No Additions Permitted U/s 68 Once Assessee Establishes Identity & Creditworthiness Of Lenders And Proved Genuineness Of Transactions: Kolkata ITAT

While finding that the assessee has substantiated all evidences concerning transactions to establish the identity and creditworthiness of the lenders and proved the genuineness of the transactions, the Kolkata ITAT directed the Assessing Officer to delete the addition made under section 68 of the Income Tax Act, 1961.

The ITAT therefore allowed the appeal filed against the order passed by Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) u/s 143(3).

The Member of the ITAT comprising of Sanjay Garg (Judicial Member) and Rajesh Kumar (Accountant Member) observed that “where the assessee has filed all the evidences concerning transactions to establish the identity and creditworthiness of the lenders and to prove the genuineness of the transactions and the ld. Assessing Officer has not carried out any further verification, the addition cannot be made in the hands of the assessee. The AO must examine the issue in the cases of creditors and make the addition there and not in the hands of the assessee. The assessee has discharged its initial burden and the burden shifted on the Assessing Officer to enquire further into the matter by filing the evidences, which he failed to do.” (Para 9)

As per the brief facts of the case, the assessee e-filed its return. The AO observed on the basis of audited accounts and details filed by the assessee that the assessee has raised unsecured loans from twelve parties. Assessing Officer in order to independently verify the transactions of unsecured loans, issued notices under section 133(6) to twelve parties but notices were served on the six parties only and the notices were returned back from the remaining six parties. The Assessing Officer made the addition on the basis of statements of three persons and simply generalized the statements in the assessment order that loans were received from the paper companies and discussed the modus operandi of these companies in the assessment order. Finally, the Assessing Officer, after rejecting the contention of the assessee, added the amount under section 68 vas unexplained cash credit comprising some amount on account of unsecured loans and interest expenses paid thereon in the assessment framed u/s 143(3). The CIT(A) simply dismissed the appeal of the assessee by upholding the observations of the AO as made in the assessment order by passing a cryptic and non-speaking order.

The Bench noted that loans were repaid through banking channel even prior to passing of the assessment order by the Assessing Officer.

The Bench stated that the assessee has duly discharged its onus by filing evidences before the Assessing Officer and Assessing Officer has acted on the basis of statements of three persons, which lacks evidentiary value in absence of any substantive and corroborative evidences being brought on records.

Referring to the case of PCIT vs. Sreeleathers, the Bench opined that In cases where the assessee offers an explanation to the credit by placing evidence regarding the identity of the investor or lender along with their conformations, it has been held that the assessee has discharged the initial burden and, therefore, the burden shifts on the Assessing Officer to examine the source of the credit so as to be justified in referring to Section 68 of the Act.

The Bench observed that the addition done by the Assessing Officer was completely based on the statements of three persons and failed to file the evidence.

Therefore, on finding the lack of evidence and failure of proper investigation at the Assessing Officers' end, the ITAT allowed the assessee's appeal.

Counsel for Appellant/ Taxpayer: Sunil Surana

Counsel for Respondent/ Department: Swapan Kumar Bera

Case Title: Iris Clothings Limited verses Deputy Commissioner of Income Tax

Case Number: ITA. No. 1015/KOL/2023

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