2025 (5) TMI 709 - AT - Income Tax

Assessee successfully proves identity and creditworthiness of creditors, defeating Section 68 additions for unproved loans

Amit Kanhaiyalal Gidwani, Kailash Kanhaiyalal Gidwani, As Legal heir of Late Mr. Kanhaiyalal Vishindas Gidwani Versus ACIT, Circle-1, Sangli

ITAT Pune allowed the assessee's appeal against additions under Section 68 for unproved loans. The Tribunal found that the assessee successfully ... Addition u/s. 68 - unproved loans received - HELD THAT:- We notice that the assessee is having regular transactions with the alleged creditor and there is opening balance. As per details with specific information about the source of funds as well as the sale proceeds for machinery and other transactions clearly indicate that the Identity, creditworthiness of JMCPL is proved and the genuineness of the transaction is also verifiable. It is also noticed that the assessee holds the Equity shares of JMCPL and therefore is well connected with this concern. We find that ld.AO erred in invoking section 68 as the assessee has discharged primary onus by explaining the nature and source of the alleged sum received from JMCPL. Finding of CIT(A) is reversed and ground of appeal raised by the assessee on this issue is allowed. Addition made u/s. 68 with the loan received from Sunil K.Gidwani - HELD THAT:- Sunil K. Gidwani is regularly assessed to tax, passed through the scrutiny proceedings for the very same assessment year and even the issue that whether Sunil K. Gidwani was carrying on the genuine business of Turmeric trading also reached before this Tribunal and the Tribunal has decided in favour of the assessee(s), i.e. Kailash K. Gidwani and Sunil K. Gidwani. All these facts collectively demonstrate that the Identity and Creditworthiness of alleged cash creditor and genuineness of the alleged transaction are proved and the same has been duly demonstrated by the assessee with the help of various documents including income-tax return, balance sheet, ledger account and bank statement of Sunil K. Gidwani. Under these given facts and circumstances, we are of the considered view that addition u/s. 68 was uncalled for. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Appellate Tribunal in these connected appeals for the Assessment Year 2010-11 are:Whether the addition made under section 68 of the Income Tax Act, 1961 (hereinafter 'the Act') on account of unproved loans received from specified parties is justified;Whether the identity, creditworthiness, and genuineness of the creditors and the transactions involving loans can be established to rebut the presumption under section 68;Whether the lower authorities erred in confirming additions under section 68 where the assessee had explained the nature and source of the loans;Whether the findings of the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] regarding the additions under section 68 are sustainable in law and on facts.Other issues initially raised, including deemed dividend under section 2(22)(e), addition on account of household expenses, and notional interest, were not pressed by the appellants and thus excluded from substantive consideration.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Addition under Section 68 on account of unproved loan of Rs. 12,50,000/- received from M/s. Jay Maharashtra Consumer Pvt. Ltd. (JMCPL)Relevant Legal Framework and Precedents: Section 68 of the Act mandates that when an assessee receives any sum as a loan or deposit, the identity, creditworthiness of the lender, and genuineness of the transaction must be satisfactorily established. The burden lies on the assessee to prove these elements to avoid addition. Precedents establish that mere assertion without credible documentary evidence or explanation can lead to addition under section 68.Court's Interpretation and Reasoning: The Tribunal noted that the assessee had longstanding transactions with JMCPL, with an opening credit balance of Rs. 60,64,394/-. The transactions during the year were routed through banking channels and supported by detailed documentary evidence, including cheque numbers, dates, amounts, and sources of payments. The assessee also held equity shares in JMCPL, indicating a close connection and transparency in dealings.Key Evidence and Findings: The Tribunal examined the ledger details showing receipt of loan amounts from JMCPL, supported by sale proceeds of machinery and advances from third parties. The source of funds for JMCPL was traced to advances and sales transactions, establishing the creditworthiness and identity of the creditor. The genuineness of the loan transaction was thus satisfactorily demonstrated.Application of Law to Facts: Given the documentary evidence and the explanation provided, the Tribunal found that the primary onus cast on the assessee under section 68 was discharged. The invocation of section 68 by the AO was therefore erroneous.Treatment of Competing Arguments: The Departmental Representative supported the lower authorities' orders; however, the Tribunal found the evidence in favour of the assessee more cogent and credible.Conclusion: The addition of Rs. 12,50,000/- under section 68 was deleted, reversing the CIT(A)'s confirmation of the addition.Issue 2: Addition under Section 68 on account of unproved loan of Rs. 15,40,000/- received from Sunil K. GidwaniRelevant Legal Framework and Precedents: Similar to the first issue, section 68 requires proof of identity, creditworthiness, and genuineness of loan transactions. The Tribunal also relied on prior decisions of Coordinate Benches where the genuineness of the turmeric trading business of Sunil K. Gidwani was upheld.Court's Interpretation and Reasoning: The Tribunal observed that the assessee and Sunil K. Gidwani were related persons, part of the same family. Sunil K. Gidwani had declared an income of Rs. 13,19,928/- for the relevant assessment year and had undergone scrutiny assessment proceedings. The balance sheet of Sunil K. Gidwani showed capital and other funds sufficient to explain the loan amount given to the assessee.Key Evidence and Findings: The Tribunal took note of the income tax returns, balance sheet, ledger accounts, and bank statements of Sunil K. Gidwani. It also referenced the earlier Tribunal order dated 02.03.2022, which had accepted the genuineness of Sunil K. Gidwani's turmeric trading business and profits declared therein.Application of Law to Facts: The evidence established the identity and creditworthiness of Sunil K. Gidwani as a creditor and the genuineness of the loan transaction. The addition under section 68 was therefore unwarranted.Treatment of Competing Arguments: The Departmental Representative supported the lower authorities' findings, but the Tribunal gave greater weight to the documentary evidence and prior judicial findings favouring the assessee.Conclusion: The addition of Rs. 15,40,000/- under section 68 was deleted, reversing the CIT(A)'s confirmation of the addition.Other Issues: Additions relating to deemed dividend under section 2(22)(e), household expenses, and notional interest were initially raised but were not pressed by the appellants during the hearing and hence dismissed as 'not pressed'.3. SIGNIFICANT HOLDINGSThe Tribunal's crucial legal reasoning is encapsulated in the following verbatim excerpts:'Considering the overall facts and circumstances of the case, we find that ld. AO erred in invoking section 68 of the Act as the assessee has discharged primary onus by explaining the nature and source of the alleged sum received from JMCPL.''All these facts collectively demonstrate that the Identity and Creditworthiness of alleged cash creditor and genuineness of the alleged transaction are proved and the same has been duly demonstrated by the assessee with the help of various documents including income-tax return, balance sheet, ledger account and bank statement of Sunil K. Gidwani.'Core principles established include:The burden under section 68 lies on the assessee to prove the identity, creditworthiness, and genuineness of the loan transaction.Documentary evidence such as bank statements, ledger accounts, income tax returns, and balance sheets are critical to discharge this burden.Prior judicial findings and scrutiny assessments of the creditor's business and income enhance the credibility of the explanation.Where the assessee satisfactorily explains the source and nature of the loan, additions under section 68 are unwarranted and must be deleted.Final determinations on each issue were that the additions under section 68 on account of unproved loans from JMCPL and Sunil K. Gidwani were deleted, reversing the confirmations by the CIT(A), and the appeals were partly allowed accordingly.