2018 (11) TMI 1593 - AT - Income Tax

Unexplained cash credit u/s 68 - AO treated the amount of unsecured loans received from the concern of Bhanwarlal Jain group during the year under consideration as unexplained investment under Section 69 - initial onus to place on record all the documentary evidences to establish the identity and creditworthiness of the lenders and genuineness of the transactions - additions were made on the basis of statement recorded during the investigation carried out providing no opportunity to cross verify HELD THAT - As perused the confirmation filed by the parties, copies of acknowledgement of return of income filed by the lenders for the year under consideration, copies of the bank statement of lenders, which establish that the payment towards loans were received during the year under consideration. Therefore the identity of the lenders was not in dispute. We have also considered all the documents placed on record by the assessee in the shape of statement of accounts and documents to show that the transactions were carried out through banking channels and the confirmations which were filed in the form of ledger accounts which reflect that the assessee had received the amount through RTGS, affidavits of the lenders. All those documents prove the genuineness of the transactions. Creditworthiness of the lenders are concerned, we have perused the audited accounts of the lenders which shows the creditworthiness of the lenders to grant loans and advances. Further, we also noticed from the record that the lenders have not only granted loans to the assessee but also to various other persons. We have also considered the affidavits of the lenders and from all those documents we find creditworthiness of the lenders to make payment of loans to the assessee. We have also considered that the loans, which were taken by the assessee has also been repaid and all those repayments have been made by the assessee in subsequent years and those details have also been filed by the assessee in the para mentioned above. Also in the present case the additions were made on the basis of statement recorded during the investigation carried out by the Investigation Wing. Since no opportunity of cross examination was given to the assessee in respect of the persons whose statements were relied upon by the Revenue, thus the same was considered as breach of principles of natural justice as held by the Hon ble Bombay High Court in the case of R.W. Promotions (P.) Ltd. (2015 (4) TMI 980 - BOMBAY HIGH COURT). AO has not looked into all the records furnished by the assessee and even the CIT(A) has also upheld the additions on the basis of suspicion. It is a settled law that suspicion, howsoever strong, may be but it cannot take place of evidence. In the present case, no evidence was brought on record by the AO to show that at any moment cash deposit was made in the bank account of the lenders before making payment to the assessee. - Decided in favour of assessee.

Issues Involved:
1. Violation of principles of natural justice by not providing evidence or opportunity for cross-examination.
2. Failure to verify confirmations and affidavits of lenders by not issuing notices under Section 133(6) of the Income Tax Act.
3. Addition of unexplained cash credit under Section 68 of the Income Tax Act.
4. Incorrect invocation of Section 69 of the Income Tax Act.
5. Disallowance of interest paid.
6. Addition on account of ad-hoc commission on alleged bogus loans.

Detailed Analysis:

Issue 1: Violation of Principles of Natural Justice
The assessee argued that the CIT(A) confirmed the AO's action without providing the necessary evidence or allowing cross-examination of the individuals whose statements were relied upon. This was deemed a violation of the principles of natural justice. The Tribunal noted that the assessee was not given an opportunity to rebut the evidence used against them, which is a breach of natural justice principles. The Tribunal emphasized that any addition based on statements without cross-examination is not sustainable.

Issue 2: Failure to Verify Confirmations and Affidavits
The assessee contended that the AO did not verify the confirmations and affidavits of lenders by issuing notices under Section 133(6). The Tribunal observed that the assessee had provided substantial evidence, including confirmations, PAN details, bank statements, and affidavits, to establish the identity, creditworthiness, and genuineness of the lenders. The Tribunal found that the AO's failure to verify these documents was unjustified.

Issue 3: Addition of Unexplained Cash Credit under Section 68
The AO added ?12,20,00,000 as unexplained cash credit under Section 68. The Tribunal noted that the assessee had provided detailed evidence, including confirmations, bank statements, and audited accounts, to prove the identity and creditworthiness of the lenders and the genuineness of the transactions. The Tribunal referred to several case laws, including CIT vs. Gagandeep Infrastructure Pvt. Ltd., which held that once the assessee establishes the identity and creditworthiness of the lenders and the genuineness of the transactions, the burden shifts to the Revenue. The Tribunal concluded that the assessee had discharged its burden, and the AO's addition was unwarranted.

Issue 4: Incorrect Invocation of Section 69
The AO initially invoked Section 69, treating the unsecured loans as unexplained investments. The Tribunal clarified that Section 69 applies only to unexplained investments, not loans. The Tribunal found that the AO's invocation of Section 69 was incorrect as no investments were made by the assessee. The CIT(A) also admitted this error but upheld the addition under Section 68, which the Tribunal found unjustified based on the evidence provided by the assessee.

Issue 5: Disallowance of Interest Paid
The assessee challenged the disallowance of ?1,20,27,943 out of interest paid. The Tribunal noted that this issue was consequential to the main issue of the addition under Section 68. Since the Tribunal decided in favor of the assessee on the main issue, this ground became moot and was dismissed.

Issue 6: Addition on Account of Ad-hoc Commission
The AO made an addition of ?26,57,000 on account of ad-hoc commission at 0.2% per month on the alleged bogus loans. The Tribunal found this addition arbitrary and unjustified, especially since the main addition under Section 68 was deleted. Consequently, this ground was also dismissed.

Conclusion:
The Tribunal allowed the appeals filed by the assessee for both assessment years, directing the AO to delete the additions made under Section 68. The Tribunal emphasized the importance of providing opportunities for cross-examination and verifying documentary evidence before making additions. The disallowance of interest and the ad-hoc commission addition were dismissed as they were consequential to the main issue. The Tribunal's order reinforced the principles of natural justice and the proper application of Sections 68 and 69 of the Income Tax Act.

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