2016 (5) TMI 1082 - AT - Income Tax

Addition u/s 68 - unsecured cash credit - Held that - As observed that the assessee has raised loans of ₹ 45,50,000/- from various parties during the instant assessment year 1998-99 under appeal and one Shri Surendra Khandhar has given statement u/s 131 of the Act against the assessee that he has floated various firms to give accommodation loan entries to various persons which also included the assessee . The said statement of Sh.Surender Khandhar was recorded by the Revenue at the back of the assessee. The said Shri Surendra Khandhar has not been subjected to cross examination by the assessee and hence the statement of Shri Surendra Khandhar cannot be used against the assessee until and unless the cross examination of the said Shri Surendra Khandhar by the assessee takes place. We find that the Tribunal in the first round of litigation 2013 (9) TMI 1119 - ITAT MUMBAI , set aside the matter to the file of A.O. with a direction to re-verify the loan transactions as per provisions of the Act after affording opportunity to the assessee, the Tribunal also holding that since Sh Surender Khandhar could not be offered for cross examination by the assessee , his statement cannot be used against the assessee. The said Shri Surendra Khandhar did not appear before the Revenue also. The A.O. also failed to make verification and enquiries on merits with respect to the loan raised by the assessee. The assessee, on the other hand, produced the copies of promissory note/hundi as loan confirmations. In the immediately preceding assessment year 1997- 98, the Tribunal in the second round of litigation deleted the addition with a direction to the A.O. to verify the contentions of the assessee regarding repayment of loan With respect to additions made on account of interest on these loans, 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. - Decided in favour of assessee for statistical purpose.

Summary

Issues Involved:
1. Addition of ?45,50,000 on account of unexplained cash credit.
2. Addition of ?4,00,000 on account of interest on the alleged loans.

Detailed Analysis:

1. Addition of ?45,50,000 on Account of Unexplained Cash Credit:

The primary issue pertains to the addition of ?45,50,000 as unexplained cash credit under Section 68 of the Income Tax Act, 1961. The assessee contended that the learned CIT(A) erred in confirming the addition without appreciating the relevant details, documents, and necessary explanations provided. The assessee also argued that the AO violated the principles of natural justice by not allowing cross-examination of Mr. Surendra Khandhar, whose statement was pivotal in the assessment.

The Tribunal had earlier set aside the assessment to the AO with directions to re-verify the loan transactions and provide an opportunity for cross-examination of Mr. Khandhar. Despite multiple attempts, Mr. Khandhar did not comply with the summons, and the cross-examination did not occur. The AO, relying on Mr. Khandhar's statement, concluded that the loans were accommodation entries and added ?45,50,000 to the assessee's income as unexplained cash credit.

The Tribunal observed that without the opportunity for cross-examination, Mr. Khandhar's statement could not be used against the assessee. It was also noted that the AO failed to verify the loan transactions on merits. The Tribunal referenced its decision in the preceding assessment year 1997-98, where a similar issue was resolved in favor of the assessee after verification of loan repayments. Consequently, the Tribunal set aside the issue to the AO for verification of the repayment of loans amounting to ?45,50,000 during the assessment year 1998-99.

2. Addition of ?4,00,000 on Account of Interest:

The second issue involved the addition of ?4,00,000 as interest on the alleged loans. The assessee argued that the CIT(A) erred in confirming this addition merely because the principal loan amount was confirmed as unexplained cash credit. The assessee also contended that no interest was claimed on the alleged loans, and the AO made the addition without any substantive finding or discussion.

The Tribunal found that the AO had made the addition based on notional interest without any cogent basis or justification. Therefore, this issue was also set aside to the AO to be decided on merits after bringing on record substantial material to justify the addition of interest as income of the assessee.

Conclusion:

The Tribunal allowed the appeal for statistical purposes, setting aside both issues to the AO for fresh verification and decision. The AO was directed to verify the repayment of the loans and decide the issue of interest based on merits, providing the assessee with an adequate opportunity of being heard in accordance with the principles of natural justice.