Sec 68 additions deleted once taxpayer has proved identity & creditworthiness of parties & genuineness of transaction

Recently ITAT in matter of K.P.Manish Global Ingredients Pvt. Ltd. vs The Assistant Commissioner of Income Tax, has opined that to come out of shadow of provisions of section 68 of the Act, once taxpayer has proved the identity of the creditor, genuineness of transaction and creditworthiness of parties then burden shifts to the Revenue to prove otherwise that the said unsecured loans are unaccounted income of the assessee.

Facts of the Case

• Brief facts of the case are that assessee company engaged in the business of dealing in drugs, chemical ingredients filed its return of income for the assessment year 2009-10 on 29.09.2009 declaring total income of Rs. 36,45,533/-. The case was taken up for scrutiny and during the course of assessment proceedings, the Assessing Officer noticed that assessee has received unsecured loan to the tune of Rs.9,90,56,567/- from several persons.
• Therefore, he called upon the assessee to file necessary information including name and address of persons from whom unsecured loans were taken. The Assessing Officer, thereafter issued letters u/s.133(6) to all persons calling for information to confirm transactions with the assesse, for which parties have filed various details called for by the Assessing Officer, including confirmation letters to confirm loan transactions with the assessee.
• The Assessing Officer on perusal of confirmation received from parties noticed that unsecured loans shown to have been received from Mr. Umed Mehta and his floated concerns are dubious as Mr. Umed Mehta has stated during the course of survey that entire transactions related to M/s. Kawarlal group was only accommodation entries. Further he believed that the, transactions involved circulation of funds among group concerns.
• Therefore, he opined that unsecured loans in the books of account was nothing but a device adopted to introduce its own unexplained money into account. The Assessing Officer further observed that just because impugned transactions have been routed through banking channels, the same cannot be considered as genuine. Accordingly, he opined that entire transactions routed through various company accounts are sham transactions and hence, made additions towards unsecured loan received from three companies belonging to Mr.Umed Mehta u/s.68 of the Income Tax Act, 1961.

Contention of Assessee

• The sum and substance of the arguments of the assessee before learned CIT(A) are that unsecured loans received from M/s. C.K. Exports, M/s. Mehta Motors & General Finance Company and M/s. Swastic Trading Corporation are genuine transactions, which are routed through proper banking Channel.
• Further, creditors have established source of income to explain loans given to the assessee.
• The Assessing Officer has ignored all the evidences filed by the assessee and made additions on suspicious ground without bringing on record any evidence to prove that unsecured loans received from above concerns are unaccounted income of the assessee.

Judgment

• In order to ascertain whether transactions of unsecured loans received from three companies are genuine transactions which pass test of ingredients provided u/s.68 of the Act or not, one has to understand provisions of section 68 of the Act.
• The provisions of section 68 of the Act deals with cases where any sum found credited in books of account of the assessee for any previous year for which the assessee fails to establish identity, genuineness of transactions and creditworthiness of parties, then said sum found in the books of account of the assessee shall be treated as income of that year.
• To come out of shadow of provisions of section 68 of the Act, one has to prove identity of the creditor, genuineness of transaction and creditworthiness of parties.
• Once initial burden of proving all three ingredients are discharged, then burden shifts to the Revenue to prove otherwise that the said unsecured loans are unaccounted income of the assessee.
• In this case the assessee has proved identity, genuineness of transaction and creditworthiness of loan creditors. In this case, the Assessing   Officer has not brought on record any evidence to prove that said sum was undisclosed income of the assessee. Therefore, we are of the considered view that the Assessing Officer was completely erred in making additions towards unsecured loans received from three companies of assessee group.