A division bench of the Delhi High Court, in Principal Commissioner of Income Tax v. Bikram Singh, held that assesse cannot prove the genuineness of the transaction by merely establishing of the identity of the creditors and the fact that the amounts have been transferred through cheque payments.
Earlier, the ITAT finding the fact that merely because the payments were through cheques, has held that the transactions were genuine.
In the instant case, the department has made additions in respect of loans/advances received from eight persons, on the ground that the Assessee was unable to establish the identity, creditworthiness and genuineness of the said persons and transactions.
Justice S Muralidhar and Justice Prathiba M Singh observed that the genuineness of this transaction has not been established by the Assessee. The ITAT has ignored the evidence on record and did not even examine the genuineness of the transaction or the financial strength of the creditor as required in law. “Merely because the transaction was by payments through cheque, the ITAT presumes them to be genuine. A creditor who opens a bank account with just Rs. 500/-, depositing huge sums of cash into the account and then lending a sum of Rs. 1,10,00,000/- to the Assessee, without any agreement, interest payment or security, is `fantastic’ and `incredible’ to say the least. The ITAT ignored vital and tell-tale evidence which showed that the transaction was far from being genuine. The Assessee had clearly failed to discharge the onus cast upon him qua this creditor,” the bench said.
Analyzing the peculiar facts of the case, the bench held that none of these four individuals have the financial strength to lend such huge sums of money to the Assessee, that too without any collateral security, without interest and without a loan agreement. “The mere establishing of their identity and the fact that the amounts have been transferred through cheque payments, does not by itself mean that the transactions are genuine. The AO and the CIT(A) have rightly held that the identity, creditworthiness and the genuineness are all in doubt. Moreover, the Court notes that that these amounts have been advanced to the Assessee without any explanation as to their relationship with the Assessee, the reason for the payment of such huge amounts, as also whether any repayments have, in fact, been made. There are contradictions in the explanation given by the Assessee and the statements recorded by these four individuals, which are irreconcilable.”
It further noted that the transactions in the present appeal are yet another example of the constant use of the deception of loan entries to bring unaccounted money into banking channels. This device of loan entries continues to plague the legitimate economy of our country.
Read the full text of the Order below.
