The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) deleted the addition of 1.17 crore under Section 68 of the Income Tax Act, 1961 as the taxpayer had discharged the burden to prove the identity, creditworthiness, and genuineness of the loan creditors.
The assessee Arjun Manoj Purohit was engaged in construction activities, and had filed his return of income for AY. 2014-15 on 30.11.2014 declaring total income of Rs.1,12,28,840/-. Later, based on information from the DDIT (Inv.) Unit 7(4), Mumbai, the case of the assessee was re-opened by issuance of notice under Section 148 of the Income Tax Act.
The AO noted in the reasons recorded for re-opening the assessment that on 05.02.2016, search operation was conducted in the case of Shri Vipul Vidur Bhatt and other related entities; and in that event, Vipul Vidur Bhatt’s statement was recorded on 09.02.2016, wherein he accepted that he was providing accommodation entry to beneficiaries through more than 300 paper companies; and Assessing Officer further noted that in the relevant assessment year the assessee had shown to have transaction with two entities namely (i) M/s. Shipra Fabrics Pvt. Ltd (hereinafter “M/s. Shipra”) and (ii) M/s. Lunkad Textile Pvt. Ltd which were paper companies operated by Shri Vipul Vidur Bhatt.
According to the AO, the assessee had shown to have taken a loan amounting to Rs.77 Lakhs from M/s. Shipra and Rs.40 Lakhs from M/s. Lunkad (total of Rs.1,17,00,000/-) which loan according to the AO were mere accommodation entry And therefore, he recorded his satisfaction that there was escapement of income and he reopened the assessment.
The assessee participated in the reassessment proceedings wherein he was directed by the AO to prove the “nature and source” of Rs.77 Lakhs and Rs.40 Lakhs credited in his books of accounts in the relevant assessment year (AY. 2014-15).
Pursuant thereto, the assessee filed copy of return of income along with computation of income, Balance-Sheet, P & L Account, Audit Report, details of bank accounts, details of short term capital gains on sale of land/DRC, copy of confirmation from M/s. Shipra Fabrics Pvt Ltd and M/s. Lunkad Textile Pvt. Ltd.
After acknowledging receipt of the aforesaid documents, the AO expressed his dissatisfaction with regard to genuineness by the cash credit in the books of account to the tune of Rs.1,17,00,000/-. (Rs.77 Lakhs & Rs.40 Lakhs) According to the AO, he had issued notice under Section 133(6) of the Income Tax Act to both the parties which did not elicit any response though it was served upon them.
According to AO, the assessee failed to prove the genuineness of the transaction, creditworthiness of the creditors and identity of the creditors. And since, the assessee did not discharge the burden to prove the “nature and source” of the credits to the tune of Rs.1.17 cr., he was pleased to make the addition of Rs.1.17 cr under Section 68 of the Income Tax Act.
The bench does not countenance the impugned action of the CIT(A) for the simple reason that the assessee has discharged the burden to prove the “nature and source’’ of the credit entries of Rs.1.17 Crs. (from M/s.Shipra Fabrics Pvt. Ltd., Rs.77 lakhs and Rs.40 lakhs from M/s.Lunkad Textile Pvt. Ltd.) by adducing primary/relevant documents/material as discussed supra; and the AO has not been able to find fault with the primary/relevant documents filed by the assessee to prove the “nature and source’’ of the credit entries. Once, the assessee has discharged the burden to prove prima facie “nature and source’’ of the credit entries, onus shifted to the AO to rebut it with cogent evidence.
The two- member bench of the tribunal comprising Rifafur Rahman (Accountant member) and Aby.T. Varkey (Judicial member) directed deletion of the addition made by the AO to the tune of Rs.1.17 crores. Accordingly, appeal of the assessee was allowed.
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