2011 (8) TMI 22 - HC - Income Tax

Disallowance - Unexplained cash credit - Genuineness of loan - Interest payable to the loan creditors - Summons u/s 131 - Assessment - Appellant by producing the loan- confirmation certificates signed by the creditors, disclosing their permanent account numbers and address and further indicating that the loan was taken by account payee cheques, no doubt, prima facie, discharged the initial burden and those materials disclosed by the assessee prompted the Assessing Officer to enquire through the Inspector to verify the statements. equity and justice demand that the full text of the information given by the Inspector to the Assessing Officer which is the basis of the conclusion of the assessment should be made known to the assessee before the same is used against him so that the genuineness of the said information can be rebutted by the appellant-assessee or at least, the assessee can get an opportunity to explain the said information - Find that in the fact of the present case the order of assessment was made without giving adequate opportunity to the appellant to explain the undisclosed information received by the Assessing Officer from his Inspector - Therefore, set aside the order of assessment and remand the matter to the Assessing Officer for communicating the report of the Inspector to the appellant with further liberty to the Assessing Officer to enquire from the assessee any other information he desires.

Summary

Issues:
1. Justification of upholding the assessment order without supplying the Inspector's report to the appellant.
2. Validity of adding unexplained cash credit and interest on loans taken by the appellant.

Analysis:
Issue 1: The appellant, a Hindu Undivided Family, challenged an assessment order for the Assessment Year 1997-1998, where the Assessing Officer added unexplained cash credit and interest on loans taken by the appellant. The appellant contended that the authorities failed to provide a copy of the Inspector's report, which was the basis of disbelieving the transactions. The appellant argued that without disclosing this report or seeking an explanation, the Assessing Officer acted illegally. The appellant also highlighted that the initial onus to prove the genuineness of the transactions was not discharged. The High Court found merit in the appellant's contention, emphasizing that the appellant was not given a fair opportunity to rebut the undisclosed information from the Inspector. The Court held that justice demanded full disclosure of such crucial information to the appellant before being used against them. Consequently, the Court set aside the assessment order and remanded the matter to the Assessing Officer for proper communication and consideration of the Inspector's report.

Issue 2: The second issue revolved around the addition of unexplained cash credit and interest on loans taken by the appellant. The appellant had produced loan confirmation certificates signed by the creditors, disclosing their permanent account numbers and address, and indicating that the loans were through account payee cheques. The Assessing Officer, relying on the Inspector's report, concluded that the transactions were not genuine as the creditors did not show the appellant as a creditor in their income tax returns. However, the High Court found that the Assessing Officer's decision was premature and lacked fairness as the appellant was not given a chance to explain or rebut the information obtained from the Inspector. The Court highlighted the importance of providing adequate opportunity to the appellant to prove the genuineness of the transactions. As a result, the Court allowed the appeal, emphasizing the need for fairness and proper disclosure of information in such assessments.

In conclusion, the High Court set aside the assessment order due to the failure to provide the Inspector's report to the appellant and lack of opportunity to explain crucial information. The Court emphasized the importance of fairness and proper disclosure in such assessments, ensuring that the appellant has a chance to prove the genuineness of the transactions.