Law: Income Tax Act, 1961

Section: 263

Section 68, read with section 263, of the Income-tax Act, 1961 - Cash credits (Loans) - Whether where Assessing Officer while accepting genuineness of loan taken by assessee from various creditors, did not take into consideration creditworthiness of lenders, mere examination of their bank statements or letter of confirmation was not enough and, therefore, impugned revisional order passed by Commissioner setting aside assessment was to be upheld - Held, yes [In favour of revenue] [Paras 11 and 12] FACTS â–  In the course of assessment, Assessing Officer accepted genuineness of unsecured loan taken by assessee from various creditors. â–  The Commissioner noticed that the Assessing Officer had deputed an Inspector to verify loans taken during the relevant year. â–  However, report of the Inspector was very elementary and simply mentioned that he had verified bank passbook, Profit and loss account and balance sheet, but, he had not commented on the issue of creditworthiness of parties. â–  The Commissioner thus taking a view that the Assessing Officer failed to apply his mind to all aspects of case, passed a revisional order setting aside assessment. â–  The Tribunal, however, set aside revisional order holding that powers under section 263 could not be exercised to allow the Assessing Officer to make up the deficiency of his case. â–  On revenue's appeal : HELD â–  When payment by cheque did not establish the creditworthiness of the lender, mere examination of the pass book or the bank statement or the letter of confirmation or the balance sheet of the lender was not enough. The inspector appointed by the Assessing Officer did not go beyond the aforesaid documents. Therefore, it cannot be disputed that the view formed by the Commissioner that in none of the reports, he has commented upon the issue of creditworthiness i.e. whether these parties had sufficient means to advance such huge loans, is not without basis. â–  It is well established that credits allegedly based on loan from parties, who are not possessed of sufficient means cannot be accepted as genuine. The Assessing Officer was required to make proper…