The unsecured loan is not accommodation entries when identity, capacity and credit worthiness of lenders/creditors and genuineness is established

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The unsecured loan is not accommodation entries when identity, capacity and credit worthiness of lenders/creditors and genuineness is established

Introduction

In the realm of tax disputes, the Income Tax Appellate Tribunal, Delhi Bench, recently rendered a significant judgment in ITA No.757/Del/2017. The case involved Mr. Amit Tyagi versus the Deputy Commissioner of Income Tax, Circle-1, Ghaziabad, and pertained to the assessment year 2010-11. This article seeks to dissect and analyze the intricacies of the tribunal’s decision, shedding light on the arguments presented, the legal standpoints adopted, and the implications for future cases.

Backdrop of the Case

The crux of the matter revolved around the order dated 18.11.2016 by the Commissioner of Income Tax (Appeals) [CIT(A)], Muzaffarnagar, confirming the assessment order against Mr. Amit Tyagi. The grounds of appeal, as outlined by the assessee, challenged the legality and factual accuracy of the CIT(A)’s decision.

Assessee’s Contentions

The appellant, represented by professional, vehemently contested the CIT(A)’s order. The primary contentions included:

  1. The CIT(A) passed an order against the facts and law of the case.
  2. The addition of a loan amount under Section 68 was based on suspicion and conjecture, lacking evidentiary support.
  3. The Inspector’s report, crucial for the case, was not confronted to the assessee, rendering it inadmissible evidence.
  4. Both the Assessing Officer (AO) and CIT(A) failed to disprove the evidence presented by the assessee, sustaining additions without proving the money belonged to the assessee and not the creditor.
  5. Non-application of Section 131 of the Income Tax Act, disregarding the provision to call relevant persons for deposition before the AO.
  6. Error in drawing adverse inferences from the remand report where the AO failed to counter the assessee’s submissions.
  7. Violation of jurisdictional high court decisions, rendering the CIT(A)’s order unsustainable.

The appellant sought leave to modify or add grounds during the hearing.

Legal Standpoints

The appellant’s counsel contended that the CIT(A)’s order lacked legal merit, citing decisions such as CIT vs. S.V.P. Builders India P. Ltd. and CIT vs. Winstral Petrochemicals Ltd. Additionally, reliance was placed on Supreme Court judgments, emphasizing the importance of material evidence to dispute the identity and creditworthiness of creditors.

CIT-DR’s Response

The Revenue, represented by Shri Kanav Bali, Senior DR, supported the AO and CIT(A), asserting that the transactions were mere accommodation entries to convert unaccounted money. The CIT-DR argued that the creditor companies’ existence was dubious, and the burden of proof lay with the assessee.

Judicial Analysis

The Tribunal, comprising Shri C.M. Garg and Dr. B.R.R. Kumar, scrutinized the case in detail. It acknowledged the assessee’s submission of extensive documentary evidence, including PANs, bank statements, and returns, establishing the legitimacy of the transactions.

Key Findings and Precedents

  1. The Tribunal emphasized the legal obligation of the assessee under Section 68 and found that the appellant had discharged this burden by providing substantial documentary evidence.
  2. Citing the Allahabad High Court’s decision in CIT vs. Kapoor Chand Mangesh Chand, the Tribunal held that the burden shifted to the AO to rebut the evidence submitted by the assessee. The genuineness of the transactions, evidenced by banking channels, couldn’t be doubted.
  3. The Tribunal rejected the CIT(A)’s assertion that the companies’ existence was only on paper, highlighting the omission to disprove the assessee’s claims and disregarding relevant documentary evidence.

Conclusion: In a decisive judgment, the Income Tax Appellate Tribunal ruled in favor of the assessee, allowing the appeal and directing the AO to delete the addition. This case underscores the importance of providing comprehensive documentary evidence in tax matters and the authorities’ obligation to refute such evidence effectively. The judgment serves as a guiding precedent, reinforcing the principle that the burden of proof, once discharged by the assessee, shifts to the tax authorities to disprove the legitimacy of transactions.

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