2012 (5) TMI 460 - AT - Income Tax

Disallowance of Rs.62,19,593 on account of non receipt of confirmation of unsecured loans - Addition u/s 68 - During the course of assessment proceedings, the Assessing Officer noticed that unsecured loans as at the end of relevant previous years stood at Rs.2,52,05,395 whereas, as at the beginning of the year, unsecured loans only amounted to Rs.1,89,85,802 - in the present case, no specific show cause notice with respect to enhancement was not given by the CIT(A) - assessee has now filed additional evidences by way of confirmations and other supporting material to demonstrate bonafides of the creditors - Held that assessee s failure to have produced all these materials should not come in the way of substantive justice, and, now that the matter is going back to CIT(A) anyway, all these evidences should be examined and considered on merits - Appeal is allowed by way of remand to CIT(A)

Summary

Issues Involved:
1. Disallowance of unsecured loans due to non-receipt of confirmation.
2. Enhancement of the quantum of non-receipt of confirmation of unsecured loans.
3. Adequate time for obtaining loan confirmations from lenders.
4. Mode of loan transactions (cheque vs. cash).
5. Efforts made by the assessee to comply with the department's requirements.

Issue-wise Detailed Analysis:

1. Disallowance of Unsecured Loans Due to Non-Receipt of Confirmation:
The assessee challenged the correctness of the CIT(A)'s order disallowing Rs.62,19,593 due to non-receipt of confirmation of unsecured loans under section 68 of the Income Tax Act, 1961. The Assessing Officer (AO) noted that the assessee did not file any list of persons from whom loans were taken nor did the assessee file the confirmation letters, leading to the disallowance and addition to the total income.

2. Enhancement of the Quantum of Non-Receipt of Confirmation of Unsecured Loans:
The CIT(A) increased the disallowance from Rs.62,19,593 to Rs.1,12,77,050, resulting in an enhancement of Rs.50,57,457. The CIT(A) accepted the genuineness of loans with only opening balances but sustained the addition for loans where transactions occurred during the year and confirmations were not provided. Specific loans were detailed, such as those from Sarita Aggarwal, Meghna Sabharwal, and others, with reasons for acceptance or rejection of their genuineness.

3. Adequate Time for Obtaining Loan Confirmations from Lenders:
The assessee argued that the AO did not provide adequate time to obtain confirmations from over 60 lenders. Delays were attributed to factors such as shifting of residences and non-availability of persons. The CIT(A) noted that the assessee was given due opportunity but failed to provide necessary confirmations, leading to the sustenance of the additions.

4. Mode of Loan Transactions (Cheque vs. Cash):
The assessee emphasized that all loans were obtained via cheque payments, with no cash transactions, as evidenced by bank statements. Despite this, the CIT(A) sustained additions for certain loans due to lack of confirmations or discrepancies in the amounts reflected.

5. Efforts Made by the Assessee to Comply with the Department's Requirements:
The assessee claimed to have made every effort to meet the department's demands and submitted necessary documents as required. However, the CIT(A) found that the assessee did not furnish adequate confirmations for several loans, resulting in the addition of Rs.1,12,77,050.

Judgment:
The Tribunal found that the CIT(A) erred in enhancing the assessment without giving the assessee an opportunity to show cause against such enhancement, violating section 251(2) of the Income Tax Act. The Tribunal vacated the impugned order and remitted the matter back to the CIT(A) for fresh adjudication, directing the CIT(A) to give the assessee a fair opportunity to present additional evidence and to decide the matter on merits. The Tribunal emphasized the importance of substantive justice over technicalities and allowed the appeal for statistical purposes.