DCIT vs. Artex Knitting Inds. P.Ltd, New Delhi - (Income Tax Appellate Tribunal) (22 May 2024)

Identity, credit-worthiness and genuineness of transactions have to be explained by the assessee, if the amount pertaining to it credited in books of account

MANU/ID/0538/2024

Direct Taxation

Present appeal preferred by the appellant/Revenue, challenges an order, of the Commissioner of Income Tax (Appeals) ['CIT(A)']. By the order under challenge, the CIT(A) allowed the appeal of the assessee on the reasoning that, the persons who advanced loans aggregating to Rs.1,93,50,000 to the assessee had creditworthiness to do so and the assessee had duly explained these loan transactions in accordance with the provisions of Section 68 of the Income Tax Act, 1961during the appellate proceedings.

Sole issue for consideration here is the taxability of the cash credit. The issue under dispute here not properly examined/investigated due to tactical non-compliance of the respondent/assessee before the AO and partial compliance before the CIT(A) vis-à-vis teething problem faced by the AO during the remand proceedings in Faceless System.

According to the Section 68 of the Act, where any sum is found credited in the books of assessee, the assessee offers no explanation about the nature and source of the same or explanation offered by him is not found satisfactorily in the opinion of the AO, the sum credited may be charged to tax as the income of the assessee of the relevant year. The identity, creditworthiness and genuineness of transactions have to be explained by the assessee, if in his books of account that sum is found credited. The identity, creditworthiness/ financial strength of the lenders and genuineness of such loans have to be proved/established by the respondent/assessee. The burden of proof of these is on the Respondent/assessee.

The identity of lenders had been proved before the CIT(A). However, the other two limbs of Section 68 of the Act had not been explained properly by the respondent/assessee. After submitting the requisite documents to prove the identity, creditworthiness/financial strength of the lenders and genuineness of such loans, the burden of proof shifts to the AO. The respondent/assessee had not produced the bank account of persons along with the explanations of credits therein before advancing the loans. The creditworthiness of these persons for advancing loans had not been demonstrated beyond doubt as the details submitted by the respondent/assessee during the appellate proceedings to explain the creditworthiness of the lenders were neither investigated, as envisaged under Section 68 of the Act, during the remand proceedings by the AO nor by the CIT(A) during the appellate proceedings.

The Hon'ble Supreme Court in the case of N. R. Iron and Steel Pvt. Ltd. referring the decision of Delhi High Court in the case of Oasis Hospitalities Pvt. Ltd. observed that merely proving the identity of the investor does not discharge the onus of the taxable as the capacity or creditworthiness has not been established.

In the present case, the AO did not make any independent inquiry as no such details were made available by the assessee however the CIT(A) before whom certain details were furnished did neither carry out investigation nor allowed the AO to do so by providing reasonable & sufficient opportunity to the AO to carry out the investigation for verifying the creditworthiness of the parties, the source of funds and the genuineness of transaction. The details/documents filed by the Respondent/ assessee to discharge its primary onus of explaining the loans of Rs.1,93,50,000 before the CIT(A) have not subjected to the requisite investigation. Present Tribunal deem it fit to set aside the impugned order and remit the matter back to the file of the AO for de-novo consideration. The appeal of Revenue is allowed for statistical purposes.

Tags : ASSESSMENT AXABILITY CASH CREDIT