2015 (8) TMI 1457 - AT - Income Tax

Addition u/s 68 - Unsecured loans - accommodation entries received - genuineness of the transactions was not proved - Held that - Considering this Remand Report dated 22.06.2012 filed in pursuance to the directions given to re-consider the issue on merits, the CIT(A) granted relief. In the said factual background, the ld. CIT DR was unable to point out any infirmity either in procedure followed or on conclusion arrived at on these facts in the order. Admission of additional evidence considering the objections of the assessee to the first Remand Report - Held that - Admittedly, as per the non-rebutted evidence on record, the effective hearing in the assessment proceedings started on 07.12.2011 leading to the passing of the assessment order on 29.12.2011. Thus in the absence of any evidence to the contrary the finding of the CIT(A) under challenge that adequate and real opportunities was lacking during the assessment proceedings is upheld. The Ground No.-2 of the Revenue accordingly is dismissed. In the present case, admittedly the Assessing Officer, consciously and carefully after due and proper enquiry carried out by issuance of notices u/s 133(6) to the concerned persons/parties and considering the material comes to the conclusion that he is satisfied by the claim of the assessee on verification, then in such a situation the filing of the present appeals cannot be justified and can only be termed as a farce. - decided against revenue

Summary

Issues Involved:
1. Legitimacy of the addition of unsecured loans under Section 68 of the Income Tax Act, 1961.
2. Disallowance of interest expenditure claimed by the assessee.
3. Admission of additional evidence under Rule 46A of the Income Tax Rules, 1963.
4. Procedural correctness and adherence to principles of natural justice during assessment and remand proceedings.
5. Imposition of costs for filing frivolous appeals.

Issue-wise Detailed Analysis:

1. Legitimacy of the Addition of Unsecured Loans under Section 68:
The Assessing Officer (AO) added unsecured loans amounting to Rs. 84,00,000/- for the Assessment Year (A.Y.) 2004-05, Rs. 50,00,000/- for A.Y. 2006-07, and Rs. 12,00,000/- for A.Y. 2009-10 to the assessee's income under Section 68, citing the failure to substantiate the genuineness and creditworthiness of the lenders. The AO observed that the assessee failed to provide confirmations and necessary documentary evidence to prove the genuineness of the transactions. The AO concluded that the funds received were accommodation entries and thus added them as unaccounted income.

2. Disallowance of Interest Expenditure:
The AO disallowed the interest expenditure claimed by the assessee due to the inability to establish the genuineness of the loans. Specifically, an interest expenditure of Rs. 12,500/- for A.Y. 2004-05 and Rs. 1,20,000/- for A.Y. 2006-07 was disallowed.

3. Admission of Additional Evidence under Rule 46A:
The assessee, during the appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], sought permission to file additional evidence under Rule 46A, arguing that adequate opportunities were not provided during the assessment proceedings. The CIT(A) admitted the additional evidence and forwarded it to the AO for verification. The AO, in the second remand report, verified the genuineness of the loans and found them to be satisfactory.

4. Procedural Correctness and Adherence to Principles of Natural Justice:
The CIT(A) observed that the assessment proceedings did not provide adequate and real opportunities to the assessee to present the required documents. The CIT(A) noted that the first effective hearing was on 07.12.2011, and the assessment order was passed on 29.12.2011, indicating a lack of sufficient time for the assessee to furnish the necessary details. The CIT(A) directed the AO to verify the additional evidence, which led to the verification of the loans in the second remand report.

5. Imposition of Costs for Filing Frivolous Appeals:
The Tribunal noted that the AO, in the second remand report, had verified the loans and found them to be genuine, yet the Revenue filed appeals challenging the CIT(A) order. The Tribunal expressed serious concern over the filing of frivolous appeals, wasting the time of the court and all concerned parties. The Tribunal considered imposing costs on the Revenue but refrained from doing so, relying on the assurance from the CIT DR that due care would be taken in future to avoid such meritless litigation.

Conclusion:
The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s order which deleted the additions made by the AO under Section 68 and allowed the interest expenditure claimed by the assessee. The Tribunal emphasized the need for the Revenue to avoid filing frivolous appeals and to ensure that due diligence is exercised in future litigation matters. The order was pronounced on 07th August 2015.