This article provides a comprehensive analysis of the case ITA No. 4789/DEL/2019, where the appellant Honey Nayyar from New Delhi challenged the assessment by the ITO, Ward-41(5), New Delhi, for the assessment year 2009-10. The case was filed on May 27, 2019, and the final tribunal order was pronounced on August 7, 2020.
Honey Nayyar, the appellant, had given a loan of Rs. 7,50,000 to M/s R.G. Consultants Pvt. Ltd. during the assessment year 2009-10. This loan was provided after receiving a loan from Shri Babu Jethani and her son Master Karthik Nayyar. The Income Tax Department questioned the source of this loan, leading to the reopening of the assessment under Section 147 of the Income Tax Act, 1961.
The Assessing Officer (AO) issued a notice under Section 148 of the Income Tax Act to Honey Nayyar, who responded by stating that the original return filed should be treated as the response. During the assessment proceedings, the AO found that Honey Nayyar had given a loan of Rs. 7,50,000 to M/s R.G. Consultants Pvt. Ltd. by cheque drawn on a bank account with Standard Chartered Bank. The AO observed credits of Rs. 3,50,000 and Rs. 4,00,000 in the bank account, which were used for issuing the loan cheque.
The AO made an addition of Rs. 7,50,000, treating the amount as unexplained credits under Section 68 of the Income Tax Act. The AO alleged that the assessee failed to establish the identity, genuineness, and creditworthiness of the lender, leading to the addition.
Honey Nayyar challenged the addition before the CIT(A), presenting documentary evidence such as the passport of Shri Babu Jethani, his residency visa in the UAE, his resident identity card, and confirmation of the unsecured loan. However, the CIT(A) upheld the AO’s decision and dismissed the appeal.
Honey Nayyar further appealed to the Income Tax Appellate Tribunal (ITAT). During the hearing, the appellant’s counsel argued that the CIT(A) had wrongly confirmed the addition despite providing detailed explanations and documentary evidence proving the identity and creditworthiness of the lenders and the genuineness of the transaction.
The tribunal, comprising Judicial Member Shri Bhavnesh Saini and Accountant Member Shri O.P. Kant, examined the case in detail. The appellant provided comprehensive documentation, including the identity proofs of the lender, Sh. Babu Jethani, confirmations, and bank statements showing the transactions through proper banking channels.
The tribunal noted that the department did not possess sufficient material to conclude that the amount was an accommodation entry. The evidence submitted by the appellant demonstrated the existence of the lender and the genuineness of the transaction.
The tribunal referred to several precedents, including the ITAT Mumbai Bench’s decision in ACIT vs. Calvin Properties and the Delhi High Court’s judgment in CIT vs. Fair Finvest Ltd., to support its view that once the assessee has provided evidence supporting the identity and creditworthiness of the lender, the burden shifts to the department to disprove the same.
It was concluded that the AO had not made sufficient efforts to disprove the appellant’s claims and that the addition was unjustified. The tribunal held that the appellant had successfully discharged her initial burden of proof, and the onus was on the department to provide contrary evidence, which it failed to do.
The ITAT ruled in favor of Honey Nayyar, deleting the addition of Rs. 7,50,000 made by the AO. The appeal was allowed, emphasizing the importance of thorough verification by the department before making additions under Section 68.
The order was pronounced on August 7, 2020, by Judicial Member Shri Bhavnesh Saini and Accountant Member Shri O.P. Kant.
This case underscores the necessity for tax authorities to conduct detailed and meaningful inquiries when questioning the legitimacy of transactions. Taxpayers must ensure they maintain proper documentation and evidence to substantiate their claims, which can significantly impact the outcome of disputes in tax assessments.
Unexplained Credits in the Case of Honey Nayyar: ITA No. 4789/DEL/2019
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