2019 (1) TMI 196 - AT - Income Tax

Addition on the basis of cheques found during survey u/s 133A - whether no any loans / advances were given by the appellant against the said cheques and that no any Hundi papers were found as regards these cheques? - Held that - The modus operandi of the business as per assessee is that money is advanced to the parties on the basis of hundis/promissory notes and as a security cheques are taken. However, no corresponding promissory notes or hundis from the above mentioned six persons issuing cheques were recovered. The assessee has filed affidavits from all the persons whose cheques were found admitting that no loan was taken by them from the assessee. The aforesaid persons also appeared before the Assessing Officer and their statements were recorded. All of them corroborated with the submissions of assessee and stood fast to the affirmations made in the affidavits filed. Once the affidavit and statement of Shri Shete Rameshwar Ganpatrao has been accepted the same affidavit and statement cannot be disbelieved in the case of person who has allegedly advanced cash loan. On all the cheques allegedly received as security there is no mention of date, except the cheque issued by drawer. The cheque issued by him bears the date 07-06-2006 i.e. period relevant to the assessment year 2007-08. As per the Negotiable Instrument Act, 1881 (as was applicable during the relevant period) validity of cheque was six months from the date mentioned thereon. Hence, the said cheque had become invalid and could not have been encashed by the assessee in the period relevant to the assessment year under appeal. On some of the cheques even the name of assessee is not mentioned. The additions have been made merely on the initial statement of the assessee without there being any corroborative material. There is no material on record to show that the assessee has extended loan to the parties named. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of ?76,00,000 based on cheques found during survey.
2. Estimation of ?14,85,000 as alleged undisclosed interest on capital employed in the business.

Issue-wise Detailed Analysis:

1. Addition of ?76,00,000 Based on Cheques Found During Survey:

The assessee contested the addition of ?76,00,000 made by the Assessing Officer (AO) based on cheques found during a survey under Section 133A of the Income Tax Act, 1961. The AO concluded that the assessee was involved in unauthorized money lending, leading to the addition as undisclosed income. The Commissioner of Income Tax (Appeals) upheld this addition.

The assessee argued that the modus operandi of their business involved advancing money on the basis of Hundis/Promissory Notes and taking cheques as security. The cheques found did not have corresponding Hundis or Promissory Notes, which are essential for a loan transaction. The assessee provided affidavits from the parties whose cheques were found, confirming that no loans were taken. These affidavits were corroborated by statements recorded under Section 131 of the ITA, 1961. The Tribunal noted that the Department disbelieved these statements and affidavits without concrete evidence.

The Tribunal also considered a similar case where the penalty under Sections 271D and 271E was deleted as there was no evidence of loan transactions. It was observed that the cheques lacked dates and the name of the assessee, further weakening the Revenue’s case. The Tribunal concluded that there was no material evidence to support the addition of ?76,00,000 and allowed the appeal on this ground.

2. Estimation of ?14,85,000 as Alleged Undisclosed Interest:

The assessee also challenged the estimation of ?14,85,000 as alleged undisclosed interest on capital employed. However, no substantial arguments were presented to counter the findings of the authorities below. Consequently, the Tribunal upheld the estimation and dismissed the appeal on this ground.

Conclusion:

The Tribunal allowed the appeal partly, deleting the addition of ?76,00,000 due to lack of evidence supporting the alleged loan transactions, while upholding the estimation of ?14,85,000 as undisclosed interest. The order was pronounced on October 8, 2018.