2020 (3) TMI 780 - AT - Income Tax

Addition u/s 68 - unsecured loan - HELD THAT - Assessee has duly discharged its onus of proving the identity and creditworthiness of the persons and genuineness of the transactions by furnishing the confirmation letters, assessment particulars including PAN and copy of I.T. return, balance-sheet P L account, Bank statement to show that the payments have been made through banking channels in respect of Loan creditors It is settled proposition of law that the information gathered behind the back of the assessee cannot be used against him unless until an opportunity of rebutting the same is given to the assessee statement by itself does not constitute 'information, unless the Assessing Officer has made enquiries thereon and inferred understatement of income - Decided in favour of assessee.

Issues Involved:
1. Addition of ?3,07,00,000 on account of unsecured loans under Section 68 of the Income Tax Act.
2. Burden of proof regarding identity, capacity, and genuineness of loan creditors.
3. Opportunity for cross-examination of creditors.

Detailed Analysis:

1. Addition of ?3,07,00,000 on Account of Unsecured Loans:
The primary issue in dispute was the addition of ?3,07,00,000 made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, treating it as income from undisclosed sources. The AO found the loans from 15 creditors unsatisfactory and added the amount to the assessee's income. The CIT(A) deleted the addition for 11 creditors amounting to ?2,74,00,000 after the assessee provided sufficient evidence. The Tribunal upheld this deletion, agreeing with the CIT(A)'s detailed examination and reasoning.

2. Burden of Proof Regarding Identity, Capacity, and Genuineness of Loan Creditors:
The CIT(A) emphasized that under Section 68, the assessee must prove:
- Identity of the creditor.
- Capacity of the creditor to advance money.
- Genuineness of the transaction.

The assessee discharged this burden by providing confirmation letters, PAN details, income tax returns, balance sheets, profit & loss accounts, and bank statements of the creditors. The CIT(A) noted that the transactions were through banking channels, and the creditors had sufficient funds. The Tribunal agreed with this assessment, noting that the AO did not conduct further necessary investigations to disprove the assessee's claims.

3. Opportunity for Cross-Examination of Creditors:
The CIT(A) observed that the AO did not provide the assessee an opportunity to cross-examine the creditors whose explanations were found unsatisfactory. The CIT(A) cited legal precedents emphasizing the necessity of cross-examination to uphold the principles of natural justice. The Tribunal concurred, noting that statements recorded behind the back of the assessee without cross-examination cannot be fully admitted as evidence against the assessee.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order which deleted the addition of ?2,74,00,000. The Tribunal found that the CIT(A) had rightly concluded that the assessee had discharged its burden of proof regarding the identity, capacity, and genuineness of the loan creditors. The Tribunal also agreed that the AO's failure to allow cross-examination of the creditors violated principles of natural justice.

Order Pronounced:
The appeal of the Revenue was dismissed, and the order was pronounced on 11.02.2020.

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