2021 (2) TMI 26 - AT - Income Tax

Non issuance of notice u/s 143(2) - Unsecured loans u/s 68 - HELD THAT - The assessment order passed by the DCIT, Circle-11(1), Kolkata, without issuance of notice u/s. 143(2) of the Act, is bad in law. If it is held that the ITO Ward-3(3), Kolkata, has jurisdiction over the assessee, then the assessment order passed by the DCIT, Circle-11(1), Kolkata, would become bad in law as it would be an order passed by an officer who has no jurisdiction. Looking at it either way, we find that the assessment is bad in law. Addition u/s 68 - On examining the above voluminous records and documents produced by each creditor in support of the genuineness of the transaction and as interest has been paid on all these loans and as TDS has been deducted on these interest payments and as the Assessing Officer nor the Ld. CIT(A) have any adverse material to controvert the evidence filed by each of these creditors and also looking at the fact that each of the parties are assessed to Income Tax and as many of the loans have been repaid, we come to a conclusion that the addition made u/s. 68 of the Act, on the ground that these are unexplained cash credits, is bad in law. The loan creditors in this case have also explained sources of sources. Assessing Officer as well as the Ld. CIT(A) based their decisions on conjectures and surmises. Thus, this addition made u/s. 68 of the Act, is hereby deleted. Consequently, the interest expenditure disallowed on these cash credits is also directed to be deleted - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdictional validity of the assessment order.
2. Addition of ?5,40,00,000/- as unexplained cash credits under Section 68 of the Income Tax Act.
3. Disallowance of ?44,65,805/- on account of interest on unsecured loans.

Detailed Analysis:

1. Jurisdictional Validity of the Assessment Order:
The assessee challenged the jurisdiction of the Assessing Officer (AO) who issued the notice under Section 143(2) of the Income Tax Act. The notice was initially issued by ITO Ward-3(3), Kolkata, but the assessment order was passed by DCIT, Circle-11(1), Kolkata, who did not issue a fresh notice under Section 143(2). The Tribunal referenced several precedents, including the case of Soma Roy vs. ACIT and Krishnendu Chowdhury vs. ITO, which established that the absence of a valid notice under Section 143(2) by the jurisdictional AO renders the assessment order invalid. The Tribunal concluded that the assessment order was bad in law as it was passed without a valid notice under Section 143(2) by the jurisdictional AO.

2. Addition of ?5,40,00,000/- as Unexplained Cash Credits:
The AO added ?5,40,00,000/- to the assessee's income as unexplained cash credits under Section 68, citing insufficient evidence for the identity, creditworthiness of the creditors, and genuineness of the transactions. The assessee provided extensive documentation, including certificates of incorporation, income tax returns, audited financial statements, tax audit reports, bank statements, and loan confirmations. The Tribunal found that the assessee had adequately demonstrated the identity and creditworthiness of the loan creditors and the genuineness of the transactions. The creditors were assessed to income tax, and the loans were repaid through banking channels. The Tribunal noted that the AO and CIT(A) had based their conclusions on conjectures and surmises without any adverse material evidence. Consequently, the Tribunal deleted the addition made under Section 68.

3. Disallowance of ?44,65,805/- on Account of Interest on Unsecured Loans:
The AO disallowed ?44,65,805/- as interest on the unsecured loans, treating them as bogus. Since the Tribunal found the loans to be genuine and the addition under Section 68 to be invalid, the disallowance of interest on these loans was also deemed unjustified. The Tribunal directed that the disallowed interest expenditure be deleted.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the assessment order was invalid due to the lack of a valid notice under Section 143(2) by the jurisdictional AO. The addition of ?5,40,00,000/- as unexplained cash credits and the disallowance of ?44,65,805/- on account of interest were also deleted, as the assessee had provided sufficient evidence to prove the genuineness of the transactions and the creditworthiness of the loan creditors.