2021 (1) TMI 676 - AT - Income Tax

Addition u/s 68 - addition of unsecured loan - unsecured loan as bogus - HELD THAT - The assessee explained that during the course of survey no adverse material was found regarding unsecured loan allegedly received by assessee. On the basis of a statement of partner without any further evidence, it cannot be said that assessee received unsecured loan from bogus parties. During the course of assessment proceeding, copy of confirmation of all unsecured loan from lenders along with a return of income were furnished for verification by assessing officer. The loan amounts were received through banking channel through cheques. Thus, the assessee proved identity of lender, genuineness and creditworthiness of the transaction. There was no material evidence before the assessing officer for treating the loan as unaccounted received. Since the assessing officer treated the unsecured loan as unaccounted received consequent interest was also disallowed. AO without any material evidence on record treated the unsecured loan as unaccounted amount received only on the basis of a statement of one of the partner. Though, confirmation of unsecured loan was furnished to the assessing officer. The assessee also furnished the TDS deducted on the interest paid on unsecured loan as well as copy of TDS return. Addition on account of undisclosed receipt - HELD THAT - AO made addition on the basis of statement recorded during the survey without any supporting evidence or any adverse material on record. The learned Commissioner (Appeals) also concluded that it is settled legal position that statement recorded during the survey has no evidence of value moreover the survey party has no power to record the statement oath. On the issue of estimated addition we have seen that Commissioner (Appeals), while restricting the addition relied on the decisions in CIT President Industries 1999 (4) TMI 8 - GUJARAT HIGH COURT , Kishore Manohar Telwala 1998 (2) TMI 612 - ITAT AHMEDABAD and Abhishek Indutries Vs DCIT 2014 (11) TMI 810 - GUJARAT HIGH COURT . Appeal of the revenue is dismissed.

Summary

Issues Involved:
1. Evidentiary value of the statement recorded during the survey.
2. Retraction of the statement by the partner of the firm.
3. Addition of unsecured loans as unexplained credits under Section 68.
4. Deletion of interest on unsecured loans.
5. Addition of undisclosed receipts as income.

Detailed Analysis:

1. Evidentiary Value of the Statement Recorded During the Survey:
The Revenue challenged the CIT(A)’s decision that the statement of the partner recorded during the survey had no evidentiary value. The Tribunal upheld the CIT(A)’s view, noting that statements recorded during surveys under Section 133A do not have evidentiary value as the survey party lacks the authority to administer an oath. The Tribunal emphasized that the statement alone, without supporting evidence, cannot be the basis for additions.

2. Retraction of the Statement by the Partner of the Firm:
The Revenue argued that the retraction of the statement by the partner, made after 18 months, was invalid. The Tribunal found that the partner’s statement was made under pressure and lacked accounting knowledge. The CIT(A) had accepted the retraction, and the Tribunal upheld this, noting that the retraction was supported by confirmations and acknowledgments from lenders.

3. Addition of Unsecured Loans as Unexplained Credits Under Section 68:
The Assessing Officer (AO) added ?1.54 Crore as unexplained credits based on the partner’s statement. The CIT(A) deleted this addition, noting that the statement pertained to a different assessment year and lacked supporting evidence. The Tribunal agreed, emphasizing that once the assessee provided confirmations and income tax returns of the lenders, the burden shifted to the AO to disprove the genuineness of the transactions. The AO failed to issue notices to lenders or conduct independent inquiries.

4. Deletion of Interest on Unsecured Loans:
Since the unsecured loans were treated as genuine, the CIT(A) also deleted the consequent disallowance of ?13.79 lakhs as interest on these loans. The Tribunal upheld this decision, reiterating that the AO’s addition was based solely on an unsupported statement.

5. Addition of Undisclosed Receipts as Income:
The AO added ?2.86 Crore as undisclosed income, noting a discrepancy between the booking amounts received and those recorded in the books. The assessee argued that they followed the ‘Percentage of Completion Method’ and had disclosed additional income in the subsequent year. The CIT(A) accepted this method, noting that the AO did not reject the books of accounts or point out any defects. The CIT(A) restricted the addition to 8.7% of the undisclosed receipts, equating to ?25 lakhs, based on the profit rate applied by the assessee. The Tribunal upheld this, noting that only the profit component of unaccounted sales should be taxed, aligning with the jurisdictional High Court’s decision in CIT vs. President Industries.

Conclusion:
The Tribunal dismissed the Revenue’s appeal, affirming the CIT(A)’s decisions on all grounds. The Tribunal emphasized the importance of supporting evidence for additions based on statements recorded during surveys and upheld the application of the ‘Percentage of Completion Method’ for recognizing income in real estate transactions. The Tribunal’s decision underscores the principle that unsupported statements and unsubstantiated additions cannot form the basis for tax assessments.