2019 (9) TMI 4 - AT - Income Tax

Addition u/s 68 - unexplained cash credits - allegations that, loan was received from dummy company/ entities - no inquiry by issuing notices under Sec. 133(6) or summons under Sec. 131 - HELD THAT - Assessee had placed on record supporting documentary evidence to substantiate the authenticity of the loan transactions viz. confirmation letters, bank statements, financial statements of the lender parties, and thus had discharged the onus that was cast upon it - no adverse inferences could have been drawn by the A.O without making any inquiry by issuing notices under Sec. 133(6) or summons under Sec. 131 of the Act. As regards the admission of the undisclosed income by the director of the assessee company in his statement recorded in the course of the survey proceedings, it was observed by the Tribunal that a disclosure obtained in the course of survey de hors corroborative evidence cannot be a conclusive proof for making an addition in the hands of the assessee. Tribunal on the basis of his aforesaid observations had in the case of the aforementioned sister concern of the assessee company wherein identical facts were involved, had upheld the order of the CIT(A) and therein concluded that the A.O in the absence of the corroborative evidence was not justified in treating the loans received by the assessee before them as unexplained cash credit under Sec. 68. CIT(A) after deliberating at length on the issue under consideration had rightly concluded that as the assessee had discharged the onus that was cast upon it under Sec.68 therefore, the A.O was not justified in treating the loans received from the aforementioned parties as unexplained cash credits under Sec.68 - Decided in favour of assessee

Summary

Issues Involved:
1. Whether the loans received by the assessee companies were genuine or in the nature of accommodation entries.
2. Whether the interest expenses claimed on the purported loans should be allowed.

Detailed Analysis:

1. Whether the loans received by the assessee companies were genuine or in the nature of accommodation entries:

The revenue contended that the loans received by the assessee companies were not genuine but rather accommodation entries managed and controlled by an infamous accommodation entry provider, Shri Praveen Kumar Jain. The Assessing Officer (A.O) based his conclusion on the statement of Shri Chetan R. Shah, director of the assessee companies, recorded during the survey proceedings, where he admitted that the loans were accommodation entries. However, this statement was later retracted by Shri Chetan R. Shah.

The assessee companies argued that they had discharged the onus of proving the authenticity of the loan transactions by providing supporting documentary evidence, including confirmations from lenders, copies of returns of income, annual audited accounts, and bank statements. The Commissioner of Income Tax (Appeals) [CIT(A)] observed that the A.O had not brought any corroborative evidence to disprove the documentary evidence provided by the assessee companies. The CIT(A) concluded that the A.O was not justified in treating the loans as unexplained cash credits under Sec. 68 of the Income Tax Act, 1961.

The Tribunal noted that the statement recorded under Sec. 133A during survey proceedings does not carry evidentiary value unless corroborated by other evidence. The Tribunal emphasized that the A.O had failed to dislodge the documentary evidence provided by the assessee companies. The Tribunal upheld the CIT(A)’s decision, concluding that the loans were genuine and not accommodation entries.

2. Whether the interest expenses claimed on the purported loans should be allowed:

The A.O disallowed the interest expenses claimed by the assessee companies on the grounds that the loans were bogus. However, since the Tribunal concluded that the loans were genuine, the consequential disallowance of the interest expenses was also vacated. The CIT(A) had rightly deleted the disallowance of interest expenses, and the Tribunal upheld this decision.

Conclusion:

The Tribunal dismissed the appeals filed by the revenue, upholding the CIT(A)’s decision that the loans received by the assessee companies were genuine and not unexplained cash credits. Consequently, the interest expenses claimed on these loans were also allowed.