2017 (10) TMI 999 - AT - Income Tax

Addition of unexplained cash credits - assessee-society has been granted registration under section 12A and 80G - Held that - The assessee--society, in the present case, has been able to prove the identity of the investors, creditworthiness and genuineness of the transaction in the matter. A.Y. 2007-2008 - CIT(A) on examination of the evidence and material on record, found that all the lender companies are registered with ROC and regularly assessed to income tax and filed their PAN and copy of the acknowledgment of filing their return. Therefore, the identity of the lender companies have been proved. The Ld. CIT(A) also examined their balance sheet and other material on record to show that all the lender companies have regular source of income and they have sufficient funds with them to give loans to assessee-society. Their source are coming from earlier years and all the loans and advances have been given through banking channel. Therefore, all the lenders have sufficient capacity to give loans and advances to the assessee-society. The Ld. CIT(A) found that the loans and advances have been repaid in same year or in the next year through banking channel which would support the findings of the Ld. CIT(A) that the lender companies were genuine companies and have given loans/advances to assessee-society. The findings of fact recorded by the Ld. CIT(A) have not been rebutted by the Revenue department through any evidence or material on record. Since the statements relied on by Assessing Officer were not subjected to cross-examination on behalf of the assessee-society and both of them did not appear before A.O. at the assessment stage as well as at remand proceedings, therefore, even if assessee-society do not appear before Assessing Officer in the remand proceedings, the fact remains that their statements could not be subjected to crossexamination on behalf of the assessee-society. Therefore, their statements cannot be read in evidence against the assessee-society. Considering the totality of the facts and circumstances of the case in the light of finding of fact recorded in A.Y. 2008-2009 above, we are of the view that the Ld. CIT(A), on both appreciation of facts and material on record, correctly deleted the addition - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition of ?2.20 crores on account of unexplained cash credits.
2. Deletion of addition of ?5,51,275 on account of proportionate disallowance of interest.
3. Deletion of addition of ?6,60,000 on account of premium/commission/entry charges.
4. Deletion of addition of ?1.20 crores on account of unexplained cash credit for A.Y. 2007-2008.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?2.20 Crores on Account of Unexplained Cash Credits:
The Revenue challenged the deletion of an addition of ?2.20 crores made by the Assessing Officer (AO) under Section 68 of the Income Tax Act. The AO had made this addition on the grounds that the identity, capacity, and creditworthiness of the lenders could not be proved as notices sent to them were returned unserved. The AO also noted that the confirmations were filed by a single person, and the return of income for the lender companies was signed by a common individual, suggesting a lack of genuineness. However, the assessee-society provided substantial documentary evidence, including confirmations, bank accounts, ITRs, and balance sheets, to prove the genuineness of the transactions. The CIT(A) observed that the AO had not questioned the immediate lenders but rather the source of the source, which is beyond the scope of Section 68. The CIT(A) concluded that the AO's suspicion did not amount to proof and that the assessee had discharged its burden of proof by providing adequate documentation. Consequently, the CIT(A) deleted the addition, and the Tribunal upheld this decision, noting that the AO failed to conduct proper verification and that the statements relied upon by the AO were not subjected to cross-examination.

2. Deletion of Addition of ?5,51,275 on Account of Proportionate Disallowance of Interest:
The AO had disallowed the interest credited/paid on the alleged unexplained cash credits amounting to ?5,51,275. Since the CIT(A) deleted the addition of the unexplained cash credits, the proportionate disallowance of interest was also deleted. The Tribunal upheld this decision, agreeing that the deletion of the principal addition warranted the deletion of the consequential interest disallowance.

3. Deletion of Addition of ?6,60,000 on Account of Premium/Commission/Entry Charges:
The AO had made an addition of ?6,60,000 on account of premium/commission/entry charges related to the alleged unexplained cash credits. The CIT(A) deleted this addition as well, reasoning that since the principal addition of unexplained cash credits was deleted, the related commission charges could not stand. The Tribunal concurred with this view, affirming the CIT(A)'s decision.

4. Deletion of Addition of ?1.20 Crores on Account of Unexplained Cash Credit for A.Y. 2007-2008:
For the assessment year 2007-2008, the AO had reopened the assessment based on findings from A.Y. 2008-2009 and made an addition of ?1.20 crores on account of unexplained cash credits. The assessee-society provided confirmations, bank statements, balance sheets, ITRs, and other documents to prove the genuineness of the transactions. The CIT(A) independently examined the evidence and found that the identity, creditworthiness, and genuineness of the transactions were established. The Tribunal upheld the CIT(A)'s decision, noting that the AO's reliance on statements that were not subjected to cross-examination was not valid evidence against the assessee.

Conclusion:
The Tribunal dismissed both departmental appeals, affirming the CIT(A)'s decisions to delete the additions on account of unexplained cash credits, proportionate disallowance of interest, and premium/commission/entry charges. The Tribunal emphasized that the AO had overstepped by questioning the source of the source and had not provided adequate evidence to substantiate the additions. The assessee-society had successfully discharged its burden of proof by providing comprehensive documentation.