Assessee not required to prove “source of the source” of funds prior to Finance Act 2022
PCIT-4 DELHI vs. KRBL INFRASTRUCTURE LTD (ITA 494/2024)
Facts:
1. The assessment of the respondent assessee had been completed by the AO making addition on account of a bogus unsecured loan and a disallowance of interest paid on the said alleged bogus unsecured loan.
2. The case of the Revenue was that a mere submission that a loan had been received through banking channels does not mean that it is genuine. In the case of the assessee, the lenders did not appear to have the financial worth to lend such huge sums, and there was also no explanation as to its relationship with the lenders. Further, there was no collateral security taken in lieu of the loans, which leads to the conclusion that the loan is not genuine.
3. The Revenue contended that the assessee had been rotating the money within its own group and the other group for the purpose of accommodation entries and this was not a case where the AO was going into “source of the source‟ but had done the entire exercise to verify the correctness of the statement made by lender and its director to prove the creditworthiness of the lender and the genuineness of the transactions.
4. The respondent assessee contended that onus on the assessee to prove the identity, creditworthiness and genuineness of the creditor and the transaction was duly discharged by it. The lender had confirmed extending the loan to the respondent and that it was also not in dispute that the loan was repaid in the next Financial Year.
5. It was further submitted that non-availability of creditors of the lender cannot be the ground for doubting the creditworthiness of the lender and genuineness of the transaction.
Hon Delhi HC held as below:
1. The creditworthiness of lender cannot be doubted, as undisputedly the loan was received through proper banking channels and even interest was also paid on the same. Therefore, all essential ingredients of Section 68 of the Income Tax Act were duly satisfied as the identity of the creditor, its creditworthiness and genuineness of transaction were all satisfied.
2. As the present case was related to prior to the amendment brought about by the Finance Act, 2022 requiring assessees to prove the “source of the source‟ of funds credited as unsecured loans. As such, the contention that the genuineness of the funds of loan creditor needs to be examined was devoid of any merit.
3. The assessee had established the identity of the lender. Even the creditworthiness of the lender cannot be in question. The loan transaction having been effected through proper banking channels, i.e., through the bank accounts of the parties, there cannot be any cavil to the genuineness of the transaction, as it was clear from the judicial pronouncements. Accordingly, the appeal of the Revenue is dismissed
The copy of the order is as under:
