2020 (8) TMI 169 - AT - Income Tax

Addition u/s. 68 in respect of unsecured loans - addition solely made based on the statement said to have been recorded in the case of Shri Gautam Jain in the course of search proceedings against him, where he has said to have deposed that he is providing accommodation entries - assessment was reopened solely on the basis of the statements recorded from the third party - HELD THAT - Assessee has discharged its onus by providing adequate evidences to prove that the transaction is genuine. Assessee has proved the genuineness, creditworthiness and identity by furnishing loan confirmations, financials, bank statements, copies of ITR of all the three creditors. Assessee has discharged her onus by furnishing all this information, however, the Assessing Officer except relying on the statement of third party and whose statements were also not provided to the assessee treated the creditors as non-genuine without making any sort of enquiries. Therefore, in the facts and circumstances we do not find any infirmity in the order passed by the Ld.CIT(A) in deleting the addition and holding that the assessee has proved the genuineness of the transactions, identity and creditworthiness of the creditors and in deleting the addition made u/s. 68 of the Act. Thus, the order of the Ld.CIT(A) is sustained. Grounds raised by the revenue are rejected.

Summary

Issues Involved:
1. Deletion of addition made under Section 68 of the Income Tax Act concerning unsecured loans.
2. Verification of the genuineness, creditworthiness, and identity of creditors.
3. Reliance on third-party statements without providing cross-examination opportunities.
4. Non-compliance with notices issued under Section 133(6) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made Under Section 68 of the Income Tax Act Concerning Unsecured Loans:
The Revenue appealed against the order of the Ld.CIT(A) which deleted the addition of ?3,67,00,000/- made under Section 68 of the Income Tax Act. The Assessing Officer (AO) had reopened the assessment based on information from Pr.DIT(Inv.)-I, Mumbai, indicating that the assessee had obtained bogus unsecured loan entries from certain companies. The AO concluded that the loans were unaccounted money based on statements from Gautam Jain & Ors, who confessed to providing accommodation entries.

2. Verification of the Genuineness, Creditworthiness, and Identity of Creditors:
The assessee provided extensive documentation to prove the genuineness, creditworthiness, and identity of the creditors, including loan confirmations, bank statements, financials, and ITR acknowledgments. The AO, however, did not find these submissions convincing and treated the loans as unaccounted money. The Ld.CIT(A) reviewed the evidences and judicial pronouncements and concluded that the assessee had satisfactorily discharged the onus of proving the genuineness of the transactions, creditworthiness, and identity of the creditors. The Ld.CIT(A) held that the AO did not provide any material evidence to counter the documentation provided by the assessee.

3. Reliance on Third-Party Statements Without Providing Cross-Examination Opportunities:
The AO relied heavily on statements from Gautam Jain, who was not directly involved with the creditor companies, and did not provide the assessee an opportunity to cross-examine Gautam Jain. The Ld.CIT(A) noted that the AO's reliance on these statements without corroborative evidence and without allowing cross-examination was unjustified. The Ld.CIT(A) cited several judicial decisions, including the Supreme Court's ruling in M/s. Andaman Timber Industries v. CCE, emphasizing that not allowing cross-examination of witnesses whose statements are used as the basis for an order is a violation of natural justice.

4. Non-Compliance with Notices Issued Under Section 133(6) of the Income Tax Act:
The AO mentioned that notices issued under Section 133(6) to the creditors were either returned unserved or not complied with. However, the Ld.CIT(A) found this claim to be vague and unsupported by specific details. The Ld.CIT(A) noted that two out of the three creditors had responded to the notices and provided the required information. The Ld.CIT(A) also pointed out that the AO did not make any independent inquiries or provide details of which creditors did not respond. The Ld.CIT(A) held that mere non-compliance with notices under Section 133(6) does not automatically render the transactions non-genuine, especially when substantial documentary evidence has been provided.

Conclusion:
The Tribunal upheld the order of the Ld.CIT(A), agreeing that the assessee had satisfactorily discharged the onus of proving the genuineness, creditworthiness, and identity of the creditors. The Tribunal also noted that the AO's reliance on third-party statements without providing cross-examination opportunities and without conducting independent inquiries was insufficient to justify the addition under Section 68. The appeal of the Revenue was dismissed, and the deletion of the addition by the Ld.CIT(A) was sustained.