TaxTMI 
TaxTMI 
2011 (12) TMI 511
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....The issue raised in this appeal relates to the deletion by the Commissioner of Income-tax (Appeals) of the addition of Rs. 53,75,000/- made by the Assessing Officer on account of unsecured loans. The relevant facts are that the assessee is a company engaged in the business of ginning and pressing of cotton. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had accepted unsecured loans amounting to Rs. 56,75,000/- from 24 individuals, who were mainly agriculturists. The Assessing Officer required the assessee to explain the veracity of the above loans. The assessee filed confirmation letters of all the lenders as also bank statements of all the lenders showing amount paid by account payee cheques. O....
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....em, and particularly when the assessee had filed all the details like confirmation letters, affidavits, etc. The Commissioner of Income-tax (Appeals) further remarked that the Assessing Officer could not have brushed aside the affidavits and confirmation letters filed by the assessee without examining the deponents and proving the contents thereof as incorrect, as the same had evidentiary value. Further, most of the lenders had substantial agricultural holdings and some of them had other activities alongwith agriculture and were men of means. Most of the lenders sold their agricultural produce, i.e. cotton to the assessee- company. The assessee had repaid the loans of 23 lenders by account payee cheques in the year 2008 when funds became av....
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....ssing Officer, the credit-worthiness of creditors could not be established. It is also pointed out that out of the 24 creditors as much as 8 creditors were not produced for verification by the assessee which again justifies the addition made by the Assessing Officer by invoking the provisions of section 68 of the Act. 5. On the other hand, the learned Counsel for the respondent-assessee vehemently pointed out that out of the 23 creditors, the assessee had produced 16 creditors, who were duly examined by the Assessing Officer. During the course of such examination the creditors duly confirmed and explained the sources of income to advance loans to the assessee. It is pointed out that all the persons examined had sufficient land holdings a....
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....ned. Section 68 of the Act permits an Assessing Officer to treat a sum credited in the account books of an assessee as income if the assessee offers no explanation about the nature and source thereof or the explanation offered by the assessee is not, in the opinion of the Assessing Officer satisfactory. Quite clearly, section 68 of the Act casts an obligation on the assessee to explain the nature and source of the credits appearing in its books of account. It has been judicially well-settled that for the purposes of discharge of such onus, the assessee is required to explain the identity, credit-worthiness of the creditor as also the genuineness of the transaction. 7. In the present case, the Assessing Officer found that the assessee had....
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....s of the cash deposited in bank account, etc. In our considered opinion, the application of section 68 of the Act has to be kept in mind qua the burden cast on the assessee to explain the nature and source of the credit appearing in its books of account. No doubt, the burden is cast on the assessee to do so. So, however, same cannot be extended to mean that it is the duty of the assessee to infallibly demonstrate the sources of the creditors who lent monies to the assessee. Ostensibly, the creditors have to explain their own sources and if at all the Assessing Officer is not satisfied regarding the availability of monies with the creditors, same cannot ipso facto mean that assessee has filed to discharge the burden cast on it under section ....
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.... company, inasmuch as they are its shareholders. Moreover, it is also found by the Commissioner of Income-tax (Appeals) that all the creditors have been repaid subsequently through account payee cheque. Considering the entirety of the aforesaid circumstances, in our view, the assessee had duly discharged its burden cast under section 68 of the Act so as to prove the three ingredients, namely, identity, credit-worthiness of the lenders as well as genuineness of the transactions. The Assessing Officer having regard to the material on record and in law proceeded on mere presumptions and surmises to disbelieve the explanation furnished by the assessee. 10. Now in so far as the loans from 8 persons who were not produced before the Assessin....