2022 (11) TMI 270 - AT - Income Tax

Addition u/s 68 - Share application money from M/s. Talent Infoways Ltd . - Non discharge of onus with regards to identity of the party, creditworthiness of the party and genuineness of the transaction - HELD THAT - In the case of Shir Mukesh Choksi 2011 (2) TMI 1399 - ITAT MUMBAI and the companies run by him it has been established that they were engaged in providing accommodation entries to its beneficiaries, however, the statement recorded of Shri Mukesh Choksi, was not provided to the assessee despite various requests. It is the plea of the assessee that in absence of the aforesaid statement no cross examination could be done of Shri Mukesh Choksi. Since the additional evidence now filed before us was not examined by the AO and statement on the basis of which the reassessment proceedings were initiated was also not furnished to the assessee despite its requests, we deem it appropriate to remand this issue to the file of the AO for de novo adjudication. We direct the AO to provide the copy of statement of Shri Mukesh Choksi or any other person, which has been relied upon by the AO and also to examine the audited financials of M/s Talent Infoways Ltd. to determine the creditworthiness of the said entity. Since this issue is remanded for adjudication afresh, the assessee shall be at liberty to adduce any other evidence to support its case. AO shall also have the liberty to call for or examine any other documents/detail as may be necessary for complete adjudication of this issue. We order accordingly. As a result, ground No. 1 raised in assessee‟s appeal is allowed for statistical purpose. Addition towards interest on long-term loan with Shamrao Bank - HELD THAT - As per the assessee, the amount towards interest on term loan with Shamrao Bank, which is pertaining to financial year 2003 04, was debited to its profit and loss account under the head prior period adjustments. Since, it forms of adjustments below the line of profit/loss before tax, therefore, the assessee has not claimed the said expenses while calculating the taxable income as the assessee has started the computation of business income/loss by considering profit/loss before tax and before the said prior period adjustment. In this regard, reference was made to the income tax return, computation of total income and profit and loss account of the assessee by the learned AR. After perusal of the aforesaid details, we agree with the submissions of the assessee and accordingly, direct the AO to delete the disallowance towards interest on long-term loan with Shamrao Bank. As a result, ground No. 2, raised in assessee's appeal is allowed.

Summary

Issues Involved:
1. Addition of Rs. 5,00,000 under section 68 of the Income Tax Act.
2. Addition of Rs. 1,46,379 towards interest on a term loan with Shamrao Bank.

Issue-wise Detailed Analysis:

1. Addition of Rs. 5,00,000 under section 68 of the Income Tax Act:
The primary issue pertains to the addition of Rs. 5,00,000 made by the Assessing Officer (AO) under section 68 of the Income Tax Act, 1961, which was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The AO initiated reassessment proceedings based on information from the Additional Director of Income Tax (Investigation) that M/s Talent Infoways Ltd., part of a group run by Shri Mukesh Choksi, provided accommodation entries to the assessee. The assessee provided various documents, including the name, address, PAN, and board resolution of the share applicant, but failed to produce the director of M/s Talent Infoways Ltd. and its financials.

The AO treated the share application money as unexplained cash credit, citing the lack of evidence for the transaction's genuineness and the modus operandi of Mukesh Choksi's group to provide bogus entries. The CIT(A) upheld this addition, referring to multiple Tribunal decisions confirming that Mukesh Choksi's entities were engaged in providing accommodation entries.

The assessee argued that it had provided sufficient documentation to prove the identity and genuineness of the transaction and requested the cross-examination of Shri Mukesh Choksi, which was denied. The Tribunal admitted additional evidence, including the annual report of M/s Talent Infoways Ltd., and noted that the statement of Shri Mukesh Choksi was not provided to the assessee. Consequently, the Tribunal remanded the issue to the AO for de novo adjudication, directing the AO to provide the statement of Shri Mukesh Choksi and examine the financials of M/s Talent Infoways Ltd. to determine its creditworthiness.

2. Addition of Rs. 1,46,379 towards interest on a term loan with Shamrao Bank:
The second issue involves the addition of Rs. 1,46,379 towards interest on a term loan with Shamrao Bank, pertaining to the financial year 2003-04, which was debited during the current financial year under prior period adjustments. The AO disallowed this interest, and the CIT(A) upheld the disallowance.

The assessee contended that the interest was not claimed as an expense while calculating taxable income because it was adjusted below the line of profit/loss before tax. The Tribunal reviewed the income tax return, computation of total income, and profit and loss account and agreed with the assessee's submission. Consequently, the Tribunal directed the AO to delete the disallowance of Rs. 1,46,379.

Conclusion:
The appeal was allowed for statistical purposes, with the first issue remanded for fresh adjudication and the second issue decided in favor of the assessee. The judgment emphasizes the need for thorough verification and the right to cross-examine key witnesses in tax proceedings.