/s 68 is deemed to have been discharged, the moment he makes a request to the AO for issuance of summons to the creditor or even where summons were issued and served on the creditor - HELD THAT:- In our opinion, it is not so. A loan of ₹ 5,00,000 was introduced through cheque in the name M/s Equinox Assets & Capital Management (P) Ltd. The assessee was required to prove the loan. However, he requested the AO to summon the creditor to verify his creditworthiness and genuineness of the transaction. Summons under s. 131 was issued but the creditor did not appear, then the AO asked the assessee to produce the creditor. Since the assessee failed to produce the creditor, the AO treated the said loan of ₹ 5,00,000 as unexplained and added the same to the total income of the assessee along with interest of ₹ 75,000. Thus, any sum found credited in the books of account of the assessee maintained for the previous year may be charged to income-tax as the income of that previous year if (i) the assessee offers no explanation about the nature and source of such sum, or (ii) explanation offered by him in the opinion of the AO is not satisfactory. From a careful perusal of the record, we are of the opinion that the assessee has not properly discharged the onus of proving the cash credit by placing some documentary evidence as to what efforts he has made in order to produce the creditor before the AO and also to what has happened to the credit, whether it was returned or not. We, therefore, set aside the order of the CIT(A) and restore the matter to the file of the AO with a direction to re-adjudicate the issue afresh after affording a proper opportunity of being heard to the assessee and if the assessee succeeds in discharging its onus by placing some evidence that he has made all possible efforts to produce the creditor, but, failed to do so, AO shall issue summons u/s 131 to the creditor, if it is not responded, he may exercise his powers enshrined under order 16 of CPC in the same manner as the Civil Court does. Thus, in our view, the case requires to be set aside to the file of AO and the appeal of the Revenue may be allowed for statistical purpose. We, therefore, set aside the order of CIT(A) and restore it to the AO to adjudicate the issue afresh, after affording a proper opportunity of being heard to the assessee. In the result, appeal of the Revenue is allowed for statistical purposes. Issues Involved:1. Deletion of addition under Section 68 on account of unproved loan.2. Interest paid on the said loan.3. Creditworthiness and genuineness of the loan transaction.4. Assessee's responsibility to produce the creditor.5. Powers of the Assessing Officer (AO) under Section 131 of the IT Act.6. Onus of proof under Section 68 of the IT Act.Detailed Analysis:1. Deletion of Addition under Section 68 on Account of Unproved Loan:The Revenue appealed against the CIT(A)'s order, which deleted the addition of Rs. 5 lakhs made under Section 68 due to an unproved loan from M/s Equinox Assets & Capital Management (P) Ltd. The AO initially added the Rs. 5 lakhs as unexplained cash credit because the creditor did not appear despite being summoned under Section 131 of the IT Act.2. Interest Paid on the Said Loan:The AO also added Rs. 75,000 paid as interest on the said loan, treating it as unexplained due to the failure to produce the creditor for verification.3. Creditworthiness and Genuineness of the Loan Transaction:The assessee provided a bank certificate proving the transaction was through banking channels and furnished the PAN of the creditor. The AO verified that there was no cash deposit in the creditor's bank account before issuing the cheque, leading the CIT(A) to delete the additions, being convinced of the creditworthiness and genuineness of the transaction.4. Assessee's Responsibility to Produce the Creditor:The Revenue contended that the assessee failed to produce the creditor, thus not proving the creditworthiness and genuineness of the transaction. The assessee argued that by requesting the AO to summon the creditor and providing necessary documents, it discharged its primary onus. The Tribunal noted that the assessee did not establish that all efforts were made to produce the creditor before the AO.5. Powers of the Assessing Officer (AO) under Section 131 of the IT Act:The Tribunal discussed the AO's powers under Section 131, which are akin to those of a Civil Court under the CPC. These powers include enforcing attendance, examining on oath, issuing proclamations, and issuing bailable or non-bailable warrants. The Tribunal cited various judgments and a CBDT circular to emphasize that the AO can enforce attendance if the creditor defies summons.6. Onus of Proof under Section 68 of the IT Act:The Tribunal highlighted that Section 68 places the burden on the assessee to explain the nature and source of any sum credited in its books. The assessee must prove the identity, creditworthiness of the creditor, and genuineness of the transaction. The Tribunal referenced several judgments, including those of the Supreme Court and High Courts, which consistently held that mere proof of identity or payment by cheque is insufficient. The onus remains on the assessee until satisfactorily discharged.Conclusion:The Tribunal found that the assessee did not adequately discharge the onus of proving the cash credit by failing to produce the creditor or evidence of efforts made to do so. The Tribunal set aside the CIT(A)'s order and remanded the case to the AO for fresh adjudication. The AO was directed to re-examine the issue, considering the guidelines provided, and afford the assessee an opportunity to prove its case. If the assessee demonstrates all possible efforts to produce the creditor, the AO should then use his powers under Section 131 and the CPC to enforce attendance.Result:The appeal of the Revenue was allowed for statistical purposes, and the matter was restored to the AO for re-adjudication.