KLR Industries Ltd vs. DCIT (ITAT Hyderabad)

(i) It is a well known principle of law that for establishing a credit appearing in the books of accounts, the initial onus is on the assessee to prove such credit by establishing the identity of the creditor, the genuineness of the transaction and the creditworthiness of the creditor. In the facts of the present case, it is a matter of record that the assessee has produced confirmation letters in respect of all the creditors wherein not only the identity of the creditors with their address have been furnished but income tax particulars including PAN has also been given. Therefore, the identity of the creditors remains established. The second ingredient which requires fulfillment is the genuineness of the transaction. As is evident, the entire transaction has been through proper banking channel. Therefore, as far as the assessee is concerned, the genuineness of the transaction has been established as not only the transaction is through banking channel but the source of such credit has also been proved by the assessee. Now coming to the third ingredient, the creditworthiness of the creditors, it is to be noted that all the creditors have not only confirmed of having advanced the money to the assessee but have also stated that it is out of their own sources. It is also not disputed that all the creditors are income tax assessees’ in the role of the department.

(ii) The primary reason for not accepting assessee’s explanation is creditworthiness has not been proved. If at all the A.O. or CIT(A) had any doubt with regard to creditworthiness of the creditors, it should have triggered an enquiry by the A.O. to find out the real facts. When the identity of the creditors along with their income tax particulars including PAN and assessment details were available with the A.O. it would not have been difficult on the part of the A.O. to verify their bank accounts and other details to ascertain whether the advances were from explained sources. Even the A.O. could have taken up the issue with the concerned A.Os with whom the creditors are assessed. When all the creditors are assessees’ of the Income Tax Department and the entire transaction is through proper banking channel, it is not understood how the A.O. and CIT(A) could doubt the creditworthiness of the concerned creditors without bringing any positive evidence or material on record through a process of enquiry to indicate that the creditors did not have the creditworthiness to advance the amount. It further needs to be mentioned, when the entire transaction is through proper banking channel, it is for the department to bring positive evidence on record to establish that it is the assessee’s money which has been routed back to him through the creditors.

(iii) In our view, though, the assessee has discharged the primary onus cast upon it by establishing the identity of the creditors, the genuineness of the transaction and the source from which the credit has come, but the department has miserably failed to prove the fact that the creditors do not have the creditworthiness or the transaction is not genuine. Only because the credits have been shown as share application money in the books of accounts of the assessee, it will not automatically lead to the conclusion that the amount received is unexplained credit as the assessee has failed to establish its claim that the money advanced is towards share application money. Regardless, whether the advances were towards share application, as claimed by the assessee, or investment as stated by the creditors in the confirmation letters and affidavits, fact remains that the assessee has proved the source from which such credit has come to him. Moreover, it is not in dispute that in addition to the confirmation letters and other evidences filed, the assessee in course of proceeding before Ld. CIT(A) has also produced affidavits from the concerned parties wherein they have accepted that the amounts were advanced by them towards investment in the company. When certain statements have been made in the affidavit which are only supporting the confirmation letters already filed, they cannot be ignored by treating them as additional evidence. The averments made in an affidavit prima facie has to be considered to be correct unless evidence is brought on record to falsify the claim made in the affidavit.