2021 (7) TMI 78 - AT - Income Tax

Addition u/s 68 - unexplained loan transactions - onus to prove - HELD THAT - On being called upon to substantiate the genuineness and veracity of the aforesaid loan transactions, the assessee, in the course of the assessment proceedings filed supporting documentary evidence, viz. confirmation letters from the creditors; PAN of the creditors; bank statements of the creditors and the assessee; form nos. 16 qua TDS on interest; profit and loss account, balance sheet and returns of income of the creditors; and ledger accounts of the creditors. As the assessee had discharged the 'onus' that was cast upon it under Sec. 68 of the Act, therefore, the A.O without rebutting the genuineness of the said loan transactions in question on the basis of supporting documents was in no way justified in treating the loans received by the assessee from the aforementioned parties as unexplained cash credits under Sec. 68 of the Act. Accordingly, not finding favour with the view taken by the lower authorities, we herein set aside the order of the CIT(A) and vacate the addition. Disallowance of the interest expenditure - Claim of expense of the assessee was disallowed by the A.O, for the reason, that the loan transactions in question had been held by him to be bogus - HELD THAT - Now, as we have concluded that the assessee had raised genuine loans from the aforementioned parties, therefore, the consequential disallowance by the A.O of the interest paid to the said lenders by treating the loan transactions as bogus shall stand vacated

Issues Involved:

1. Validity of reopening the assessment under Section 147.
2. Addition of unexplained cash credit under Section 68.
3. Disallowance of interest expenditure.
4. Addition of commission under Section 69C.
5. Reliance on statements and information from third parties without cross-examination.
6. Treatment of loans as accommodation entries.
7. Demand raised by the AO and confirmed by the CIT(A).

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147:
- The assessee did not press the ground challenging the validity of the reopening of the assessment under Section 147. Consequently, this ground was dismissed as not pressed.

2. Addition of Unexplained Cash Credit under Section 68:
- The AO had reopened the assessment based on information from the DDIT(Inv.)-II, Mumbai, indicating that the assessee had obtained accommodation entries of loans from benami concerns managed by Shri. Bhanwarlal Jain.
- The AO held that the loans were bogus based on statements from Shri. Bhanwarlal Jain and his associates, who admitted to providing accommodation entries.
- The CIT(A) upheld the AO's decision, stating that the documentary evidence provided by the assessee did not carry any evidentiary value due to the nature of the lender concerns.
- The Tribunal observed that the assessee had provided sufficient documentary evidence, including confirmations, bank statements, and financial statements of the lenders, to substantiate the genuineness of the loans.
- The Tribunal noted that the statements of Shri. Bhanwarlal Jain and his associates were retracted and were not supported by corroborative evidence. Therefore, these statements could not be solely relied upon.
- The Tribunal concluded that the assessee had discharged the initial onus of proving the genuineness of the loans, and the AO had failed to disprove this with concrete evidence. Consequently, the addition of unexplained cash credit under Section 68 was vacated.

3. Disallowance of Interest Expenditure:
- The AO disallowed the interest expenditure claimed by the assessee on the grounds that the underlying loans were bogus.
- The CIT(A) upheld the disallowance of interest expenditure.
- The Tribunal, having concluded that the loans were genuine, vacated the disallowance of interest expenditure.

4. Addition of Commission under Section 69C:
- The AO made an addition under Section 69C for commission allegedly paid by the assessee for obtaining accommodation entries.
- The CIT(A) upheld this addition.
- The Tribunal, having found the loans to be genuine, vacated the addition under Section 69C for commission.

5. Reliance on Statements and Information from Third Parties without Cross-Examination:
- The assessee contended that the AO relied on statements and information from third parties without providing an opportunity for cross-examination.
- The Tribunal observed that the failure to provide cross-examination violated the principles of natural justice.
- The Tribunal noted that the AO did not provide copies of the incriminating documents or allow cross-examination of the persons whose statements were relied upon.
- The Tribunal emphasized that statements recorded under Section 133A during survey proceedings do not have evidentiary value without corroborative evidence.

6. Treatment of Loans as Accommodation Entries:
- The AO and CIT(A) treated the loans as accommodation entries based on the modus operandi of Shri. Bhanwarlal Jain and his associates.
- The Tribunal found that there was no specific material or evidence proving that the assessee had obtained accommodation entries in the garb of loans.
- The Tribunal concluded that the documentary evidence provided by the assessee substantiated the genuineness of the loans, and the AO's reliance on generalized statements was insufficient.

7. Demand Raised by the AO and Confirmed by the CIT(A):
- The AO raised a demand based on the additions made, which was confirmed by the CIT(A).
- The Tribunal, having vacated the additions, effectively nullified the demand raised by the AO.

Conclusion:
The Tribunal allowed the appeals of the assessee, vacating the additions made under Section 68 for unexplained cash credits, disallowance of interest expenditure, and addition under Section 69C for commission. The Tribunal emphasized the importance of corroborative evidence and the principles of natural justice, particularly the right to cross-examination. The documentary evidence provided by the assessee was deemed sufficient to substantiate the genuineness of the loan transactions.

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