2019 (2) TMI 835 - AT - Income Tax

Addition u/s 68 - AO had made the additions by treating the unsecured loans received by the assessee from 34 parties as unexplained loans received by the assessee - intimation was received by the revenue from the DDIT(Inv) Mumbai to the effect that assessee was one of the beneficiaries of accommodation entries for loan from various concerns/ entities which were benami concerns, managed and controlled by Bhawarlal Jain Group Held that - The Investigating Wing of the department had examined all the loan creditors wherein all the creditors had appeared and confirmed the transactions of loans advanced to the assessee. The AO had primarily made the additions by believing and relying upon the admission of Bhawarlal Jain by ignoring the fact that nowhere in the statement of Bhawarlal Jain or any of his associates recorded u/s 132(4) of the Act had admitted that any of their concerns had ever given accommodation entries by way of unsecured loans to the assessee. From the documentary records, we also noticed that actually, the assessee had already discharged the onus caste upon him to prove the identity, creditworthiness and genuineness of transactions. CIT(A) had discussed in detail that the documents submitted by the assessee and their co-relation with the onus, which stands discharged by the assessee. But on the contrary, the AO had not brought on record any evidence to controvert or rebut the claim of the assessee and even no findings were recorded by the AO to the effect that the evidences produced by the assessee were untrustworthy or lack credibility. Although it was claimed by the AO that during the course of search at the residence of Shri Bhanwarlal Jam, a pen drive (Sony 4 GB) was seized and as stated in para-5.1 on page-8 of the impugned order. Also claimed that after decryption of the data stored in the said pen drive, a database containing details of loans advanced by all 70 benami concerns of Shri Bhanwarlal Jain and Shri Rajesh Bhanwarlal Jain from F.Y.2006-07 and onwards was prepared by the Investigation Wing, Mumbai. Whereas on the repeated request made by the assessee to furnish copies of print outs of date of transactions pertaining to the assessee and relevant to A.Ys.2012-13 and 2013-14. Apart from that the AO was also asked to furnish any other evidence in his possession in regard to the unsecured loans procured by the assessee from various entities of Shri Bhanwarlal Jain Group. But the AO did not supply the same. Apart from that the AO had also failed to provide copy of party-wise ledger account of the assessee containing details of corresponding cash received against loans on various dates and commission charged by Bhanwarlal Jain thereon. Therefore in such circumstances, the AO had no valid basis for treating the unsecured loans as accommodation entries . There is nothing on the record to show that the assessee admitted at any point of time to have procured accommodation entries of loans. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition under Section 68 of the Income Tax Act for unexplained loans.
2. Deletion of addition for interest payment on these loans.
3. Deletion of addition under Section 69C towards commission payment for obtaining loan entries.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68 for Unexplained Loans:
The primary issue was whether the CIT(A) was justified in deleting the addition of ?34.35 crores made under Section 68 of the Income Tax Act, which pertained to loans received by the assessee deemed unexplained by the AO. The assessee, engaged in share trading, had received loans from various entities linked to Mr. Bhanwarlal Jain, who was known for providing accommodation entries. The AO, relying on search findings and statements from Mr. Bhanwarlal Jain, concluded that the loans were bogus and added the amount to the assessee's income under Section 68. However, the CIT(A) found that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the transactions. The CIT(A) observed that the AO did not provide the assessee with the incriminating materials or allow cross-examination of the parties involved, thus violating principles of natural justice. The Tribunal upheld the CIT(A)'s decision, emphasizing that the burden of proof had shifted to the AO, who failed to disprove the evidence provided by the assessee.

2. Deletion of Addition for Interest Payment on Loans:
The second issue involved the deletion of ?1,90,80,497/- claimed as interest payment on the loans. The AO had disallowed the interest expenditure on the grounds that the loans were bogus. The CIT(A) deleted this disallowance, reasoning that since the loans were found to be genuine, the interest payments on these loans were also legitimate. The Tribunal agreed with the CIT(A), stating that the interest disallowance was consequential to the main addition under Section 68, which had already been deleted.

3. Deletion of Addition under Section 69C for Commission Payment:
The third issue was the deletion of ?52,44,800/- added under Section 69C towards commission payment for obtaining loan entries. The AO had estimated this commission based on the assumption that the loans were accommodation entries. The CIT(A) deleted this addition, noting that there was no evidence of any commission payment by the assessee. The Tribunal upheld this decision, stating that the addition for commission payment was an offshoot of the main addition under Section 68, which had been deleted.

Conclusion:
The Tribunal dismissed the revenue's appeal, confirming the CIT(A)'s order in deleting the additions under Sections 68, 69C, and the disallowance of interest payment. The Tribunal emphasized that the assessee had discharged its burden of proof by providing necessary evidence, and the AO failed to provide any material to counter the assessee's claims or to justify the additions made. The Tribunal also highlighted the importance of adhering to principles of natural justice, which were not followed by the AO in this case.