The Income Tax Appellate Tribunal (ITAT), Delhi bench, held that no addition should be made under Section 68 of the Income Tax Act, 1961, based on surmises and conjectures. Therefore, the bench directed readjudication to verify the repayment of loans.
The assessee, J.S Exim Private Ltd, engaged in the business of letting commercial property and deriving income under various heads, viz.; business income, income from house property, and income from other sources. For the Assessment Year 2013-14, the assessee-company filed a return of income declaring a total income of Rs. 4,94,44,640. Thereafter, the case was selected for scrutiny assessment.
In the course of assessment proceedings, the AO issued a show-cause notice seeking an explanation on the bona fides of an unsecured loan of Rs. 21,45,40,000/- as appearing in the books of the assessee-company. The assessee submitted various documents and also pointed out that loans received had been partly repaid during the year.
Thereafter, the AO observed that the creditworthiness/capacity of the parties to lend money to the assessee was not clearly established. The AO opined that the money borrowed and credits recorded in the books are not genuine, and the onus contemplated under Section 68 is not discharged on facts by the assessee. Thus, the AO invoked the provisions of Section 68 of the Act and made an addition of Rs. 21,45,40,000/- to the returned income of the assessee.
Aggrieved by the order, the assessee filed an appeal before the CIT(A), who dismissed the appeal of the assessee. Thereafter, the assessee filed an appeal against the CIT(A) order before the tribunal.
When the matter was considered before the tribunal, Amol Sinha, Counsel for the assessee, argued that the AO proceeded solely on surmises and conjectures. Therefore, the AO could have made inquiries under s. 133(6) or under s. 131 of the Income Tax Act. The AO did not consider it expedient to use such tools to collate the evidence filed and only engaged himself in irrelevant considerations such as common address, common directors, etc., of lender cos.
Waseem Arshad, Counsel for Revenue, supported the decision of the lower authorities.
It was observed by the tribunal that the assessee has filed party-wise confirmation, copies of IT returns, financial statements, and bank statements. Thus, the Assessee has placed sufficient evidence to discharge the initial onus to explain the nature and source of loans.
In accordance with Section 133(6)/131 of the Income Tax Act, the AO has determined that it is not required to conduct any independent inquiries with lenders. Without any evidence of independent inquiries from lenders, the AO has gone ahead and formed a judgment regarding the legitimacy of such loans based on shared directorship, email addresses, and other details.
It was also observed that a substantial part of the loans obtained from some parties stood repaid in the same financial year 2012-13. The fact that certain lenders wanted the remaining loans to be repaid in the very following year, FY 2013–14, and the remaining amount in FY 2014–15, was not always known to AO or CIT(A). Thus, the Assessing Officer should verify the fact of repayment of loans in subsequent years.
After reviewing the facts and records, the two-member bench of Pradip Kumar Kedia (Accountant Member) and Chandra Mohan Garg (Judicial Member) held that no addition should be made under Section 68 of the Income Tax Act based on surmises and conjectures. Further, the bench remits the matter back to the file of the AO for the limited purpose of verifying aspects of repayment of loans that remained outstanding at the end of the financial year 2012-13, relevant to AY 2013-14 in question.
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