2018 (11) TMI 939 - AT - Income Tax

Unexplained cash credit - addition merely on the basis of statement of third person recorded at the back of the assessee - Held that - We find that the assessee has been able to demonstrate the receipt from the aforesaid creditor and has successfully demolished the stand of refusal taken by the creditor in this regard. Thus, the version of the creditor cannot be prima facie taken as reliable. The cross examination of the creditor demanded has not been granted. Therefore, no addition can be made merely on the basis of statement of third person recorded at the back of the assessee without opportunity of cross examination thereon. One course of action would be to remit the matter back to the AO for fresh examination on this aspect - the protracted litigation requires to be avoided in view of the tangible evidence placed on behalf of the assessee and lapse committed by Revenue. Therefore, the additions under s.68 requires to be deleted. We direct the AO to do so. Addition of transaction charges of NMCX - Held that - The claim of the assessee that transaction charges paid to National Multi Commodity Exchange of India (NMCE) requires to be allowed as ordinary business expenditure in the course of commodity trading carries good deal of force. The expense incurred is clearly in the course of commodity business and thus, the assessee is entitled to claim such expenditure as business expenditure . The action of the Revenue authorities is accordingly set aside and impugned transaction charges is allowed.

Summary

Issues:
1. Unexplained cash credit of ?21,62,282
2. Transaction charges of NMCX ?24,67,435

Analysis:
1. The appeal was filed against the order of the Commissioner of Income Tax (Appeals) concerning the assessment year 2010-11. The assessee contested the addition made by the Revenue authorities on two grounds: unexplained cash credit and transaction charges. The assessee argued that the addition of ?21,62,282 under section 68 of the Income Tax Act was unjust as the creditor had provided evidence to refute the allegations. The Tribunal found that the assessee had demonstrated the receipt from the creditor and discredited the creditor's refusal to acknowledge the transaction. The Tribunal emphasized the importance of cross-examination and ruled that additions cannot be made solely based on a third party's statement without the opportunity for cross-examination. Despite the option to remit the matter back to the Assessing Officer, the Tribunal decided to delete the addition due to the age of the case and the evidence presented by the assessee. Thus, the addition of ?21,62,282 was directed to be deleted.

2. Regarding the disallowance of transaction charges amounting to ?24,67,435, the Tribunal sided with the assessee. The Tribunal acknowledged that the transaction charges were incurred in the course of commodity trading and hence should be considered as ordinary business expenditure. The Tribunal overturned the decision of the Revenue authorities and allowed the transaction charges claimed by the assessee. Consequently, the appeal of the assessee was allowed, and both issues were decided in favor of the assessee.

This judgment by the Appellate Tribunal ITAT Ahmedabad highlights the importance of providing tangible evidence and upholding natural justice principles in tax assessments. The Tribunal emphasized the need for cross-examination and ruled in favor of the assessee based on the evidence presented. The decision showcases the significance of thorough documentation and legal procedures in resolving tax disputes effectively.