Unexplained loan advances deleted after assessee provides PAN details and confirmations from recipients under section 131

The ITAT Jaipur allowed the assessee's appeal and deleted the addition of Rs. 18,01,000 made by the AO regarding unexplained loan advances. The assessee, engaged in safety deposit and vault services, had advanced money to its director which was later refunded through account payee cheques. The assessee provided PAN details and confirmations from recipients, fulfilling the burden of proof. The ITAT held that without issuing summons under section 131 to parties who filed confirmations, no adverse inference could be drawn by the AO, citing Orissa Corporation Pvt. Ltd. precedent.

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Issues Involved:
1. Confirmation of addition of Rs. 18,01,000/-.
2. Failure to prove the genuineness of transactions and creditworthiness of parties.
3. Non-compliance with procedural requirements by the Assessing Officer (AO).

Summary:

Issue 1: Confirmation of Addition of Rs. 18,01,000/-

The assessee filed an appeal against the order of the CIT(A), Jaipur, confirming the addition of Rs. 18,01,000/- received from four individuals. The assessee argued that these individuals were debtors of the company, and the amounts were received back through account payee cheques. The AO, however, treated the amount as unexplained income, as the assessee failed to produce the individuals for examination and did not provide sufficient evidence to prove the genuineness and creditworthiness of the transactions.

Issue 2: Failure to Prove Genuineness and Creditworthiness

The AO issued a notice u/s 142(1) and a show cause notice asking the assessee to file the source of the loan. The assessee's submission was not accepted by the AO, who noted that merely filing confirmation of the parties was insufficient. The AO added Rs. 18.01 lacs to the total income, observing that the assessee failed to explain the nature of credit entries and business relevancy. The CIT(A) upheld this addition, stating that the assessee failed to provide cogent explanations and evidence during both assessment and appellate proceedings.

Issue 3: Non-Compliance with Procedural Requirements by AO

The assessee contended that the AO did not issue summons u/s 131 or notices u/s 133(6) to the concerned parties despite a specific request. The Tribunal noted that the assessee had discharged its burden by submitting PAN and confirmation copies of the accounts. The Tribunal emphasized that the AO had the power to summon the parties but failed to do so.

Conclusion:

The Tribunal, referring to the decision in the case of M/s. Suraj Stones Corporation Ltd. vs ITO, found that the assessee had satisfactorily explained the credits in question. The Tribunal held that the addition made by the AO and sustained by the CIT(A) was based on surmises and conjectures without issuing necessary summons to the confirming parties. Consequently, the appeal of the assessee was allowed, and the addition of Rs. 18.01 lacs was deleted.

Order:

The appeal of the assessee is allowed. Order pronounced in the open court on 18/01/2024.

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