2020 (12) TMI 629 - AT - Income Tax

Addition u/s 68 - bogus loan received from a dummy company - notices have also come back unserved and the report of the Inspector proved non-existence of the lender company at the premises - HELD THAT - AO held that the assessee company is neither having any stock nor fixed assets and suspected that the company to be of a non-viable entity. AO has also suspected the lender company also as a dummy company but without bringing anything tangible on record to prove both or either of the allegations. As decided in M/S. HIMACHAL FIBERS LTD. 2018 (8) TMI 873 - SC ORDER in a case where the assessee has furnished all relevant facts within his knowledge and has offered a credible explanation, then the onus reverts to the revenue to prove that these facts are not correct. In such a case, the revenue cannot draw the inference based upon suspicion or doubt or perception of culpability or on the quantum of the amount involved particularly when the question is one of taxation under the deeming provision. It was further held that neither doubt/suspicion nor the quantum shall determine the exercise of jurisdiction by the AO. Thus, going through the entire factum of the case, we hold that the addition made by the AO on account of unsecured loan ould not pass the factual and judicial proprietary. Hence, the addition made by the AO is directed to be deleted.- Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of reassessment proceedings under Sections 147/148 of the Income Tax Act.
2. Validity of reasons recorded for issuing notice under Section 148.
3. Validity of assessment order under Section 143(3) read with Section 147.
4. Addition of ?50,00,000 as cash credit under Section 68.
5. Addition based on third-party statements without cross-examination.
6. Addition of ?75,000 as unexplained investment for commission.
7. Levy of interest under Section 234B.

Detailed Analysis:

1. Legality of Reassessment Proceedings under Sections 147/148:
The assessee did not press the issue of reopening under Section 148, and hence, it was not adjudicated.

2. Validity of Reasons Recorded for Issuing Notice under Section 148:
The reasons for reopening were based on information that the assessee received ?4.83 Crores, which allegedly did not align with its business activities. However, the AO did not provide any supporting evidence such as diary entries or statements to substantiate the claim that the loan was bogus. The reliance on material prior to the loan transaction date was deemed unjustifiable.

3. Validity of Assessment Order under Section 143(3) read with Section 147:
The assessment order was challenged as being bad in law. The AO's allegations were found to be unsupported by substantial evidence. The Inspector's report was misinterpreted, and the AO did not take necessary steps to verify the lender company's new address or summon its directors.

4. Addition of ?50,00,000 as Cash Credit under Section 68:
The AO added ?50,00,000 received from M/s RKG Finvest Pvt. Ltd. as unexplained cash credit. The assessee provided all relevant documents, including audit reports, balance sheets, confirmations, and bank statements. The AO failed to bring any substantial evidence to rebut the assessee's claims. The lender company was found to have significant assets and bank balances, contradicting the AO's claim of it being a dummy company.

5. Addition Based on Third-Party Statements without Cross-Examination:
The addition was based on a statement from a third party, Mr. S K Jain, which was not confronted to the assessee, nor was there any cross-examination. This was against the principles of natural justice.

6. Addition of ?75,000 as Unexplained Investment for Commission:
The AO treated ?75,000 as unexplained investment for commission paid for taking the alleged accommodation entry. However, the assessee had provided sufficient documentation to prove the genuineness of the transaction, and no substantial evidence was provided by the AO to support the addition.

7. Levy of Interest under Section 234B:
The interest levied under Section 234B was challenged. Given the deletion of the primary addition, the basis for levying interest under Section 234B was also negated.

Conclusion:
The Tribunal found that the AO did not provide sufficient evidence to support the allegations of bogus transactions. The assessee had discharged its onus by providing all necessary documentation. The AO's reliance on prior material and failure to further investigate or summon relevant parties weakened the case. The addition of ?50,00,000 under Section 68 and the related additions were directed to be deleted. The appeal of the assessee was allowed.