2023 (1) TMI 966 - AT - Income Tax

Unsecured loan raised u/s. 68 - addition made on the basis of said statement recorded at the back of the assessee - HELD THAT - Loan taken by the assessee was also repaid. We note that even the assessment has been framed in the case of the lender and no addition was made on account of money lent to the assessee. Shri Sharma, the director of M/s. Fair Plan Vincom Pvt. Ltd. has admitted in the statement recorded u/s. 131 of the Act that he has arranged accommodation entries on various dates to the assessee and charged commission in lieu of arranging accommodation entries for the assessee on commission basis. The said statement was retracted by Mr. Sharma vide affidavit dated 17.02.2017 wherein he has stated that during the course of his attendance before the DCIT, Circle-36, Kolkata his Chartered Accountant was asked to leave the office and he was asked to wait outside his chamber. He further stated that after 3/4 hours of waiting he was called and asked to sign in a statement which was already kept ready. We also note that Mr. Sharma retracted the statement by stating that the loan given to assessee was a genuine loan and no cash was ever given by the assessee in lieu of the said loan. Thereafter, he stated in reply to question Nos. 30 and 31 that loan was in fact given by M/s. Fair Plan Vincom Pvt. Ltd. to M/s. Super Iron Foundry. Considering these facts, we are of the considered view that the addition made on the basis of said statement cannot be sustained. Further, we note that assessee was not allowed cross examination of Shri Sharma despite specific request from the assessee and the AO stated that on the date fixed for cross examination the said person did not turn up and the said cross examination could not happen but this in our opinion is not the excuse for not allowing the cross examination. Therefore, the addition made on the basis of statement of a person which was retracted subsequently without allowing cross examination is bad in law. We note that the assessee has furnished all the evidences before the authorities below but no defect or deficiencies pointed out except the statement of lender which was also withdrawn and retracted as stated above. Thus as assessee has furnished all the evidences proving identity and creditworthiness of the investors and genuineness of the transactions but neither AO nor Ld. CIT(A) commented on these evidences filed by the assessee - we direct the AO to delete the addition - Decided in favour of assessee.

Issues Involved:
1. Confirmation of addition of Rs. 4,76,50,000/- on account of unsecured loan under Section 68 of the Income Tax Act.
2. Confirmation of addition of Rs. 21,87,350/- on account of interest on the above unsecured loan.

Issue 1: Confirmation of Addition of Rs. 4,76,50,000/- on Account of Unsecured Loan under Section 68 of the Income Tax Act

The assessee filed a return of income showing total income of Rs. 20,45,832/-. During the assessment proceeding, the Assessing Officer (AO) observed that the assessee had taken an unsecured loan from M/s. Fairplan Vincom Pvt. Ltd. amounting to Rs. 5,23,50,000/-. The AO issued notices under Sections 133(6) and 131 of the Act to verify the transaction, but they were returned unserved. The director of the investment company was eventually produced, and his statement was recorded under Section 131, wherein he admitted to arranging an accommodation entry for the assessee and charging a commission. Consequently, the AO added Rs. 5,23,50,000/- under Section 68 of the Act as unexplained cash credit along with interest of Rs. 21,87,350/-.

In the appellate proceeding, the Ld. CIT(A) partly allowed the appeal, reducing the addition to Rs. 4,76,50,000/- after verifying that cheques worth Rs. 47,00,000/- were not cleared. The CIT(A) noted that the appellant did not cooperate with the AO and failed to produce the director of the lender company for cross-examination.

The assessee argued that all necessary evidence was provided, including the name, PAN, bank statements, confirmation from the loan creditor, and other relevant documents. The assessee contended that the addition was based on a statement recorded behind their back, which was later retracted. The retraction affidavit stated that the loan was genuine and no cash was given in lieu of the loan. The assessee cited several judicial decisions emphasizing that additions cannot be made based on retracted statements without allowing cross-examination.

The Tribunal observed that the assessee had provided substantial evidence supporting the loan transaction and noted that the assessment in the lender's case did not result in any addition. The Tribunal held that the addition based on a retracted statement without cross-examination was unsustainable. The Tribunal referred to various judicial decisions, including Andaman Timber Industries Vs. CIT, where it was held that cross-examination is essential for the credibility of statements used against the assessee.

Issue 2: Confirmation of Addition of Rs. 21,87,350/- on Account of Interest on the Above Unsecured Loan

The AO added Rs. 21,87,350/- as interest on the unsecured loan, which was also confirmed by the CIT(A). The assessee argued that the interest was paid after deducting tax at source and that all relevant documents were provided to support the genuineness of the transaction. The Tribunal, considering the same facts and legal principles applied to the unsecured loan, directed the AO to delete the addition of interest as well.

Conclusion:

The Tribunal set aside the order of the CIT(A) and directed the AO to delete the additions of Rs. 4,76,50,000/- and Rs. 21,87,350/-. The Tribunal emphasized the importance of cross-examination and the inadmissibility of retracted statements without proper verification, aligning with the principles of natural justice and various judicial precedents.

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