2020 (9) TMI 1048 - AT - Income Tax

Addition u/s 68 - Unexplained cash credit - whether credit was a genuine home loan from M/s. Gourav Rose Real Estate Pvt. Ltd (GRREPL) and all the supporting documents were produced and the department failed to prove otherwise? - HELD THAT - Assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the lender, thereafter the onus shifted to AO to disprove the documents furnished by assessee and it cannot be brushed aside by the AO to draw adverse view which omission on the part of AO cannot be countenanced. In the absence of any investigation, much less gathering of evidence by the Assessing Officer, we hold that addition cannot be sustained merely based on inferences drawn by statement of ex director - Decided in favour of assessee.

Issues Involved:
1. Addition of ?55,00,000 under Section 68 of the Income-tax Act, 1961.
2. Reliance on the statement of Mr. Monohar Nangalia recorded under Section 131.
3. Identity and creditworthiness of the transaction.
4. Justification of the addition on the facts and circumstances.
5. Change in shareholding of the lender company after the alleged statement.

Issue-wise Detailed Analysis:

1. Addition of ?55,00,000 under Section 68 of the Income-tax Act, 1961:
The core issue in this appeal was the addition of ?55,00,000 to the assessee's income under Section 68, which deals with unexplained cash credits. The assessee argued that the amount was a genuine home loan from M/s. Gourav Rose Real Estate Pvt. Ltd. (GRREPL), supported by all necessary documents. The AO and CIT(A) had added this amount to the assessee's income, considering GRREPL as a shell company involved in providing accommodation entries.

2. Reliance on the statement of Mr. Monohar Nangalia recorded under Section 131:
The AO based the addition on a statement made by Mr. Monohar Nangalia, an erstwhile director of GRREPL, recorded under Section 131. The assessee contended that this statement was not provided to him and that Mr. Nangalia was removed from the directorship in 2011, well before the transaction in question. The Tribunal noted that if the statement was to be used against the assessee, it should have been provided to him and subjected to cross-examination, which was not done.

3. Identity and creditworthiness of the transaction:
The Tribunal examined the identity and creditworthiness of GRREPL. It was established that GRREPL is a non-banking finance company (NBFC) registered by the Reserve Bank of India, with audited financial statements showing substantial income and tax payments. The loan was secured against immovable properties worth more than ?1.59 crores, and the repayment was being made as per the loan agreement. The Tribunal found that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the transaction.

4. Justification of the addition on the facts and circumstances:
The Tribunal emphasized that the AO had not brought any infirmities in the documents provided by the assessee. The AO's reliance on the statement of Mr. Nangalia, without providing it to the assessee or allowing cross-examination, was deemed untenable. The Tribunal referred to several case laws, including the Supreme Court's decision in CIT v. Smt. P. K. Noorjahan, which highlighted that the unsatisfactory explanation does not automatically result in deeming the amount as income. The Tribunal concluded that the assessee had discharged his onus under Section 68, and the addition was not justified.

5. Change in shareholding of the lender company after the alleged statement:
The assessee argued that the shareholding of GRREPL had changed after the alleged statement by Mr. Nangalia, and no person who was a shareholder at the time of recording the statement was a shareholder during the relevant year. The Tribunal noted that the AO failed to consider this change and continued to rely on the outdated statement of Mr. Nangalia. The Tribunal found that the AO's approach was flawed and that the addition could not be sustained based on the outdated statement.

Conclusion:
The Tribunal allowed the appeal, directing the deletion of the addition of ?55,00,000. It held that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the transaction, and the AO had not disproved the materials placed before him. The reliance on the statement of Mr. Nangalia was deemed unjustified, and the addition under Section 68 was not warranted. The appeal was allowed, and the addition was deleted.

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