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Facts
The assessee challenged an order upholding an addition of Rs. 1,99,75,000/- to his income under Section 68 for unexplained unsecured loans from ten persons. Both the Assessing Officer and CIT(A) found that the assessee failed to prove the source of funds, creditworthiness, and genuineness of these transactions. The assessee contended that the Assessing Officer failed to conduct a detailed inquiry, specifically by not issuing notices under Section 133(6) to the loan providers.
Held
The Tribunal found that the Assessing Officer did not thoroughly investigate the matter or issue notices under Section 133(6) to the alleged loan providers, which is crucial for verifying identity, creditworthiness, and genuineness as per Supreme Court precedent. Consequently, the Tribunal set aside the impugned order and remanded the matter back to the Assessing Officer for a detailed fresh inquiry, ensuring proper notices are issued and the assessee is given an opportunity to be heard.
Key Issues
Whether the Assessing Officer properly conducted an inquiry into the genuineness and creditworthiness of unsecured loans. Whether the failure to issue notices under Section 133(6) to the loan creditors vitiates the assessment.
Sections Cited
Section 68 of Income Tax Act, 1961, Section 271(1)(c) of Income Tax Act, Section 274 of Income Tax Act, Section 133(6) of Income Tax Act, Section 143(2) of Income Tax Act, Section 142(1) of Income Tax Act
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Income Tax Appellate Tribunal, DELHI BENCH: ‘F’ NEW DELHI
Before: SHRI SHAMIM YAHYA & SHRI NARINDER KUMAR
Date of hearing 21.08.2024 Date of pronouncement 21.08.2024 ORDER PER : Shri Narinder Kumar, Judicial Member: By way of present appeal, assessee has challenged order dated 26.05.2023 passed by learned CIT(APPEALS), NFAC, Delhi.
Vide impugned order, Learned CIT(Appeals) has dismissed the appeal filed by the assessee and thereby upheld the assessment order dated 29.12.2018 passed by the Assessing Officer, Ward 30(4), Delhi.
Vide Assessment Order dated 29.12.2018, the Assessing Officer observed that the assessee was provided opportunity to explain the source of fund in the hands of loan providers (details available in para 5 of the assessment order), but the assessee did not furnish any explanation, and rather, he remained silent on the issue of source of fund. The Assessing Officer further observed that the loan providers did not explain source of funds and creditworthiness. He further observed that it appeared that it was unexplained money of the assessee, which he routed through different banks, to make the said transactions appear as genuine transactions.
Ultimately, the Assessing Officer made an addition of Rs.1,99,75,000/- to the income of the assessee, holding that the said income was from undisclosed sources, and that provision of u/s 68 of Income Tax Act, 1961(herein after referred to as “ The Act”) were attracted. 4.1 In this way, the Assessing Officer assessed the income of the assessee at Rs.2,10,77,110/-. 4.2 At the same time, the Assessing Officer initiated separate proceedings against the assessee u/s 271(1)(c) read with section 274 of the Act.
Feeling aggrieved by the assessment order, the assessee filed appeal. As noticed above, the CIT(Appeals) NFAC, dismissed the appeal, while holding that the appellant had miserably failed to prove the credit capacity and genuineness of transactions.
Hence, this appeal.
Argument heard. File perused.
Ld. AR for the appellant has contended that before framing assessment, Assessing Officer was required to conduct detailed enquiry in order to verify the genuineness and creditworthiness of the claim of the assessee. As regards unsecured loans, he was required to issue notices u/s 133(6) of the Act to all the creditors, whose details were made available by the assessee, but, no such notice was issued, and as such, the impugned assessment deserves to be set aside, but ld. CIT(Appeals) rejected the grounds raised
by the assessee and dismissed the appeal, without recording cogent and convincing reasons. Ld. AR has urged that the matter needs to be remanded to the Assessing Officer for detailed enquiry and framing of assessment afresh.
9. Record reveals that after filing of return of income by the assessee for the Assessment Year 2016-17, was selected for scrutiny under CASS, for complete scrutiny, whereupon notice u/s 143(2) of the Act was issued and served upon the assessee, followed by another notice u/s 142(1) accompanied by a questionnaire, whereupon the assessee furnished details online electronically, in e-proceedings, through his account, in e-filing of the department.
10. During the relevant period, the assessee was engaged in the business of real estate development and trading in shares. The assessee claimed to have availed of unsecured loan from ten persons, whose names with the amount of loan availed of find mention in para 2 of the assessment order.
During assessment proceedings, vide notice u/s 142(1), dated 5.12.2018, the assessee was called upon to prove identity, creditworthiness and genuineness of transactions.
In response thereto, the assessee stated to have furnished ITR and incomplete bank statementsin respectof 10 persons, specified in the assessment order.
Therefore, the Assessing Officer issued notice u/s 142(1) dated 24.12.2018, calling upon the assessee to prove identity, creditworthiness and genuineness of transactions.
In response to the said notice, the assessee submitted copies of remaining bank statements and ITRs. In para 3 of the assessment order, there are details of the amountsdeposited as against the names of the ten persons, who are stated to have given loans to the assessee.
In the assessment order, the Assessing Officer has made observations, as regards the above named 10 persons, after pursuing ITRs, passbooks, and bank statements of nine of them. As regards, the person at Sl.No.1 namely, Shri Yogesh Kumar Singhal, Assessing Officer found that copy of his ITR was not legible and that complete bank statement of the said person was not furnished.
The assessment order does not reveal that the Assessing Officer called upon any of the said ten persons to join the enquiry. In the course of arguments, we put a specific query as to whether the AO had issued notices u/s 133(6) of the Act to the abovesaid ten persons. Ld. AR for the assessee has submitted that no such notice was ever issued by the AO to any of the above said ten persons from whom the assessee claims to have availed of loan facility.
In the given circumstances, the AO was required to join all the above said ten persons in the enquiry, before passing the assessment order. In the case of PCIT Vs NRA Iron & Steel Pvt Ltd, (2019) 412 ITR 161(SC), Hon’bleApex Court held that the Assessing Officer is duty bound to investigate the credit worthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders.
It was further held in that case thatif the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack creditworthiness, then the genuineness of the transaction would not be established.
In the given facts and circumstances, we find that before passing assessment order the AO did not thoroughly enquire into or investigate the matter, by associating the above named ten persons in the enquiry. There is nothing in the assessment order to suggest that at any point of time, the AO called upon the assessee to produce the above said ten persons or their representatives for the purpose of enquiry. As noticed above, nonotice u/s 133(6) of the Act was issued to any of the said ten persons. Therefore, we deem it to be a fit case, where the AO should conduct a detailed enquiry, after issuing notices u/s 133(6) of the Act to the concerned 10 persons before framing of assessment afresh in accordance with the law. RESULT 20. In view of the above findings, this appeal is disposed of for statistical purposes, and the matter is restored to be filesof the Assessing Officer, for a detailed enquiry having regard to the abovesaid observations made by us, and then to pass assessment order afresh, in accordance with the law. Consequently, the impugned order passed by Ld. CIT(Appeals) is hereby set aside. 20.1 Of course, the Assessing Officer shall provide reasonable opportunity of being heard to the assessee/appellant. Order pronounced in the Open Court. Sd/- sd/- (SHAMIM YAHYA) (NARINDER KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Date: 21.08.2024 dp