2021 (10) TMI 1064 - AT - Income Tax

Assessment u/s 153A - addition u/s 68 - onus to prove - addition was confirmed based on the report of the DDIT (Inv.) Kolkata - incriminating material found in search or not? - summons u/s 131 to lenders issued - as argued by assessee AO made no sufficient efforts to produce its witnesses before the assessee for cross examination - Whether reliance on 'reports of investigation wing' etc. did not constitute 'material' relevant for the purpose of assessment in this case? - HELD THAT - In the present cases also the opportunity to cross examination has not been given to the assessee - AO at the fag end of time barring dates, had issued the alleged notices u/s 131 of the Act, the fact of which is also not coming out from the records as in the order sheets, the AO has not mentioned about the fact of having issued notices u/s 131 - AO straight forward shifted the onus of producing witnesses to the assessee by observing that assessee were also responsible for producing the witnesses but it is not a valid argument for not giving opportunity to the assessee for cross examination as the Department is all powerful to make sure that these witnesses are present for the cross examination by the assessee. Under similar circumstances, the Hon'ble Delhi High Court in the case of Pr. CIT vs. Best Infrastructure (India) (P.) Ltd. 2017 (8) TMI 250 - DELHI HIGH COURT has held that Revenue cannot shift the onus of producing its witnesses to the assessee. AO did not make sufficient efforts to produce its witnesses before the assessee for cross examination therefore, such statements taken behind the back of the assessee and not confronted to the assessee do not have any evidentiary value and therefore, if we ignore such statements, taken behind the back of the assessee and not confronted to the assessee and take into account all other evidences filed by the assessee which are in favour of the assessee and wherein the Assessing Officer has also not found any discrepancy, the additions sustained by learned CIT(A) are liable to be deleted. Additions have been made on the basis of statements of witness and the witnesses have not been cross examined by assessee. AO though in the assessment order has noted that summons u/s 131 of the Act were issued to the witnesses but no steps, as required by law, have been taken by the AO as the witnesses did not appear and the AO did not enforce their presence by taking further steps. Merely writing in the assessment order that notices u/s 131 has been issued, without recording any order in the order sheet regarding this fact nor having any evidence of service of such notices, does not serve the purpose of giving opportunity to the assessee of cross examination. On merits also, we find that assessee had fulfilled its part of onus which is required to be fulfilled by the assessee as the identity of the lender companies is not in doubt, creditworthiness of the companies is not in doubt as these companies had sufficient funds to advance the loans which is apparent from the amount of share capital and the reserves they are carrying in their balance sheets. The year-wise amount of share capital, reserves and loans out of which these creditors had advanced loans to the assessee, has been tabulated in a chart, which, for the sake of completeness, has been made part of this order. Creditworthiness of the lender companies is not in doubt. As regards the genuineness of the transactions, we find that loans were taken through banking channels and interest was also paid after deducting TDS and a part of loans were also returned back with interest even before the date of search and this proves that the transactions were genuine. The authorities, during the search on the assessees, did not find any incriminating material and any money trail to establish that cash had exchanged in lieu of transactions of loans received and repayments thereof. The assessments of these companies, wherein the interest paid by the assessee, has been accepted to be their income, also proves that the transactions were genuine. Therefore, all the three ingredients of section 68 are fulfilled and therefore, also the additions confirmed by learned CIT(A) cannot be sustained.n the present cases, other than the statements recorded by another officer (which we have already held to be of no evidentiary value) there is no material before the Assessing Officer to disapprove the evidences filed by assessee. - Decided in favour of assessee.

Issues Involved:

1. Legality of the assessment order passed under Section 153A of the Income Tax Act.
2. Applicability of Section 153A in absence of incriminating material.
3. Validity of reliance on investigation wing reports without confronting the assessee.
4. Relevance of computation of income and genuineness of unsecured loans.
5. Confirmation of additions under Sections 68/69 of the Income Tax Act.
6. Discharge of onus under Section 68 by the assessee.
7. Efforts made by the Assessing Officer (AO) to provide cross-examination.
8. Impact of non-provision of cross-examination on the assessment.
9. Basis of the addition made by the AO.
10. Consideration of case laws and guidelines by lower authorities.
11. Adverse observations and allegations by lower authorities.
12. Reliance on averments made in the facts of the case.
13. Principles of natural justice and tenability of the CIT(A) order.

Detailed Analysis:

1. Legality of the Assessment Order Passed Under Section 153A:
The assessees contested the legality of the assessment order passed by the AO under Section 153A, arguing it was not in consonance with the settled position of law vis-a-vis search cases. The Tribunal noted that the additions were not based on any incriminating material found during the search but on transactions already recorded in the books of account. This was a significant factor in determining the legality of the assessment order.

2. Applicability of Section 153A in Absence of Incriminating Material:
The Tribunal observed that the additions were made on the basis of transactions recorded in the books of account and not on any incriminating material found during the search. This was a critical aspect as Section 153A proceedings are generally predicated on the discovery of incriminating material during the search.

3. Validity of Reliance on Investigation Wing Reports Without Confronting the Assessee:
The AO relied on statements from the investigation wing, which were not confronted to the assessees. The Tribunal emphasized that reliance on such statements without providing an opportunity for cross-examination violates the principles of natural justice. The Tribunal cited the Supreme Court’s decision in Andman Timber Industries vs. Commissioner of Central Excise, which held that not allowing cross-examination when statements are relied upon makes the order nullity.

4. Relevance of Computation of Income and Genuineness of Unsecured Loans:
The assessees provided documentary evidence supporting the genuineness of the unsecured loans, including confirmed copies of accounts, bank statements, and income tax returns of the loan creditors. The AO’s failure to consider these documents was a point of contention. The Tribunal noted that the assessees had deducted TDS on the interest payments and repaid a major part of the loans before the search, which supported the genuineness of the transactions.

5. Confirmation of Additions Under Sections 68/69 of the Income Tax Act:
The AO made additions under Sections 68/69, treating the unsecured loans as bogus based on the investigation wing’s report. The Tribunal found that the AO did not carry out any independent investigation and relied solely on the investigation wing’s findings. The Tribunal held that such reliance, without cross-examination and ignoring the documentary evidence provided by the assessees, was not justified.

6. Discharge of Onus Under Section 68 by the Assessee:
The Tribunal acknowledged that the assessees had discharged their onus under Section 68 by providing evidence of the identity, creditworthiness, and genuineness of the transactions. The Tribunal noted that the AO did not find any discrepancies in the documents provided by the assessees and the loan creditors.

7. Efforts Made by the AO to Provide Cross-Examination:
The Tribunal found that the AO did not make sufficient efforts to ensure the presence of witnesses for cross-examination. The AO’s observation that the witnesses might be receiving numerous summonses daily was not considered a valid excuse. The Tribunal emphasized that the Department should have taken further steps to enforce the witnesses' presence.

8. Impact of Non-Provision of Cross-Examination on the Assessment:
The Tribunal held that the non-provision of cross-examination vitiated the assessment process. It reiterated that statements recorded at the back of the assessee and not subjected to cross-examination cannot be relied upon for making additions.

9. Basis of the Addition Made by the AO:
The Tribunal noted that the AO’s additions were based on statements from the investigation wing, which were not corroborated by any independent evidence. The Tribunal found that the AO ignored the documentary evidence provided by the assessees, which supported the genuineness of the transactions.

10. Consideration of Case Laws and Guidelines by Lower Authorities:
The Tribunal observed that the lower authorities failed to consider various case laws and guidelines issued by the CBDT regarding the procedure for making additions under Section 68. The Tribunal cited several judgments supporting the assessees’ position that additions cannot be made solely based on statements without corroborative evidence.

11. Adverse Observations and Allegations by Lower Authorities:
The Tribunal found that the adverse observations and allegations made by the lower authorities were contrary to the facts and evidence on record. The Tribunal held that the lower authorities did not provide a fair and just assessment process.

12. Reliance on Averments Made in the Facts of the Case:
The Tribunal noted that the assessees relied on the averments made in the facts of the case, which were supported by documentary evidence. The Tribunal found that the AO did not adequately consider these averments and evidence.

13. Principles of Natural Justice and Tenability of the CIT(A) Order:
The Tribunal held that the order of the CIT(A) was against the principles of natural justice, erroneous, and not tenable in law and on facts. The Tribunal emphasized that the assessment process should ensure fairness and justice, which was lacking in the present case.

Conclusion:
The Tribunal allowed the appeals filed by the assessees, holding that the additions made by the AO were not justified in the absence of cross-examination and independent investigation. The Tribunal emphasized the importance of adhering to the principles of natural justice and considering all relevant evidence and case laws in the assessment process.

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