2025 (8) TMI 1170 - AT - Income Tax

Assessment remitted for limited verification of identity and genuineness of loan creditors under s.68 for Rs.5.67 crore loans

The ITO, Non-Corporate Ward-10 (1), Chennai. Versus M/s. Alpha Beta Homes., Purasaiwalkam

The ITO, Non-Corporate Ward-10 (1), Chennai. Versus M/s. Alpha Beta Homes., Purasaiwalkam - TMI 1. ISSUES PRESENTED AND CONSIDERED 1. Whether addition of unexplained cash/credit (Rs.4,08,78,128) disallowed by the Assessing Officer for failure to establish source of funds (purchase of immovable property) was justified where the assessee produced documents relating to alleged loans from nine creditors only at the fag end of assessment proceedings. 2. Whether the Commissioner of Income Tax (Appeals) erred in deleting the addition on the sole ground that the Assessing Officer did not undertake independent enquiries to verify identity, creditworthiness and genuineness of the alleged loan creditors. 3. Whether remand to the Assessing Officer for limited verification of identity, creditworthiness and genuineness of the creditors is the appropriate remedy where the assessee filed creditor documents very late in the assessment proceedings. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Properness of addition where source of purchase (loans from nine creditors) was not established before assessment was framed Legal framework: The statutory burden is on the assessee to prove identity, creditworthiness and genuineness of loans credited to business or used for purchase of assets; where the assessee fails to discharge that burden, the Assessing Officer may make an addition to income as unexplained credit or unexplained investment. Precedent Treatment: No specific judicial precedents were invoked or followed in the instant order; the Tribunal proceeded on statutory principles and assessment record. Interpretation and reasoning: The Tribunal examined the timeline: notice under section 148 issued 30.03.2021, subsequent statutory communications on 06.09.2021, 03.02.2022 and 11.02.2022; however the assessee furnished ITRs, PANs and addresses of the nine alleged creditors only in response to the draft assessment served on 27.03.2022 and during a hearing on 30.03.2022, with the assessment order passed on 31.03.2022. The Assessing Officer recorded inability to verify the veracity and creditworthiness of the creditors because relevant documents were produced at the very end of the proceedings, preventing independent enquiries. The Tribunal held that the assessee's delay in producing source documents undermined the requirement to establish the loans as genuine, and justified the Assessing Officer's addition in principle. Ratio vs. Obiter: Ratio - where the assessee produces evidence of source only at the fag end of assessment, preventing AO's verification, the addition can be warranted because the statutory burden remained unfulfilled. Obiter - no broader pronouncement on the sufficiency of particular categories of documents to prove creditworthiness was made beyond the factual outcome. Conclusions: The Assessing Officer's addition was not prima facie unsustainable on the ground that the assessee failed to timely substantiate the alleged loans; therefore, the addition could stand unless verification subsequently establishes genuineness. Issue 2 - Validity of appellate deletion premised on AO's failure to make enquiries Legal framework: Appellate authorities may reverse an assessing officer's finding where appellate fact-finding demonstrates that the assessee discharged the statutory burden or where AO's failure to verify renders the addition arbitrary; however, deletion must be based on reasons supported by record and not merely on criticism of AO's procedural choices when the assessee's delay precluded verification. Precedent Treatment: No precedent cited; the Tribunal applied statutory reasonableness and record-based review principles. Interpretation and reasoning: The Tribunal found that the CIT(A)'s deletion rested on the conclusion that the assessee had furnished evidence to prove identity, creditworthiness and genuineness, and that the AO nevertheless failed to make enquiries. The Tribunal disagreed with that approach because the assessment record showed that the assessee produced the creditors' ITRs and particulars only at the end of the assessment timeline, thereby materially impeding the AO's ability to verify. The Tribunal observed that deleting the addition merely because the AO could not, within an impossibly short time, verify late-submitted documents would improperly reward the assessee's delay and substitute the appellate authority's view for the statutory fact-finding function of the AO. Ratio vs. Obiter: Ratio - appellate deletion is inappropriate when it is based solely on criticism of the AO's lack of enquiry where the assessee's own belated production of documents rendered meaningful verification impossible. Obiter - implicit guidance that CIT(A) should consider remand or direct limited verification rather than order deletion in such circumstances. Conclusions: The CIT(A) erred in deleting the addition merely on the ground that the AO did not make independent enquiries; deletion was not warranted where the assessee's late submission prevented proper verification. Issue 3 - Appropriate remedy: remand for limited verification Legal framework: Where primary fact-finding (identity, creditworthiness, genuineness) remains unresolved due to either late production of evidence or insufficient enquiry, appellate tribunals can remit the matter to the Assessing Officer for limited verification and consequent fresh decision in accordance with law. Precedent Treatment: No case law was cited; the Tribunal applied the well-established principle that remand is appropriate to enable the statutory fact-finder to conduct necessary inquiries when the record is incomplete. Interpretation and reasoning: Balancing the parties' positions, the Tribunal concluded that complete forfeiture (upholding the addition outright) or outright deletion by the appellate authority would be inappropriate. Given the assessee had produced some documentary material (ITRs, PANs, addresses) albeit at a late stage, the Tribunal found remand to the Assessing Officer for focused verification of the nine creditors' identity, creditworthiness and genuineness to be the appropriate and proportionate remedy. The Tribunal directed verification limited to the disputed quantum (Rs.4,08,78,128) and that, if the assessee discharges the statutory burden on verification, the AO should pass appropriate orders in law. Ratio vs. Obiter: Ratio - remand to the Assessing Officer for limited verification is the proper course where factual disputes turn on verification impeded by late production of documents; appellate deletion is inappropriate in such circumstances. Obiter - procedural specifics of verification were not prescribed beyond directing enquiries into identity, creditworthiness and genuineness and consideration of evidence already on record. Conclusions: The Tribunal set aside the appellate deletion and remitted the matter to the Assessing Officer for limited verification of the creditors in respect of the disputed amount; the Assessing Officer to pass fresh orders in accordance with law depending on outcome of verification.