Mere furnishing of confirmations & PAN not sufficient to prove creditworthiness of creditors

Mayuri Infrastructure (P) Ltd. Vs ITO (ITAT pune)

Mere furnishing of confirmations and PAN are not sufficient to prove the creditworthiness of the creditors. The assessee has to prove financial capacity of the creditors. The assessee was required to furnish evidence that would show financial worth of the creditors, such as bank statements, to remove the shadow of doubt from the mind of assessing officer. Taking into consideration totality of facts, we deem it appropriate to restore this issue back to the file of assessing officer in respect of 11 creditors mentioned in the grounds of appeal. The assessee is directed to furnish all necessary documents before the assessing officer to prove the genuineness and creditworthiness of the creditors. The assessing officer after affording opportunity of hearing to the assessee shall decide this issue, in accordance with law. It is made clear that the assessing officer shall not disturb the relief already granted by the First Appellate Authority in respect of addition under section 68 of the Act.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

This appeal by the assessee is directed against the order of Commissioner (Appeals)-I, Nashik dated 17-12-2014 for the assessment year 2010-11.

2. The assessee in appeal has raised solitary issue assailing confirming of various additions under section 68 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).

3. The brief facts of the case as emanating from records are: The assessee company is engaged in the business of buying and selling non-agriculture plots, development and construction. During scrutiny assessment proceedings for assessment year 2010-11, the assessing officerinter alia observed that the assessee has outstanding unsecured loans to the tune of Rs. 1,31,69,930. The list of persons from whom the assessee has allegedly taken loans are as under :–

The assessing officer made addition of the entire outstanding unsecured loans under section 68.

Aggrieved by assessment order dated 26-3-2013, the assessee filed appeal before the Commissioner (Appeals). The First Appellate Authority after examining the facts of the case and explanation furnished by the assessee deleting opening balances of the outstanding loans. The Commissioner (Appeals) further accepted the explanation furnished by the assessee in respect of loan from Ramdas Sonawane and deleted the addition thereof. The Commissioner (Appeals) confirmed the addition of Rs. 92,15,000 under section 68 after deleting opening balance and outstanding loan from Ramdas Sonawane. Still aggrieved, the assessee is in second appeal before the Tribunal.

4. Shri Pramod Shingte appearing on behalf of the assessee submitted that the authorities below have erred in disbelieving the confirmations filed by various creditors. The learned Authorised Representative submitted that in the case ofBhanudas Chaudhari, Dhananjay Marathe, Madhuri Dhananjay Marathe and Sunita Bhanudas Chaudhari the assessments were reopened and the assessing officer has accepted the availability of funds. The other creditors are mostly agriculturists. The assessee had furnished 7/12 extracts in respect of all such creditors and had also provided assessing officer with PAN of majority of the creditors. The assessee had also furnished confirmations from them. The learned Authorised Representative contended that if an opportunity is granted, the assessee would furnish all the necessary documents before the authorities below to prove creditworthiness of the creditors.

5. On the other hand Shri Mukesh Jha representing the Department vehemently supported the findings of Commissioner (Appeals). The learned Departmental Representative submitted that ample opportunity was given to the assessee by the assessing officer and thereafter by the Commissioner (Appeals) to prove creditworthiness of the creditors. However, the assessee failed to furnish any cogent evidence to support his contentions. The learned Departmental Representative submitted that the assessing officer has given specific finding that the assessee has introduced fictitious creditors in the form of unsecured loans. The assessee has introduced its own unaccounted money through the fictitious creditors.

6. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. The assessee in appeal has raised 12 grounds assailing the additions made under section 68 of the Act. The ground Nos. 1 to 11 relate to single issue i.e. addition under section 68 loans from unsecured creditors. The ground No. 12 is general in nature. The assessee has assailed the findings of Commissioner (Appeals) in confirming the additions in respect of following creditors —

7. It has been contended before us that in reassessment proceedings in the case ofBhanudas Chaudhari (Sr. No. 3), Dhananjay Marathe (Sr. No. 4), Madhuri Dhananjay Marathe (Sr. No. 6) and Sunita Bhanudas Chaudhari (Sr. No. 9), the assessing officer has accepted the source of funds. However, the assessment order in the case of above said persons were not placed on record by the learned Authorised Representative. In respect of other creditors it has been contended that they are agriculturists and the assessee would furnish all the relevant documents for re-verification, if an opportunity is granted. It is pertinent to mention here that during assessment proceedings, the assessee had furnished confirmation letters from all the creditors and had also furnished 7/12 extracts in respect of creditors who are stated to be agriculturists. We observe that some of the creditors are salaried employees. The assessing officer rejected the contentions of assessee, as the assessee had failed to furnish bank statements of the creditors.

8. We are in agreement with the findings of authorities below that mere furnishing of confirmations and PAN are not sufficient to prove the creditworthiness of the creditors. The assessee has to prove financial capacity of the creditors. The assessee was required to furnish evidence that would show financial worth of the creditors, such as bank statements, to remove the shadow of doubt from the mind of assessing officer. Taking into consideration totality of facts, we deem it appropriate to restore this issue back to the file of assessing officer in respect of 11 creditors mentioned in the grounds of appeal. The assessee is directed to furnish all necessary documents before the assessing officer to prove the genuineness and creditworthiness of the creditors. The assessing officer after affording opportunity of hearing to the assessee shall decide this issue, in accordance with law. It is made clear that the assessing officer shall not disturb the relief already granted by the First Appellate Authority in respect of addition under section 68 of the Act.

9. In the result, the appeal of assessee is allowed for statistical purpose.