2022 (1) TMI 623 - AT - Income Tax

Assessment u/s 153C Or 148 - Unexplained cash loans - search and seizure operations were carried out u/s 132A - addition based on transactions found in the pen drive - HELD THAT - It is a matter of record that the information which has been received by the Assessing officer from the DCIT Central Circle- 3, Jaipur has been collected during the course of search action u/s 132 in case of Ramesh Manihar Group. The question that has been raised for our consideration is what precluded the Assessing Officer from taking action u/s 153C of the Act instead of section 148 where the Assessing Officer was of the belief that the enquiries made by the Investigation wing and the information so collected during the course of search action in case of Ramesh Manihar Group shows that certain transactions of cash loans have been found which are pertaining to the assessee company. In the instant case, the fact that the Assessing officer has not invoked the provisions of section 153C, it shows that there was no satisfaction which has been recorded by the Assessing officer having jurisdiction over Ramesh Maniar Group that any books of account or documents etc, seized during the course of search pertains or pertain to, or any information contained therein, relates to the assessee company and in absence of satisfaction so recorded, the books of account or documents seized during the course of search were not handed over to the Assessing Officer having jurisdiction over the assessee company. In absence of satisfaction so recorded and handing over of the seized material by the Assessing officer of the searched person, the Assessing officer could not by himself have invoked the provisions of section 153C of the Act. Therefore, the mere fact that proceedings have been initiated basis receipt of information from DCIT Central Circle -3 Jaipur and the incriminating documents/material found during the course of search from a third party, Ramesh Manihar Group, it cannot be said that the Assessing officer has to necessarily exercise jurisdiction under section 153C of the Act as the same is subject to satisfaction of various conditions as we have discussed supra and which have not been fulfilled in the instant case. We are therefore of the considered view that in the peculiar facts and circumstances of the present case, there is no infirmity in action of the Assessing officer in not initiating the proceedings u/s 153C. Unaccounted income u/s 69 - Onus to prove - assessee company had advanced a sum by way of cash loans, through Ramesh Manihar Group to various persons, which is not recorded in its books of accounts - Reliance on statement of Shri Ramesh Chand Maheshwari recorded under Section 131 - whether it is Revenue or the assessee company who has to discharge the initial onus that such unaccounted money belongs to the assessee company? - HELD THAT - We are unable to understand as to how the Assessing officer has reached to a conclusion that basis such statement recorded u/s 132(4) that Shri Ramesh Chand Maheshwari and his partner Shri Manmohan Bagla were involved in cash loan transactions where the amounts were taken in cash from the lenders and the same was advanced to the borrowers in cash and have earned commission income on these transactions, and has recorded a consequential finding that since name of HMD is found in the excel sheets, it represent the assessee company through its director, Shri Hari Mohan Dangayach (HMD) and the assessee company has made the transactions of lending unaccounted money through the Ramesh Manihar group and earned interest income thereon. We therefore find that there is a clear disconnect between the findings of the AO and the statement of Ramesh Chand Maheshwari recorded on oath u/s 132(4) of the Act, and data so found in the pen drives which is claimed by the AO as relating to cash loan financing by the assessee company through Ramesh Manihar cannot thus be held to be corroborated by the statement of Shri Ramesh Chand Maheshwari recorded under Section 132(4) of the Act. There has been a change in stand of Shri Ramesh Chand Maheshwari where even in respect of cash loan financing, he has stated that he acts as a mediator and facilitator between the lenders and borrowers and thus earns commission income instead of interest income on amount advanced in their personal capacity as stated earlier. Basis such statement and filing of petition before the Settlement Commission where these cash loan financing transactions have been claimed and shown as transactions undertaken by Shri Ramesh Chand Maheshwari on commission basis, the AO has taken cognizance of the same and held that since name of HMD is found in the excel sheets, it represent the assessee company through its director Shri Hari Mohan Dangayach (HMD) and the assessee company also made his transactions of lending unaccounted money through the said group and earned interest income thereon. We therefore find that there is a total disconnect and variance between the two statements and change of stand of Shri Ramesh Chand Maheshwari in his statement recorded u/s 132(4) and the statement subsequently recorded u/s 131 of the Act after a gap of almost 21 months and the Assessing officer in the instant case has effectively placed reliance on the subsequent statement recorded u/s 131 ignoring the earlier statement recorded u/s 132(4) of the Act. In the facts of the present case, where there is shifting stand of Shri Ramesh Chand Maheshwari in his two statements and there is heavy reliance placed by the Revenue on the latter statement recorded u/s 131, it is imperative that the assessee company be allowed an opportunity to seek a copy of the said statement and file its objections and secondly and equally important, be allowed an opportunity to cross examine Shri Ramesh Chand Maheshwari which has been recognized time and time by the Courts as an important facet through which the principle of natural justice can be implemented and is duly supported by various authorities quoted at the Bar. In absence of such an opportunity, no reliance can be placed on such statement more so where in his statement, Shri Ramesh Chand Maheshwari did not categorically referred the name of the assessee company or that the assessee company provided cash loans through his Group to different persons. Therefore, the finding of the AO that data so found in the pen drives relates to cash loan financing by the assessee company through Ramesh Chand Maheshwari stand corroborated by the statement of Shri Ramesh Chand Maheshwari recorded under Section 131 of the Act cannot be accepted. There is no basis for making the addition in the hands of the assessee company on account of cash loans advanced through Ramesh Manihar Group and consequent interest charged thereon - We affirm the findings of the ld CIT(A) deleting the said additions as we do not find any justifiable basis to interfere with the same. - Decided against revenue.

Summary

Issues Involved:
1. Legality of the reopening of assessment under Section 147 instead of Section 153C.
2. Justification of the addition of ?4,40,00,000 on account of unexplained cash loans.
3. Justification of the addition of ?6,16,000 on account of unaccounted interest earned.
4. Denial of cross-examination of witnesses by the Assessing Officer.

Issue-wise Detailed Analysis:

1. Legality of the Reopening of Assessment under Section 147 Instead of Section 153C:

The assessee company argued that the reassessment proceedings should have been initiated under Section 153C, not Section 147, as the information was based on documents seized during a search on a third party. The Tribunal noted that for Section 153C to apply, specific conditions must be met, including the recording of satisfaction by the Assessing Officer of the searched person and the handing over of seized materials to the Assessing Officer of the assessee. Since these conditions were not fulfilled, the Tribunal held that the Assessing Officer was correct in invoking Section 147. The Tribunal dismissed the assessee's cross-objection on this ground.

2. Justification of the Addition of ?4,40,00,000 on Account of Unexplained Cash Loans:

The Assessing Officer (AO) made the addition based on data found in pen drives during a search on the Ramesh Manihar Group, which allegedly showed that the assessee company advanced cash loans. The AO inferred that "HMD" in the data referred to the assessee company. However, the Tribunal found that the data was vague and in code words, and there was no direct evidence linking the assessee company to the cash loans. The Tribunal emphasized that the burden of proof lies on the Revenue to establish that the assessee company made such investments. The Tribunal noted that the AO failed to provide corroborative evidence and did not establish the identity of the recipients of the loans. The Tribunal upheld the CIT(A)'s decision to delete the addition, stating that mere entries in third-party records without corroborative evidence cannot justify the addition.

3. Justification of the Addition of ?6,16,000 on Account of Unaccounted Interest Earned:

The AO also added ?6,16,000 as unaccounted interest income based on the alleged cash loans. Since the primary addition of ?4,40,00,000 was deleted due to lack of evidence, the consequent interest addition was also deemed unjustified. The Tribunal upheld the CIT(A)'s decision to delete the interest addition.

4. Denial of Cross-Examination of Witnesses by the Assessing Officer:

The assessee company requested the cross-examination of Shri Ramesh Chand Maheshwari, whose statements were relied upon by the AO. The AO denied this request, stating that the right to cross-examination is not absolute. The Tribunal held that denying cross-examination violated the principles of natural justice, especially since the AO heavily relied on these statements. The Tribunal cited the Supreme Court's decision in Andaman Timber Industries, which emphasized the necessity of cross-examination when statements are used as evidence against a party. The Tribunal found that the statements of Shri Ramesh Chand Maheshwari were inconsistent and did not directly implicate the assessee company. The Tribunal upheld the CIT(A)'s decision, stating that reliance on such statements without cross-examination was unjustified.

Conclusion:

The Tribunal dismissed both the Revenue's appeal and the assessee's cross-objections. It upheld the CIT(A)'s decision to delete the additions of ?4,40,00,000 and ?6,16,000, emphasizing the lack of corroborative evidence and the violation of natural justice principles. The Tribunal's decision was based on a thorough examination of the facts and the applicable legal principles.