Bogus Loans: Genuineness & creditworthiness of lenders cannot be disbelieved if they filed ITR and confirmations

Facts in brief are that the assessee is an Individual, filed return of income on 16.09.2014, declaring income of Rs.3,01,030/-. The assessment was completed under Section 143(3) of the Income Tax Act, 1961 (the Act) on 16.12.2016 determining the income at Rs.6,66,033/-. While completing the assessment the Assessing Officer noticed that assessee has taken un-secured loans amounting to Rs.3,65,000/- from various persons and the assessee was required to file confirmations and addresses of the persons from whom un-secured loans have been taken. It appears that the assessee did not file either confirmations nor furnished addresses of the persons in spite of several opportunities. Thus, the Assessing Officer treated Rs.3,65,000/- as bogus un-secured loans and added to the income of the assessee.

The assessee carried the matter before the ld. CIT (Appeals) and filed confirmations of the lenders along with proof of filing Income tax returns as additional evidence. The ld. CIT (Appeals) admitted the additional evidence and forwarded the same to the assessing Officer for comments. On obtaining the remand report from the Assessing Officer and the re-joinder from the assessee the ld. CIT (Appeals) concluded that the amount of Rs.3,65,000/- claimed to be un-secured loan represented assessee’s income from undisclosed sources. While coming to such conclusion, the ld. CIT (Appeals) was of the opinion that mere filing of confirmations and proof of filing the Income tax returns of the lenders do not impart credence to these transactions and it only represent an attempt to impart colour of genuineness.

ITAT Order:

6. On hearing rival submissions and perusing the orders of the authorities below it is noticed that in the course of assessment proceedings the assessee has not responded to the notices nor any confirmations or addresses were furnished. Before the ld. CIT (Appeals) the assessee furnished copy of acknowledgement of filing Income tax returns and confirmations of the lenders which were sent for the comments of the Assessing Officer. It is observed that in the remand report the Assessing Officer stated that confirmations were neither supported with bank statement to show that the cash loans were provided by the lenders to the assessee from the withdrawals made from the accounts nor any other documents to show that the cash loans were extended out of cash balance available with the lenders and, therefore, the Assessing Officer was of the view that the confirmations filed by the assessee deserves to be rejected. In the re-joinder, the assessee contended that he has received loan of Rs.19,000/- each by cash and it is a small amount given as un-secured loan. The creditors are Income tax payees, who have filed returns of income as their taxable income is more than Rs.2,00,000/- per annum. Therefore, they have the sources for lending Rs.19,000/- each to the assessee from out of their savings. It is observed that not having been convinced with the submissions of the assessee, the ld. CIT (Appeals) sustained the addition observing that the creditworthiness of the lenders have not been established.

7. It is not in dispute that all the lenders are Income tax assesses and they have confirmed that they have lent money to the assessee. Each one of the lenders have lent 19,000/- rupees to the assessee. The list of lenders show that all of them are either relatives like father, mother, brother, cousin brother, father’s sister (Bua Ji) brother’s wife (Tai Ji) and friends It is observed that in the remand proceedings the Assessing Officer never asked for any supporting evidences to establish the sources for lending the un-secured loans to the assessee. The assessee has filed confirmations as also the Income tax acknowledgements in proof of filing the returns of income by the lenders. The assessing Officer could have called for the information or could have issued summons under Section 131 of the Act to examine the sources of the lenders and to record their statements. He never made any enquiries with lenders in the remand proceedings. All the lenders are either relatives or friends and they have lent Rs.19,000/- each to the assessee. The genuineness and the creditworthiness of the lenders cannot be disbelieved as the lenders filed returns and also filed confirmations. Therefore, I am of the view that the assessee has proved the genuineness, identity and creditworthiness of the lenders and, therefore, the Assessing Officer is directed to delete the addition made towards bogus un-secured loans.