2022 (10) TMI 227 - AT - Income Tax

Reopening of assessment u/s 147 - Unexplained cash credit u/s 68 - transaction of unsecured loan - case of assessee was reopened on the basis of information of DDIT (Inv.), Surat that the assessee is a beneficiary of cheque discounting transaction - HELD THAT - Validity of reopening or invalidity of notice are mixed question of fact and which cannot be raised at this stage in absence of any cogent material or evidence which make clearly suggest that the reopening of validity of notice is not in accordance with law, therefore, we are of the view that the necessary fact and law are not emanating from the order of ld. CIT(A). Therefore, additional ground of appeal raised by assessee is dismissed. Addition u/s 68 - As both the lenders in the present case categorically stated before assessing officer that the transactions with the assessee is paper transaction and merely accommodation entry. Thus, in view of the aforesaid discussion, we do not find any merit in the submissions of the ld AR for the assessee that the transaction of unsecured loan was genuine transaction. In the present case, the assessing officer allowed cross examination of entry provider, who remained stand on their examination in chief. Hence, we affirm the order of ld CIT(A), which is assailed in ground No.2 of this appeal. In the result, ground No. 2 of the appeal is dismissed.

Summary

Issues Involved:
1. Validity of reopening the case under Section 147 and issuance of notice under Section 148.
2. Addition of unsecured loans as unexplained cash credits under Section 68.
3. Disallowance of interest expenses.

Detailed Analysis:

1. Validity of Reopening the Case under Section 147 and Issuance of Notice under Section 148:

The assessee challenged the reopening of the case and the issuance of notice under Section 148, arguing that the original assessment was completed under Section 143(3). The Tribunal found that the case was reopened within four years based on information from DDIT (Inv.), Surat, indicating that the assessee was involved in cheque discounting transactions. The assessee's objections to reopening were disposed of by the Assessing Officer in a speaking order. The Tribunal noted that the validity of reopening or the notice's invalidity are mixed questions of fact, which were not raised before the CIT(A) and lacked cogent material or evidence to suggest that the reopening was not in accordance with the law. Hence, the additional ground of appeal challenging the reopening was dismissed.

2. Addition of Unsecured Loans as Unexplained Cash Credits under Section 68:

The main issue was whether the unsecured loans received from Shri Maheshbhai Tulshibhai Patel and Shri Ramesh Rangildas Mehta were genuine. The Assessing Officer treated these loans as unexplained cash credits under Section 68, based on statements from the lenders admitting that the loans were mere accommodation entries. The assessee argued that the loans were received through banking channels, with interest paid and TDS deducted, and provided confirmations and bank statements. However, during cross-examination, the lenders reiterated that the transactions were accommodation entries. The Tribunal upheld the Assessing Officer's findings, noting that the evidence suggested the transactions were sham and circular in nature. The Tribunal also distinguished this case from others cited by the assessee, where cross-examination was not allowed or the facts were different. Thus, the addition under Section 68 was confirmed.

3. Disallowance of Interest Expenses:

Given that the unsecured loans were treated as sham transactions, the interest expenses of Rs. 80,811/- claimed by the assessee were also disallowed. The Tribunal upheld this disallowance, consistent with the finding that the loans were not genuine.

Conclusion:

The Tribunal dismissed all appeals by the assessee, confirming the addition of unsecured loans as unexplained cash credits under Section 68 and the disallowance of related interest expenses. The validity of reopening the case and issuing notice under Section 148 was also upheld. The Tribunal emphasized that the transactions were circular and not genuine, supported by the lenders' admissions during cross-examination. All appeals for subsequent assessment years were similarly dismissed following the principle of consistency.