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2011 (12) TMI 702 - AT - Income TaxAssessment u/s 153A - Addition on unsecured loan u/s 68 - accommodation entries - cash credit - genuineness of transaction of the loans - incriminating documents found during search - Assessee surrendered additional income and disclosed the same in the hands of Shri Mahesh Mittal and Shri Pravin Mittal in AY 2007-08. HELD THAT - It was observed by the Supreme Court in the case of ITO vs. CH Atchaiah 1995 (12) TMI 1 - SUPREME COURT that there is no option under the 1961 Act, unlike the one given under 1922 Act and the AO must tax the right person and right person only. By right person is meant the person, who is liable to be taxed according to the law with respect to a particular income. The expression Wrong Person is obviously used as opposite of the expression right person . Merely because a wrong person is taxed with respect to a particular income, the AO is not precluded from taxing the right person with respect to that income. This is so irrespective of the fact, which course is more beneficial to the Revenue. A person lawfully liable to be taxed can claim no immunity because the Assessing Officer has taxed the said income in the hands of another person contrary to law. In the instant case, there is no dispute to the identity in so far as Lunkad Group is also on Department s record and a survey has been carried out at premises of Lunkad Group. The genuineness of transaction of the loans become doubtful in view of the incriminating documents found during survey at Lunkad Group. Applying the proposition of law been laid down by the Hon'ble Supreme Court in the case of Smt. Taradevi 1972 (11) TMI 2 - SUPREME COURT to the facts of the instant case, we can safely conclude that the ld. CIT(A) was not justified in deleting the addition in the hands of the assessee company merely on the plea that the same amount has been added in the hands of the creditor company. We found that in case of Lunkad Group addition was made in respect of cash received by it from persons, whose name, address and other particulars could not be furnished before AO. This addition is mothering to do with the genuineness of loan received by assessee from Lunkad Group. Before reaching to the third criteria of creditworthiness, assessee have to cross the barrier of genuineness of loan transaction, which has become doubtful in view of the incriminating material found during course of survey at Lunkad Group with regard to receipt of cash from the assessee company and issue of cheque against such cash in favour of the assessee company. Thus, a legally wrong view has been taken by the ld.CIT(A), which made the Department entitled to file an appeal against such order of CIT(A). Thus, there is no merit in the argument of ld. AR to the effect that the Department had wrongly come in appeal against the order of CIT(A). As we have reversed the order of CIT(A) with respect to deletion of addition made u/s 68, we also uphold the action of AO for disallowing interest expenses and for making addition on account of unexplained source of expenses incurred for the payment of commission on such accommodation entry. Therefore, we reverse the order of CIT(A) and allow all the appeals of the Revenue in its favour. Addition in respect of cash credit - Only because of incriminating document pertaining to period 1.4.2006 to 1.5.2006, the Department doubted the genuineness of all the loan transactions pertaining to period starting from 1.4.2001 to 31.3.2007. Before making addition or disallowing the cash credit, on the plea of genuineness, the Department is required to bring on record some evidence to indicate that the assessee has paid cash in consideration of the cheques so issued. Without any evidence, much less a cogent evidence, it is not legally justified to doubt the genuineness of loan transaction or make addition in the hands of the assessee company for which no material much less a cogent material is in possession of Department. In the interest of justice and fair play, we restore the grounds raised by the assessee in the cross objection to the file of the AO for deciding afresh in terms of our above discussion and as per law. Addition with respect to the peak amount of loan outstanding - In all these years, the assessee had taken loan and again repaid the same, therefore, the addition should be made only to the extent of peak amount of loan outstanding at any point of time falling during the period starting from 1.4.2001 to 31.3.2007. AO has prepared annexure I, which is forming part of its assessment order in case of Narmada Extrustion indicating party-wise and assessment-wise details of peak credit in respect of loans from Lunkad Group of companies. As per Annexure I, we found that the peak amount of loan was in the AY 2005-06 amounting to ₹ 2.58 crores, however, the total addition in respect of total peak credit as made by the AO amounts to ₹ 7,59,50,000/- starting from AY 2002-03 to 2007-08. Thus, as per this Annexure the peak amount of the credit was ₹ 2.58 crores. The peak credit of ₹ 2.58 lacs as mentioned by AO in Annexure I appears to be wrong. In the paper book, we find one more date-wise statement of loan taken by the assessee (Narmada Extrusions Limited) from various Lunkad Group Companies starting from 10th July, 2001 to 31st March, 2007. As per this statement, the peak amount of loan is ₹ 6,44,37,338/- as on 29th June, 2006. We, therefore, direct the AO to reverify and recompute the peak amount of loan and to restrict the addition to the extent of peak amount of the loan. We direct accordingly. In the result, all the appeals of the Revenue are allowed, whereas cross objections are allowed in part for statistical purposes, in terms indicated hereinabove.
Issues Involved:
1. Deletion of addition made by the AO on account of unsecured loan u/s 68 of the I.T. Act. 2. Deletion of addition made by the AO on account of interest expenses paid for accommodation entries. 3. Deletion of addition made u/s 69A of the I.T. Act on account of unexplained source of expenses. 4. Confirmation of the act of AO in issuing notice u/s 153A of the I.T. Act. 5. Confirmation of the act of AO in making additions in respect of cash credit. Detailed Analysis: 1. Deletion of Addition on Account of Unsecured Loan u/s 68: The AO added unsecured loans received by the assessee from the Lunkad Group as unexplained cash credits under Section 68 of the I.T. Act, based on the findings from a survey conducted at the Lunkad Group premises. The survey revealed that the Lunkad Group was involved in providing accommodation entries. The AO held that the loans were merely accommodation entries, as the Lunkad Group received cash from the assessee and routed it back as loans. The CIT(A) deleted the addition, reasoning that the Lunkad Group had issued confirmatory letters for the loans, and adding the same amount in the hands of the assessee would result in double addition. The Tribunal reversed the CIT(A)'s decision, holding that the addition should be made in the hands of the right person and not deleted merely because it was added in the hands of another person. The Tribunal directed that the addition should be restricted to the peak amount of loan outstanding during the relevant period. 2. Deletion of Addition on Account of Interest Expenses: The AO disallowed interest expenses paid by the assessee on the loans from the Lunkad Group, considering them as non-genuine accommodation entries. The CIT(A) deleted this addition along with the principal loan amount. The Tribunal, however, upheld the AO's disallowance of interest expenses, as the loans were found to be non-genuine based on the incriminating documents found during the survey. 3. Deletion of Addition u/s 69A on Unexplained Source of Expenses: The AO made an addition under Section 69A for unexplained expenses incurred by the assessee for payment of commission to the Lunkad Group for providing accommodation entries. The CIT(A) deleted this addition, but the Tribunal reversed this decision, holding that the AO was justified in making the addition based on the evidence of accommodation entries. 4. Confirmation of Issuing Notice u/s 153A: The cross-objections raised by the assessee challenged the AO's issuance of notice under Section 153A, arguing that no incriminating documents were found during the search. The Tribunal found that the incriminating documents found at the Lunkad Group premises justified the issuance of notices under Section 153A and upheld the AO's action. 5. Confirmation of Additions in Respect of Cash Credit: The assessee argued that the additions made in respect of cash credits were unjustified as the loans were recorded in the regular books of accounts, and no incriminating documents were found during the search. The Tribunal noted that the loans were taken and repaid through account payee cheques, and the assessee had filed confirmation letters and affidavits. However, due to the incriminating documents found during the survey at the Lunkad Group, the Tribunal held that the AO was justified in making additions for the assessment year 2007-08. The Tribunal directed the AO to restrict the addition to the peak amount of loan outstanding during the relevant period and allowed the cross-objections in part for statistical purposes. Conclusion: The Tribunal allowed the Revenue's appeals, reversing the CIT(A)'s deletions of additions on account of unsecured loans, interest expenses, and unexplained expenses. The Tribunal upheld the AO's issuance of notices under Section 153A and directed the AO to restrict the additions to the peak amount of loan outstanding. The cross-objections raised by the assessee were allowed in part for statistical purposes.
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