2021 (9) TMI 1396 - AT - Income Tax

Addition u/s 68 - unsecured loans from Bhanwarlal Jain group by treating the same as unexplained cash credit - AO made the addition by doubting the genuineness of the loan transactions by citing the reason that a search on Bhanwarlal Jain and related parties has revealed that the entire group was engaged in advancing tax accommodation entries without doing any real business which has affirmed by Ld. CIT(A) by observing that retraction of statement recorded during the course under section 132(4) of the Act can not be sole basis to treat the transaction as genuine - HELD THAT - Undisputedly, the assessee during the course of assessment proceedings filed copy of ITRs, balance sheet, profit and loss account, confirmations and proof of receipt of payment through banking channel along with the evidence of payment of interest at the rate of 12% after deduction of TDS at source. We observe from the records before us that AO has not carried out any further verification and relied on the report of the DGIT(Inv.), Mumbai that assessee is beneficiary of accommodation entries without carrying on any further investigation. We note that the statement taken during the course of search has been retracted in which it has been admitted that Bhanwarlal Jain and related entities were engaged in accommodation entries in the form of unsecured loans of short term and long term capital gain and share capital etc. We also observe from the facts before us that the assessee has filed various evidences before the lower authorities however no further enquiries have been conducted by the AO or ld CIT(A) to dig out the truth or t disapprove the evidences filed. Both the authorities below have heavily relied on the statements recorded during search of Shri Bhanwar lal Lain and other persons without any corroborating evidences. - Decided in favour of assessee.

Summary

Issues Involved:
1. Reopening of completed assessment under Section 148.
2. Addition of Rs. 1,00,00,000 as unexplained cash credit under Section 68.
3. Disallowance of Rs. 6,55,834 as interest paid on unsecured loan.
4. Penalty under Section 271(1)(c).
5. Interest under Section 234B.

Detailed Analysis:

1. Reopening of Completed Assessment under Section 148:
The issue raised in ground no. 1 was not argued at the time of hearing and therefore was dismissed as not pressed.

2. Addition of Rs. 1,00,00,000 as Unexplained Cash Credit under Section 68:
The assessee challenged the confirmation of the addition of Rs. 1,00,00,000 made by the AO on account of unsecured loans from the Bhanwarlal Jain group, treating them as unexplained cash credit. The assessee had filed various documents, including loan confirmations, PAN, ITRs, and annual accounts, to prove the identity, creditworthiness, and genuineness of the transactions. The AO rejected these evidences based on the report from DGIT (Inv.), Mumbai, which labeled the parties as hawala operators providing accommodation entries. The CIT(A) upheld the AO's decision, relying on statements made during a search on the Bhanwarlal Jain group, despite the retraction of these statements.

Upon review, it was found that the AO did not conduct any further verification and solely relied on the DGIT report. The assessee had provided sufficient evidence, including bank statements and proof of interest payment after TDS deduction, to substantiate the transactions. The Tribunal referenced several cases, including M/s. Pabal Housing Pvt. Ltd. vs. DCIT and ITO vs. Abhay Kumar Daga HUF, where it was held that the initial burden of proof was discharged by the assessee, and the AO failed to provide contrary evidence. Consequently, the Tribunal directed the AO to delete the addition.

3. Disallowance of Rs. 6,55,834 as Interest Paid on Unsecured Loan:
Since the addition of Rs. 1,00,00,000 as unexplained cash credit was deleted, the disallowance of Rs. 6,55,834 as interest on the unsecured loan was also consequentially allowed in favor of the assessee.

4. Penalty under Section 271(1)(c):
The issues raised in ground no. 4 were either premature or general in nature and did not require adjudication at this stage.

5. Interest under Section 234B:
Similarly, the issues raised in ground no. 5 were either premature or general in nature and did not require adjudication at this stage.

Conclusion:
The appeals for the assessment years 2008-09, 2009-10, 2010-11, 2011-12, and 2012-13 were allowed. The Tribunal reversed the findings of the CIT(A) and directed the AO to delete the additions made under Section 68. The disallowance of interest was also allowed in favor of the assessee. The issues pertaining to penalties and interest were deemed premature or general and thus not adjudicated.