2016 (7) TMI 1618 - AT - Income Tax

Addition u/s 68 - unexplained cash credits - onus to prove - HELD THAT - No doubt the primary onus was on the assessee to satisfy the ingredients of Section 68 of the Act as the amount stood credited in its books but it was also incumbent on the revenue to have made enquiries, verification and examination of the loan creditors wherein complete details of the loan creditors were furnished by the assessee instead of merely relying on statement of Shri Surendra Mansukhlal Khandar incriminating assessee, which incriminating statement of Shri Surendra Mansukhlal Khandar had not stood the test of cross examination by the assessee - this matter needs to be set aside and restored to the file of the A.O. and if the A.O. found on verification that the amounts of loan borrowed by the assessee have been repaid by the assessee to the said loan creditors by account payee cheques through banking channel, the additions will stand deleted. Additions on account of interest on these loans - HELD THAT - We find that the AO has made additions based on notional interest being paid/payable by the assessee on these loans, we did not find any basis/justification for the same as per the facts emanating from the records. This issue is also set-aside to the file of the AO to be decided based on merits after bringing on record cogent material/basis for the said interest to be brought to tax as income of the assessee.

Summary

Issues Involved:
1. Addition of ?20,00,000/- as unexplained cash credit under Section 68 for AY 1997-98.
2. Addition of ?31,250/- as interest on alleged loans for AY 1997-98.
3. Addition of ?30,00,000/- as unexplained cash credit under Section 68 for AY 1998-99.

Issue-wise Detailed Analysis:

1. Addition of ?20,00,000/- as unexplained cash credit under Section 68 for AY 1997-98:
The assessee challenged the addition of ?20,00,000/- made under Section 68 of the Income Tax Act, 1961, arguing that the Assessing Officer (AO) ignored relevant details, documents, and confirmations. The AO's reliance on the statement of Mr. Surendra Khandar, recorded during a search and seizure action, was contested as it was done without providing the assessee an opportunity to cross-examine Mr. Khandar. The Tribunal had previously set aside the matter, directing the AO to allow cross-examination of Mr. Khandar, which did not occur as the AO could not trace him. The assessee provided Hundi documents containing the names, addresses, and PAN of the loan creditors, but no further confirmations were submitted. The Tribunal noted that the Revenue did not verify or examine the loan creditors and relied solely on Mr. Khandar's statement, which was not cross-examined. The Tribunal set aside the matter to the AO for verification, directing that if the loans were repaid through banking channels, the additions should be deleted.

2. Addition of ?31,250/- as interest on alleged loans for AY 1997-98:
The AO added ?31,250/- as notional interest on the alleged loans, which the assessee contested, claiming no interest was claimed on the loans. The Tribunal found no basis for the interest addition and set aside the issue to the AO for a decision based on merits, directing the AO to provide proper opportunity for the assessee to present evidence.

3. Addition of ?30,00,000/- as unexplained cash credit under Section 68 for AY 1998-99:
Similar to the issue for AY 1997-98, the assessee challenged the addition of ?30,00,000/- under Section 68, arguing that the AO ignored relevant details and did not allow cross-examination of Mr. Khandar. The Tribunal had previously set aside the matter with directions for cross-examination, which did not occur. The assessee provided Hundi documents with details of the loan creditors, but no further confirmations were submitted. The Tribunal set aside the matter to the AO for verification, directing that if the loans were repaid through banking channels, the additions should be deleted.

Conclusion:
The Tribunal allowed the appeals for statistical purposes, setting aside the matters to the AO for verification of loan repayments through banking channels and proper examination of the loan creditors. The AO was directed to provide the assessee with an opportunity to cross-examine Mr. Khandar and to decide the issues based on merits, in accordance with the principles of natural justice.