2019 (9) TMI 603 - AT - Income Tax

Addition u/s. 68 - unsecured loans - assessee has obtained accommodation entries for increase in share capital along with premium - disallowance of commission expenses relating to said unsecured loans - HELD THAT - Assessee has discharged its initial onus of proving the identity, genuineness and creditworthiness of the creditors by providing all necessary details and thus the assessee has discharged identity, genuineness and creditworthiness of the parties. AO has not controverted the evidences furnished by the assessee. No further enquiries have been made by the Assessing Officer except relying on the statements of PKJ and the investigation report. Even the statements were not provided to the assessee for its rebuttal. Addition made u/s. 68 which is purely based on the statements recorded from PKJ and without any enquiry is liable to be deleted. Further, since the statement of PKJ on which much reliance was placed to treat the loan transaction as non-genuine was not provided to the assessee for rebuttal, it is in violation of principles of natural justice and further we observe that no sort of enquiries were made by the AO to disprove the evidences furnished by the assessee. Addition made u/s. 68 cannot be sustained. We direct the AO to delete the addition made u/s. 68 of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition under Section 68 of the Income Tax Act towards unsecured loans.
2. Disallowance of commission expenses related to the unsecured loans.

Issue-wise Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act towards unsecured loans:

The Revenue appealed against the order of the CIT(A) which deleted the addition made under Section 68 towards unsecured loans. The Assessing Officer (AO) had added the unsecured loans to the income of the assessee, treating them as non-genuine based on the statement of Shri Praveen Kumar Jain (PKJ), who allegedly provided accommodation entries. The AO required the assessee to prove the genuineness, identity, and creditworthiness of the creditors. The assessee provided various documents, including confirmations from creditors, PAN details, bank statements, and evidence of interest payments.

The CIT(A) deleted the addition, stating that the assessee had provided sufficient evidence to prove the genuineness of the transactions. The AO had ignored these evidences and relied solely on PKJ's statement without providing the assessee an opportunity to cross-examine PKJ. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO did not conduct any independent enquiry and failed to provide the statements to the assessee for rebuttal, violating principles of natural justice.

2. Disallowance of commission expenses related to the unsecured loans:

The AO also disallowed the commission expenses related to the unsecured loans, assuming that the assessee might have paid commission in cash. The CIT(A) deleted this disallowance as well, and the Tribunal upheld this decision. Since the addition under Section 68 was deleted, the consequential disallowance of commission expenses was also not sustainable.

Conclusion:

The Tribunal found that the assessee had discharged its onus by providing adequate evidence to prove the identity, genuineness, and creditworthiness of the creditors. The AO's reliance solely on PKJ's statement without independent verification or providing an opportunity for cross-examination was not justified. Therefore, the addition under Section 68 and the disallowance of commission expenses were rightly deleted by the CIT(A). The appeal by the Revenue was dismissed.