2021 (2) TMI 281 - AT - Income Tax

Unexplained cash credit and the unexplained interest expenditure on it - case was selected for scrutiny through CASS under limited category - statement recorded u/s 133A - HELD THAT - The so-called Inspector s Report which states that the lender companies could not be traced in their respective addresses was not furnished to the assessee. Secondly because, the evidence on record show that pursuant to the notice issued by AO u/s 133(6) of the Act to all these lenders at the very same addresses, it got served upon them by the postal authorities which fact can be safely inferred because it is not the case of the AO that notices issued u/s 133(6) has been returned back un-served . Thirdly all the lender companies have replied directly to the AO pursuant to the notices issued u/s 133(6) . Coming to the statement of Shri Ashish Kumar Agarwal it is noted that his statement was recorded u/s 133A but survey statement has been recorded by DDIT(Inv) in some third party case and not that of assessee. Secondly the deponent has been administered oath before his statement was recorded, which is not in accordance to Section 133A of the Act and the Hon ble Supreme Court in Khader Khan Sons 2013 (6) TMI 305 - SC ORDER held that the statement recorded u/s 133A of the Act is not given evidentiary value for the reason that officer is not authorized to administer oath and to take any sworn statement in contra distinction to the power vested in authorities to record statement under oath during search u/s 132 - on the sole statement recorded u/s 133A of the Act of Shri Ashish Kumar Agarwal, no adverse view can be taken against the assessee since there is no evidentiary value to be given to it. After doing these exercises, still if the AO finds that from the statement which has undergone cross-examination, a wrong-doing on the part of assessee, then he could have drawn adverse inference against the assessee. However admittedly these actions were not taken by AO. So the statement of Shri Ashish Kumar cannot be relied upon against the assessee In the light of the fact that all the eleven (11) lender companies from which the assessee had taken loan of ₹ 4,50 crore had replied directly to AO pursuant to section 133(6) and the fact that all the lender companies are regular income tax assessee s having PAN as well as their ROC details were brought to the notice of AO their respective balance sheet shows that all of them have enough creditworthiness to lend the amounts in question to assessee and the assessee had squared up the loan transaction with all these lenders (except 15 Lakhs) and all the payments/TDS were made payments were made through banking channel, the addition made by AO was untenable and therefore the Ld. CIT(A) rightly deleted the addition which action is confirmed - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of disallowance related to unexplained cash credit of ?4,50,00,000/-.
2. Deletion of unexplained interest expenditure of ?74,30,571/-.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance Related to Unexplained Cash Credit of ?4,50,00,000/-:

The main grievance of the Revenue was against the action of the Ld. CIT(A) deleting the disallowance related to the unexplained cash credit of ?4,50,00,000/-. The AO noted that the assessee, a firm involved in trading/retailing of footwear and accessories, had received unsecured loans from various companies, which he deemed as paper companies. The AO argued that these transactions were accommodation entries and not real transactions, despite the assessee providing PAN details, balance sheets, and banking channel records. The AO relied on the statement of Shri Ashish Kr. Agarwal, recorded by the Investigation Wing, which indicated that the assessee received accommodation entries in the form of unsecured loans. The AO's investigation included physical verification by an Income-tax Inspector, who could not find the entities at the given addresses. Consequently, the AO added ?4.50 crores as unexplained cash credit to the total income of the assessee.

The Ld. CIT(A) noted that the loans were squared off in the same year and that all loan creditors confirmed the loans pursuant to notices issued u/s 133(6) of the Act. The Ld. CIT(A) found that the assessee ended up with a zero balance credit at the end of the year, making it difficult to assume the loans were accommodation entries. The Ld. CIT(A) also noted that the interest was paid at 12% per annum with proper TDS deduction. The Ld. CIT(A) emphasized that the AO erred in relying on the statement of Shri Ashish Kumar Agarwal without giving the assessee an opportunity to cross-examine and without providing the Inspector’s report. The Ld. CIT(A) concluded that the assessment order violated natural justice and deleted the addition of ?4.50 crores.

2. Deletion of Unexplained Interest Expenditure of ?74,30,571/-:

The AO disallowed the interest expenditure of ?74,30,571/- on the grounds that the unsecured loans were not genuine. The AO’s disallowance was based on his conclusion that the loans were accommodation entries and not real transactions. The AO added the interest expenditure to the total income of the assessee.

The Ld. CIT(A) noted that the interest was paid at 12% per annum with proper TDS deduction. The Ld. CIT(A) found that the lender companies had enough net worth and declared substantial income, satisfying the requirements of Section 68 of the Act regarding the creditworthiness, identity, and genuineness of the transactions. The Ld. CIT(A) concluded that the AO’s disallowance of interest expenditure was not justified and deleted the addition of ?74,30,571/-.

Tribunal's Decision:

The Tribunal upheld the Ld. CIT(A)’s decision, noting that the AO had not provided the Inspector’s report to the assessee and had relied on a statement recorded during a survey, which lacked evidentiary value. The Tribunal emphasized that the AO did not allow the assessee to cross-examine Shri Ashish Kumar Agarwal, whose statement was used against the assessee. The Tribunal found that all lender companies had responded to the AO’s notices u/s 133(6) and provided sufficient documentation to establish their identity, creditworthiness, and genuineness of the transactions. The Tribunal concluded that the additions made by the AO were untenable and confirmed the Ld. CIT(A)’s deletion of the additions.

Conclusion:

The appeal of the Revenue was dismissed, and the order of the Ld. CIT(A) deleting the disallowance related to the unexplained cash credit of ?4,50,00,000/- and the unexplained interest expenditure of ?74,30,571/- was upheld.