2017 (5) TMI 1159 - AT - Income Tax

Unexplained cash credit u/s.68 - unsecured loan taken - addition made on information received from DIT (Inv) - Held that - The assessee has not been able to produce these lenders for verification and reasonably explain the complete circumstances in which these lenders, who were not even routinely engaged in the business of giving loans and advances, gave him unsecured loans on 12% p.a interest- which essentially is possible in situations of close relationships and trust; and the assessee has maintained stoic silence on being told about these lenders being alleged to be shell entities, thus not inclined to believe that these are genuine business transactions. Genuineness is a matter of perception but essentially a call on genuineness of a transaction is to be taken in the light of well settled legal principles. There may be difference in subjective perception on such issues, on the same set of facts, but that cannot be a reason enough for the fact finding authorities to avoid taking subjective calls on these aspects, and remain confined to the findings on the basis of irrefutable evidences In considered view, and for the detailed analysis set out earlier in this order, the alleged loan transactions of the assessee cannot be held to be genuine on the peculiar facts and circumstances of this case. As the genuineness of transactions stands rejected, it is not really necessary to deal with other aspects of the matter. - Decided against assessee.

Issues Involved:
1. Addition of ?20,00,000 as unexplained cash credit under Section 68 for unsecured loans.
2. Addition of ?3,66,041 on account of interest paid on unsecured loans considered as unexplained cash credit under Section 68.

Issue-wise Detailed Analysis:

1. Addition of ?20,00,000 as Unexplained Cash Credit under Section 68:

The assessee challenged the correctness of the order confirming the addition of ?20,00,000 as unexplained cash credit for unsecured loans taken from M/s. Natasha Enterprises and M/s. Mohit International. The loans were allegedly based on information received from the Directorate of Income Tax (Investigation) in the case of Praveen Kumar Jain (PKJ), indicating these entities were shell companies used for financial maneuvers.

The assessee argued that the addition was based solely on information from the Investigation Wing and a statement by PKJ, which was later retracted. The assessee was not confronted with PKJ's statement nor given an opportunity to cross-examine him, violating principles of natural justice. The assessee provided affidavits from the proprietors of the lending entities confirming the loans and their repayments, along with supporting documents like bank statements and loan confirmations.

The Tribunal noted that the assessee did not challenge the validity of the reopening proceedings and did not request to cross-examine PKJ during the assessment or first appellate stages. The Tribunal found inconsistencies in the assessee's approach, such as claiming ignorance of PKJ's statement while submitting the retraction affidavit.

The Tribunal observed that the lenders' bank statements showed unusual patterns of high transactions with minimal closing balances, indicating that these were not genuine business entities. The financial statements of the lenders revealed disproportionate turnovers and expenses, further supporting the conclusion that these were shell entities.

The Tribunal emphasized that proving the genuineness of transactions is crucial under Section 68, which the assessee failed to do. The Tribunal relied on the principles established by the Supreme Court in cases like Durga Prasad More and Sumati Dayal, which advocate for considering human probabilities and surrounding circumstances in addition to documentary evidence.

Given these findings, the Tribunal upheld the addition of ?20,00,000 as unexplained cash credit under Section 68, concluding that the loan transactions were not genuine.

2. Addition of ?3,66,041 on Account of Interest Paid on Unsecured Loans:

The assessee also challenged the addition of ?3,66,041, which was the interest paid on the unsecured loans considered as unexplained cash credit. The assessee argued that since the loans were genuine, the interest payments should be allowed as deductions.

However, the Tribunal, having already concluded that the loan transactions were not genuine, upheld the disallowance of the interest deduction. The Tribunal reasoned that if the principal loan amounts were considered unexplained and non-genuine, the related interest payments could not be allowed as deductions either.

Conclusion:

The Tribunal dismissed the appeal, upholding the addition of ?20,00,000 as unexplained cash credit and the disallowance of ?3,66,041 on account of interest paid on these loans. The decision was pronounced in the open court on 17th May 2017.

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