ITO 19(2)(1), MUMBAI vs. JAYESH GANDHI, MUMBAI

The assessee had received a loan of Rs. 40 lakhs from a party name M/s. Sparsh during the year under consideration. The original return of income filed by the assessee was initially processed u/s. 143(1) of the Act. Subsequently, the Assessing Officer received information that the loan taken by the assessee from M/s. Sparsh is an accommodation entry received by the assessee in order to introduce his unaccounted cash. Accordingly, the Assessing Officer reopened the assessment by issuing notice u/s. 148 of the Act. During the course of assessment proceedings, the assessee filed ledger account copy of loan by mentioning the same as confirmation of loan. The Assessing Officer observed that the assessee has failed to prove identity and creditworthiness of loan creditor and genuineness of the loan transaction.

Before learned CIT(A) the assessee furnished following documents :- (a) Copy of bank pass book of the assessee showing loan received from M/s. Sparsh (b) Confirmation of statement from lender (c) PAN card of lender (d) Copy of ITR-V of the lender for A.Y. 2007-08 (e) Copy of bank statement of the lender showing debit of Rs. 40 lakhs (f) Interest payment details (g) Loan payment details Based on the above documents, the learned CIT(A) concluded that the assessee has proved identity and creditworthiness of the creditor and genuineness of the transaction. Accordingly, he deleted the addition of Rs. 40 lakhs made by the Assessing Officer u/s. 68 of the Act. The Revenue is aggrieved by the decision so rendered by the learned CIT(A).

Learned DR submitted that the documents furnished by the assessee only prove the identity of the creditor and genuineness of the transaction. She submitted that the bank statement of lender will not prove the creditworthiness of the creditor. The Learned DR placed reliance on the decision rendered by Hon'ble Supreme Court in the case of Navodaya Castle (P) Ltd. Vs. CIT (2015) 56 taxamnn.com 18 and submitted that the certificate of incorporation and PAN etc. are not sufficient for the purpose of section 68 of the Act.

On the contrary, learned AR submitted that the Assessing Officer did not call for the financial statements of lender and he has made the impugned addition on the basis of observations made by the Investigation Wing. He submitted that the assessee has submitted all the available documents to prove the genuineness of loan. Accordingly, he submitted that the learned CIT(A) was justified in deleting the impugned addition.

We heard the parties and perused the record. It is well settled proposition of law that the initial burden of proof to prove the cash credit is placed upon the shoulders of the assessee. The assessee is required to prove the identity of the creditor, creditworthiness of the creditor and genuineness of the transaction. Only if the assessee discharges primary burden of proof placed upon his shoulders, then the onus would shift upon the shoulders of the Assessing Officer to disprove the claim of the assessee. In the instant case, we agree with the contentions of Ld D.R that the documents furnished by the assessee before the learned CIT(A) would prove the identity and genuineness of the transaction. They do not prove the creditworthiness of the creditor. The creditworthiness can be examined only from the financial statements of the lender. When this was pointed out to learned AR, he sought an opportunity for presenting the financial statements. However, the Learned DR objected to the same. However, in the interest of natural justice, we are of the view that the assessee may be provided with an opportunity to prove the creditworthiness of the lender. Accordingly, we set aside the order passed by the learned CIT(A) and restore the this issue to the file of the Assessing Officer for examining the same afresh. The assessee is also directed to furnish the documents to prove the creditworthiness of the creditor. After examining the documents furnished by the assessee and also on considering any other information and explanations given by the assessee, the Assessing Officer may take appropriate decision in accordance with law.

In the result, appeal filed by the Revenue is treated as allowed for statistical purposes.