R R DEVELOPERS,MUMBAI vs. ADDL CIT RG 3, MUMBAI

The solitary issue raised in the present appeal is in relation to addition of ` 5 lakh under section 68 of the Income Tax Act, 1961 (for short "the Act").

Brief facts are, the assessee a partnership firm is engaged in the business of builder and developer. For the assessment year under consideration, assessee filed its return of income on 25th September 2008, declaring total income of ` 34,97,413. In the course of assessment proceedings, the Assessing Officer, noticing that the assessee has shown unsecured loans of ` 5 lakh from one Shri Laxmikant R. Shah, proceeded to verify the genuineness of loan transactions. As observed by the Assessing Officer, the creditor Shri Laxmikant R. Shah, was summoned under section 131 of the Act and a statement was recorded from him on 20th December 2010. Though, in the statement recorded Shri Laxmikant R. Shah, confirmed of having advanced loan of ` 5 lakh to one of the partners of the assessee firm, however, the Assessing Officer observed that Shri Laxmikant R. Shah, was totally unaware of source of income of HUF which allegedly advanced the loan of ` 5 lakh to the assessee firm. He further observed that as per the bank statement of Shri Laxmikant R. Shah, a cash deposit of ` 5 lakh was made on 21st January 2008 and on the same day cheque was issued in favour of the assessee for ` 5 lakh. On examining the Balance Sheet of the assessee as on 31st March 2007, the Assessing Officer found that though Shri Laxmikant R. Shah (HUF) tried to explain the source of the amount of ` 5 lakh deposited in the bank but such explanation was not found convincing, as the assessee

Learned Authorised Representative reiterating the stand taken before the Departmental Authorities submitted, the assessee has not only proved the identity of the creditor but the very fact that the loan was received in cheque prove the genuineness of the transaction. As far as the creditworthiness of the creditor is concerned, the learned Counsel for the assessee submitted in the course of assessment proceeding, the creditor Shri Laxmikant R. Shah, (HUF), was summoned and examined by the Assessing Officer. In the statement recorded, the creditor has confirmed of having advanced loan of ` 5 lakh and has also submitted before the Assessing Officer his balance sheet explaining the source from which the loan was advanced. He submitted, assessee having discharged its primary onus of proving the source of unsecured loan received, assessee cannot again be called upon to explain the source of source. For such proposition, he relied upon the decision of the Delhi High Court in CIT v/s Shivdhooti Pearls and Investment Ltd., [2015] 64 Taxmann.com 329 (Del.) Further, learned Authorised Representative submitted, not only the assessee has regularly paid interest on the unsecured loan but subsequently, the account has been squared up by repaying the loan of ` 5 lakh. Therefore, the addition made under section 68 of the Act is unjustified.

Learned Departmental Representative on the other hand, relying upon the observation of the first appellate authority in Para–4.1 to 4.3 of his order submitted, the assessee having failed to establish the creditworthiness of the creditor addition made is justified.

We have considered the submissions of the parties and perused the material available on record. Undisputedly, the assessee has shown unsecured loan of ` 5 lakh from Shri Laxmikant R. Shah (HUF). It is a fact on record that the assessee not only furnished the confirmation letter from the creditor but the Assessing Officer for ascertaining the genuineness of loan transaction had summoned Shri Laxmikant R. Shah (HUF) through its karta under section 131 and has examined him. It is also a fact, in the statement recorded on oath Shri Laxmikant R. Shah, has confirmed of having advanced ` 5 lakh to one of the partners of the assessee firm. However, on a perusal of the statement recorded from Shri Laxmikant R. Shah, extracted in the assessment order, it is noticed, in response to specific questions raised by the Assessing Officer to explain the source of ` 5 lakh, he only offered evasive replies and could not satisfactorily explain the source of such fund. Though, a balance sheet of Shri Laxmikant R. Shah (HUF) as on 31st March 2007, showing loans and advances received from several persons during the year was produced before the 6 R.R. Developers Assessing Officer subsequently, however, when the Assessing Officer required the assessee to produce Shri Laxmikant R. Shah, for examination to ascertain the authenticity of claim of repayment of loan, Shri Shah, never appeared. Thus, the source of ` 5 lakh remained unexplained. Admittedly, in the statement recorded under section 131, Shri Shah, had not stated of having received any amount on account of repayment of loan which was subsequently brought on record through the balance sheet. Therefore, the Assessing Officer was justified in calling upon the assessee to produce Shri Laxmikant R. Shah, for verifying authenticity of the fresh claim. Since assessee did not produce Shri Shah, source of fund shown in the balance sheet remained unproved. It is well known principle of law, initial burden to prove a credit entry appearing in the books of account is on the assessee. The assessee not only has to prove the identity of the creditor but his creditworthiness as well as the genuineness of the transaction. Though, in the present case, assessee has proved the identity of the creditor, but it has neither proved the creditworthiness of the creditor or genuineness of the transaction. Thus, the loan of ` 5 lakh to that extent remained unexplained. However, considering the fact that assessee had furnished a balance sheet of Shri Laxmikant R. Shah before the Assessing Officer showing receipt of certain amounts from loan repayment, we are inclined to allow further opportunity to 7 R.R. Developers the assessee to prove the creditworthiness of Shri Laxmikant R. Shah, by producing necessary and relevant evidence. For enabling the assessee to do so, we set aside the impugned order of the learned Commissioner (Appeals) and restore the matter back to the file of the Assessing Officer for deciding afresh after due opportunity of being heard to the assessee.

In the result, assessee’s appeal is allowed for statistical purpose. Order pronounced in the open Court on 29.06.2016