2013 (9) TMI 1119 - AT - Income Tax

Unexplained cash credits addition u/s 68 - Held that - AO has not taken pain to examine the issue on merits on the basis of the details to be filed by the assessee as directed by the Tribunal. Now before us the assessee has claimed that the loans have been repaid therefore, the claim of the assessee based on the record showing the repayment of loan is required to be verified. If the claim of the assessee that loans have already been repaid is found correct then the addition u/s 68 is not sustainable and liable to be deleted. Therefore in the interest of justice we set aside this issue for limited purpose of verification of the fact and the record filed by the assessee to show that the loans in question have been repaid by the assessee

Summary

Issues:
1. Addition of unexplained cash credits under section 68
2. Addition of interest on alleged bogus loans/unexplained cash credits

Analysis:
Issue 1: Addition of unexplained cash credits under section 68
The original assessment was reopened due to undisclosed income shown as a loan of Rs. 30,00,000, sourced from concerns linked to a person involved in giving bogus hawala entries. The Assessing Officer (AO) relied on this person's statement and proposed the addition of the loan amount along with interest. The AO issued summons to parties and the person in question but failed to serve them. The Tribunal directed the AO to allow cross-examination, which was not possible as the person was untraceable. The Tribunal emphasized that without cross-examination, no adverse inference should be drawn based on a third party's statement. The AO, in subsequent assessments, repeated the additions based on the same statement, not following the Tribunal's directions to decide on merits after allowing the assessee to provide necessary details. The Tribunal set aside the additions, highlighting the need for re-verification and proper examination on merits.

Issue 2: Addition of interest on alleged bogus loans/unexplained cash credits
The Tribunal directed the AO to re-examine the issue on merits and afford the assessee an opportunity to provide details regarding the loans. Despite this, the AO repeated the additions without verifying the repayment claimed by the assessee. The Tribunal emphasized the need to verify the repayment of loans to determine the sustainability of the addition under section 68. The Tribunal set aside the issue for verification based on the records showing loan repayment by the assessee. If the repayment claim is substantiated, the addition under section 68 would not be sustainable. The appeal was allowed for statistical purposes, emphasizing the importance of verifying facts before making additions based on unexplained cash credits.