ITO Vs Vastimal Bhim Raj Sancheti (ITAT Bangalore)
Conclusion: Assessee had satisfactorily explained the source of credits in his books and consequently, CIT(A) had rightly deleted the additions after relying on various judgments made by AO. The obligation to explain the “source of source” under Section 68 was restricted to credits like share capital and did not extend to unsecured loans received.
Held: Assessee, had received unsecured loans amounting to Rs. 5.87 crore and Rs. 8.31 crore from Magnificent Realcon Pvt. Ltd. (MRPL) during the assessment years 2015-16 and 2016-17, respectively. AO treated these loans as unexplained credits under Section 68 alleging that assessee failed to prove the identity, creditworthiness, and genuineness of the transactions. AO argued that MRPL was part of a multi-layered structure involving shell entities designed to obscure the true source of funds. It was alleged that these entities engaged in circular transactions and had negligible business activities or income, raising doubts about the loans’ authenticity. On appeal, CIT (Appeals) ruled in favor of the assessee, holding that the assessee had discharged the burden of proof under Section 68. CIT(A) observed that the assessee provided extensive documentation, including PAN, financial statements, bank details, and loan confirmations for MRPL and related entities, substantiating the identity and creditworthiness of the creditors as well as the genuineness of the transactions. CIT(A) observed that AO failed to conduct independent inquiries or provide evidence contradicting the assessee’s claims. Revenue challenged the CIT(A)’s decision before the ITAT, arguing that CIT(A) ignored the complex layering of transactions and that the submitted documents, including ITRs and confirmations, were insufficient to establish genuineness. Revenue argued that the loans lacked justification due to the creditors’ limited income and business activities. It was held that assessee not only disclosed the source of the credits reflected in its books of accounts but also furnished the assessment records of the creditor, demonstrating that the source of funds in the creditor’s hands had been subjected to scrutiny. CIT(A) has rightly distinguished the judgment of Hon’ble apex Court in the case of NRA Iron & Steel (P) Ltd. (103 taxmann. Com 48 (2019) (SC). In this case the lender had sufficient reserve & funds maintain for the last three years and it was accepted by the revenue authority in assessment proceedings u/s 143(3) vide order. The judgement indicated that assessee discharged its initial onus under Section 68, and any addition made without further investigation or rebuttal of the evidence provided by assessee would be untenable in law. In view of the above observations, assessee had satisfactorily explained the source of credits in his books and consequently, CIT(A) had rightly deleted the additions after relying on various judgments made by AO, and no further intervention was warranted under these circumstances.
