Assessee borrower not liable to prove the source of funds in the hands of lender

Brief of the case:

• The ITAT Amritsar bench in case of Sh. Dushiant Kumar vs. ITO held that it is not the responsibility of the assessee to prove the source of funds in the hands of lender so long as he produce the lender before the AO who confirm the fact of lending money to assessee.
• Further, the fact that lender was not paid any interest and could not state the exact date of receiving the amount lent back could not be considered as sufficient reason to assessee the loan as suppressed income of assessee.

Facts of the case:

• AO made an addition of Rs.1,25,000/- , as loan by the assessee from Sh. Rajender Kumar Mittal. The AO observed that although he deposed that he had given loan to the assessee, he also deposed that his earnings are around Rs.1.5 lacs to 2 lacs per annum and the loan was given out of his savings.
• AO also observed that cash deposits had been made in this account before giving loan to the assessee and no deposits out of the savings. The lender (creditor) explained that loan was given out of cash savings kept at home and in response to the question as to when the amount had been received back, the creditor contended that the money had been received back, but he did not remember as to when it was received back.
• From these facts, the AO concluded that the assessee’s own unaccounted money had been brought back in the garb of fresh unsecured loan. Accordingly, AO added the amount of Rs.1,25,000/- to the income of the assessee u/s 69 of the Act. The ld. CIT(A) confirmed the addition.

  Contention of the Assessee:

• The assessee contended that the ld. CIT(A) has erred in confirming the addition of Rs.1,25,000/-, made u/s 69 of the Act. The transaction was made through banking channel, the lender was also produced before AO and he also confirmed the fact that he lent money to assessee on oath.
• Merely because no interest was paid to lender and lender could not tell the exact date of having received back the amount are not adequate material to suspect the genuineness of the transaction.
• Further, it was also contended that it is not the assessee’s onus to prove the source of source of deposits; that the assessee cannot be presumed to have the knowledge of source from which the depositor obtained the money.

Contention of the Revenue:

• The learned counsel for the department supported the order of CIT(A) that no explanation has come forward for the cash deposit of Rs.2,25,000/- in the bank account of the depositor. Further, no interest was paid by the assessee to his creditor. Moreover, the lender in his statement, could not state as to whether money was received back and if so when.

• The assessee has miserably failed to prove his claim and the addition, therefore, has rightly been confirmed.

Held by ITAT:

• ITAT observed that the fact that depositor earned income of Rs.1.5/2.00 lacs per annum from doing part time work, has nowhere been questioned by the department. It is also equally true that the amount in question was received through banking channel.
• ITAT relied on the decision of Hon’ble Madras HC in the case of S. Hastimal vs. CIT wherein the court held that the assessee need not to have special knowledge of the source of the funds of lender and thus, it is not assessee’s responsibility to prove the source of the amount in the account of the depositor.
• In “Sarogi Credit Corporation vs. CIT, 103 ITR 344 (Patna), it has been held that it is not for the assessee to explain further as to how the or in what circumstances the depositor obtained the money, or how he came to make an advance of the money as a loan to the assessee; that once such identity is established and the creditors, have pledged their oath that they have advanced the amounts in question to the assessee, the burden immediately shifts on to the department to show as to why the assessee’s case cannot be accepted and why such deposit to be assessed as the income of the from a suppressed source.
• In the present case, the assessee has successfully discharged his onus but the department has not been able to gather any adequate material, to conclude that the entry in question represented the income of the assessee from suppressed source.
• As such merely because no interest was paid on deposits and the depositor fails to state the exact date of receiving back his money advanced cannot become adequate material to assess such loan as assessee’s undisclosed income u/s 69.
• In result the addition was deleted and assessee’s appeal was allowed.