The Bangalore bench Income Tax Appellate Tribunal (ITAT) directed education with respect to the source of money trail related to unsecured loan.
The assessee, BMM Ispat Limited is a Public Limited Company.After filing the return of income assessee case was selected for making a reference to the Transfer pricing officer in respect of certain Specified Domestic Transactions . The TPO determined that no adjustment was required under Section 92CA rws 92C of the Income Tax Act to the arm’s length price determined by the assessee.
Thereafter the AO issued a notice calling for several details many of which are very basic like seeking a copy of the Balance Sheet, Profit & Loss etc.After obtaining certain details from the Karur Vysya Bank with a stated view to verify money trail related to unsecured loan the AO passed the assessment order.
In this assessment order the AO against the loss of Rs. 247,23,15,045/-, the made addition of Rs.150,13,10,676/- under Section 68 rws 115BBE of the income Tax Act.
Aggrieved by the order assesee filed an appeal before the CIT(Appeal). The CIT(A) dismissed the appeal filed by the assessee . Thereafter the assessee filed an appeal before the tribunal.
During the appeal proceedings K.R. Pradeep , counsel appearing for the assessee submitted that assessee has furnished the details sought for and also duly appeared before AO. On going through the details, the AO did not seek any further details nor expressed any adverse view about the details filed or raised any issue of contention.
Further the assessee has produced the standard details as is required to establish the genuinity of the transaction.Although the counsel argued that Supreme Court has repeatedly held that the scope of section 68 is confined to verifying the source and not source of source. Thus, it is clear that the AO has fallen in error. Hence, there is a complete failure to follow even the basic principles of natural justice before making such a huge addition on a loss making company with debilitating consequences.
Accordingly the assessee has proved the identity and capacity of parties and thus, the transactions are genuine since it was routed through the banking channels.
Senthil Kumar, Counsel for Revenue argued that as per section 68 of the Income Tax Act, the assessee has proved the identity and capacity of parties as well as genuineness of transaction. In the present case, assessee has only proved the identity of parties. However, the capacity of these parties or the genuineness of the transaction has not proved.
Furthermore the assessee failed to discharge onus cast upon by complying with the requirement of the section 68 of the Income Tax Act. The assessee is engaged in laundering of money. The lower authorities after considering the factual position of the transaction made additions and the same to be confirmed
The tribunal observed that the onus on the assessee is not only limited to establish the identity of the person making the advance but also his capacity to make advances and it has to be proved that it had actually been received as a loan from the creditor.
Hence AO is duty bound to investigate the creditworthiness of the parties, verify the identity of the creditors and ascertain whether the transaction is genuine or these are bogus entries in the name of lenders. If the enquiries and investigations reveal that the identity of the creditors to be dubious or default or lack of creditworthiness, then the genuineness of the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by section 68 of the Income Tax Act.
After analyzing the submission of both parties, the two member bench of Chandra Poojari, ( Accountant Member ) and George George K.( Vice President ).
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