[2013] 36 taxmann.com 496 (Article)
Whether the Income-tax Authority can ask from the loan acceptor the source of funds of loan giver?
AKHILESH KUMAR SAH
Advocate
Introduction
1. A lot of cases are surfacing in the complex world of loan and gift transaction where the acceptor of loan or gift is asked to explain the source of the funds acquired by loan/gift giver from which loan or the gift has been given. In the modern world huge investments are made in the shopping complexes, multi-storied flats in which the loans and gifts remain the main source of investment. The owner finds it difficult to explain the source of source. The addition to his income is made under section 68 of the Income-tax Act,1961.
The recent landmark judgment in the case of Vishnu Jaiswal v. CIT (Appeals) [2012] 137 ITD 259/23 taxmann.com 374 (Luck.) (TM)
2. In the case before ITAT Lucknow Bench - Vishnu Jaiswal (supra), on the difference of opinion between Judicial Member and Accountant Member the Third Member Shri D. Manmohan decided, that where the assessee had discharged the initial burden of proving identity, genuineness of the transactions and also creditworthiness of the three creditors by producing their respective bank accounts, entry in the passbook of the third party could be taken as a primary evidence that the loan was advanced by third party. Mere doubt with regard to the creditworthiness could not automatically lead to disbelieving the case of the assessee to make addition under section 68 of Income-tax Act without showing that the assessee would have earned more income from any specific source, in the light of the expression "may" used in section 68. Thus, the initial onus had to shift the revenue to prove that the creditor lacked creditworthiness. To come to such conclusion , the assessee could not be asked to produce any evidence which was within the personal knowledge of the third party. The Third Member agreed to view opinion taken by the Accountant Member in accordance with the law.
The facts of Vishnu Jaiswal's case (supra)
3. In the above case the appellant took unsecured loans from 3 relatives through account-payee cheques and their identity was proved. The ITO added the amount of loan to the income of the appellant and CIT (A) confirmed the additions of loans. On appeal to ITAT Lucknow Bench the Judicial Member confirmed the additions of loans whileas the Accountant Member deleted the additions of loans. He took into consideration mainly the following rulings:-
| - | Anand Prakash Agarwal v. Asstt. CIT [IT Appeal No. 389 (All.) of 2007, dated 11-2-2008] | |
| - | CIT v. Jauharimal Goel [2005] 147 Taxman 448 (All.) | |
| - | S. Hastimal v. CIT [1963] 49 ITR 273 (Mad.) | |
| - | Tolaram Daga v. CIT [1966] 59 ITR 632 (Assam) | |
| - | CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC) | |
| - | Sarogi Credit Corpn. v. CIT [1976] 103 ITR 344 (Pat.) | |
| - | CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 78/25 Taxman 80F (SC) | |
| - | Asstt. CIT (Investigation) v. Shree Ram Hard Coke & Allied Industries [2003] 1 MTC 780 | |
| - | ITO v. M.S. Advance (P.) Ltd. [2005] 188 Taxation 181 (Trib.) | |
| - | Vinod Kumar Bhandari v. Asstt. CIT [2003] 174 Taxation 49 (Trib.) | |
| - | Orissa Corpn. (P.) Ltd. (supra) | |
| - | Nemi Chand Kothari v. CIT [2004] 136 Taxman 213 (Gau.) | |
| - | Addl. CIT v. Bahri Bros. (P.) Ltd. [1985] 154 ITR 244/122 Taxman 3 (Pat.) | |
| - | Kale Khan Mohammad Hanif v. CIT [1963] 50 ITR 1 (SC) | |
| - | CIT v. Smt. P.K. Noorjahan [1999] 237 ITR 570 (SC) | |
| - | CIT v. S. Kamaljeet Singh [2005] 147 Taxman 18 (All.) | |
| - | Labhchand Bohra v. ITO [2010] 189 Taxman 141 (Raj.) | |
| - | CIT v. Metachem Industries [2000] 245 ITR 160/[2001] 116 Taxman 572 (MP.) | |
| - | Dy. CIT v. Rohini Builders [2002] 256 ITR 360/[2003] 127 Taxman 523 (Guj.) | |
| - | CIT v. Ram Narain Goel [1997] 224 ITR 180/92 Taxman 259 (Punj. & Har.) | |
| - | CIT v. Micro Melt (P.) Ltd. [2010] 327 ITR 70/[2009] 177 Taxman 35 (Guj.) |
Also, the Accountant Member took into consideration section 106 of the Evidence Act, section 4 of the Banker's Book Evidence Act, 1891 and also the emphasis on the word "may" and not "shall" used in sections 68 and 69 of the I.T. Act, 1961.
Concluding remarks
4. The source from where the loan giver got the moneys to give the loan could not be asked from the acceptor of loan. Similar view has been taken in Dwarikadhish Sugar Industries v. ITO [2012] 137 ITD 200/23 taxmann.com 98 (Luck.) (TM). However, the requirements of sections 269SS, 269T of Income-tax Act, 1961 as well as the identity of the loan giver have to be proved in order to avoid the provisions of sections 68, 69 of the Income-tax Act, 1961.
Regards
Prarthana Jalan
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