No section 68 addition if Assessee Proves Authenticity of Transaction with Evidence

Rupal Jain Vs ACIT (ITAT Delhi)

We notice that the assessee has not only discharged the primary onus by filing confirmation and the IT returns and balance sheet of the lenders, the assessee is also stated to have paid interest in most of the cases and deducted TDS thereon. Noticiably, the lenders are the family members and they are also filing their return of income declaring income which is in excess of money lent. The creditworthiness is thus reasonably established. Apart from these facts, as stated, the loans were also stood repaid in the subsequent assessment year which transcends all other considerations in the light of the decision of Hon’ble Gujarat High Court in the case of CIT vs. Ayachi Chandrashekhar Narsangji, (2014) 42 taxmann.com 251 (Guj.); CIT vs. Karaj Singh (2011) 15 taxmann.com 70 (P&H) & Panna Devi Chowdry vs. CIT, 208 ITR 849 (Bom.). Therefore when the facts are seeing hostically, we find that assessee has adduced evidences which supports the bona fides of money borrowed. We thus reverse the action taken by the Revenue Authorities under Section 68 of the Act and restore the position taken by the assessee.

FULL TEXT OF THE ORDER OF ITAT DELHI

The captioned appeal has been filed by the Assessee against the order of the Commissioner of Income Tax (Appeals), Meerut (‘CIT(A)’ in short) dated 23.12.2016 arising from the assessment order dated 20.03.2015 passed by the Assessing Officer (AO) under Section 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2012-13.

2. The grounds of appeal raised by the assessee reads as under:

“A) The additions of Rs. 63,58,500/- u/s 68 of the Act on account of unsecured loan deserves to be deleted in toto on the following, inter alia, grounds.

1) BECAUSE on facts and in law and on grounds taken and basis adopted, the addition of Rs. 63,58,500/- u/s 68 on account of unsecured loans is unjustified and illegal.

2) BECAUSE the appellant filed the documents / proof (Confirmation Certificates, ITR, Bank A/c, statement of affairs, cash flow statement, etc. of the lenders) in support of the unsecured loans and duly discharged the prima facie onus u/s 68 of the Act in accordance with the law laid down by the Hon’ble Apex Court and also Jurisdictional High Court.

3) BECAUSE Appellant has duly explained the identity/genuineness/creditworthiness of all the lenders who gave unsecured loans and fully discharged the onus as required u/s 68 of the Act.

4) BECAUSE Ld. CIT (A) without considering the details/documents filed by the lender in pursuance of notices u/s 133(6) proceeded to make the additions in clear disregard of law of land and the facts of the case.

5) BECAUSE Ld. CIT (A) confirmed additions on conjecture & surmises and without considering the material on record.

6) BECAUSE the Ld. CIT (A) failed to appreciate the fact that the cheques representing unsecured loans were not encashed during the relevant previous year. The said cheques were only encashed in the subsequent years. Therefore, provisions of section 68 are simply not applicable.

7) BECAUSE the Ld. AO failed to provide reasonable opportunity to the Appellant and failed to provide the material gathered behind the back of the Appellant.

8) BECAUSE the provisions of section 144A are mandatory in nature and the directions given by Ld. Additional CIT have to be followed by the Ld. Assessing Officer.

B) The addition of Rs. 15,00,000/- made to the total income declared by the Appellant on account of capital introduced by the appellant deserves to be deleted in toto on the following, inter alia, grounds:

1) BECAUSE on facts and in law and on grounds taken and basis adopted, the addition of Rs. 15,00,000/- u/s 68 on account of capital introduced is unjustified and illegal.

2) BECAUSE Appellant has filed the documents / proof in support of the capital introduced during the year which were totally ignored by the I.T. Authorities. The Appellant received the cheque out of her debit balance in the capital account of the firm viz. Arihant Media Promoters. The copies of bank account, ITR, confirmation certificate from the said firm were duly filed by the Appellant during assessment as well as in first appeal. The Appellant has duly discharged the onus as required u/s 68 of the Act.

3) BECAUSE the I.T. Authorities failed to appreciate that the cheque representing capital introduced was only encashed by the Appellant after the end of relevant previous year. As such the provisions of section 68 are simply not applicable.”

3. Briefly stated, the assessee is engaged in the business of carrying out printing work as a proprietor of M/s. Arihant Print Solutions. The return filed by the assessee was subjected to scrutiny assessment. The Assessing Officer inter alia made additions to Rs.63,58,500/- under Section 68 of the Act on account of receipt of unsecured loans from various parties tabulated herein:

4. The Assessing Officer has also made an addition of Rs.15 lac under Section 68 of the Act on account of receipt in the capital from the partnership firm in the absence of explanation towards source of fund as alleged.

5. On challenge, the CIT(A) did not find any merit in various pleas raised on behalf of the assessee and confirmed the action of the Assessing Officer.

6. Aggrieved by the order of the CIT(A), the assessee preferred appeal before the Tribunal.

7. Ld. counsel for the assessee in the course of hearing, submitted that the assessee has received unsecured loans from within the family members only, who are all assessed to tax and regularly filed the return of income. Adverting to the tabulated statement at page 43 of the paper book, the ld. counsel submitted that the interest was also paid on the loans so taken in most cases and TDS was duly deducted as per Chapter XVII-B of the Act. A chart showing opening balance, unsecured loan raised during the year, address of the lenders, PAN Number of the lenders, interest paid, closing balance etc. was referred to in the course of hearing. It was insisted that each and every lender is a close relative being husband, father- in- law, mother-in-law, brothers and sister-in-law. It was also pointed out that the lenders have confirmed the money lent in the proceedings carried out under Section 133(6) of the Act in terms of directions issued by the Additional Commissioner of Income Tax under Section 144A of the Act. It was thus submitted that the assessee has discharged the primary onus which lay upon the assessee towards identity of lenders, genuineness of transactions and creditworthiness of the lenders as called upon u/s. 68 of the Act. It was pointed out that only ground for addition is non adherence of personal attendance called under Section 131 of the Act which was watered down and modified by the Additional Commissioner in terms of directions issued under Section 144A of the Act. On being inquired by the Bench, it was further asserted that the loans have been duly repaid in the subsequent assessment years, the particulars of amount repaid along with cheque details were filed as directed. In the light of these facts, it was contended that it is wholly unfair for the Revenue to embroil the assessee in futile litigation. Ld. counsel thus urged for restoration of the position taken by the assessee and reversal of addition made.

8. As regards introduction of capital of Rs.15 lac in its proprietary concern, it was submitted that the amount has been transferred from individual account to the proprietorship concern through banking channel and it is merely a book entry from one account to another without any benefit to the assessee per se. It was pointed out that the amount was essentially received from the partnership firm which was, in turn, transferred to the proprietorship concern and thus the source cannot be doubted.

9. The Ld. DR for the Revenue, on the other hand, relied upon the orders of the lower authorities.

10. We have carefully considered the rival submissions and taken note of the material referred to and relied upon. The first issue relates to addition of Rs.63,58,500/- under Section 68 of the Act. We notice that the assessee has not only discharged the primary onus by filing confirmation and the IT returns and balance sheet of the lenders, the assessee is also stated to have paid interest in most of the cases and deducted TDS thereon. Noticiably, the lenders are the family members and they are also filing their return of income declaring income which is in excess of money lent. The creditworthiness is thus reasonably established. Apart from these facts, as stated, the loans were also stood repaid in the subsequent assessment year which transcends all other considerations in the light of the decision of Hon’ble Gujarat High Court in the case of CIT vs. Ayachi Chandrashekhar Narsangji, (2014) 42 taxmann.com 251 (Guj.); CIT vs. Karaj Singh (2011) 15 taxmann.com 70 (P&H) & Panna Devi Chowdry vs. CIT, 208 ITR 849 (Bom.). Therefore when the facts are seeing hostically, we find that assessee has adduced evidences which supports the bona fides of money borrowed. We thus reverse the action taken by the Revenue Authorities under Section 68 of the Act and restore the position taken by the assessee.

10. Ground No.1 of the assessee’s appeal is allowed.

11. Ground No.2 concerns introduction of Rs.15 lakh to the proprietorship concern which, in turn, was claimed to be received from the partnership firm. The CIT(A) has denied any relief to the Assessee on the aforesaid additions. The reasons noted by the CIT(A) in this regard is noted hereunder:

“In the case of introduction of Capital as well the same patter of funding is seen in so far cash is deposited in the Bank account of the loan creditor which is a family concern M/s. Arihant Media promoters and then transferred to the Appellant.

Clearly the lender did not have the capacity or creditworthiness when the cheque of Rs.15,00,000/- was credited on 31.03.2012 and the instrument got cleared in the next year in July well beyond the legal validity of the instrument which expired on 30.06.2012 which shows the collusive character of the transaction and the involvement of the banking authorities. The cash of Rs.15,00,000/- deposited in two installments of 8 lacs and 7 lacs in the bank account of the loan creditor was exactly of the same value that was extended as loan in the preceding financial year. Thus, considering the facts and circumstances of the case and the considering the dubious nature of transactions involved, I have compelled to confirm the addition of Rs.15,00,000/-. Accordingly, this ground of Appeal fails.”

12. The Assessee could not displace the findings of CIT(A) except the claim of transfer of money through banking channel. No cogent explanation towards source of cash deposits in partnership firm is made available. The CIT(A) observed factum of cash deposits in the account of creditor/partnership firm which could not be rebutted. Needless to say, the onus lies on the assessee to explain the money trail to the satisfaction of Assessing Officer. In our opinion, the onus is not discharged as rightly concluded by the CIT(A). We thus decline to interfere with the order of the CIT(A).

13. Ground No.2 is dismissed.

14. In the result, the appeal of the assessee is partly allowed.

Order pronounced in the open Court on 16/06/2022.