2023 (2) TMI 697 - AT - Income Tax

Addition u/s 68 - unsecured loans - assessee has failed to prove the creditworthiness of the loans givers/ providers - admission of additional evidence by assessee - HELD THAT - No substantial adverse comment by the A.O. on the additional evidence filed by the assessee, in the remand report. We are agreement with the conclusion recorded by the Ld. CIT(A) that the AO was unjustified in making addition by drawing and adverse inference only on the ground that the five parties to whom the notices were issued u/s. 133(6) of the Act did not respond. From the copy of remand report the Ld. CIT(A) observed that the AO did not acknowledge the confirmation along with PAN number, ITR and bank account of the appellant which were very relevant regarding the identity, capacity of the creditors showing their creditworthiness and genuineness of the transaction of unsecured loans the AO simple rejecting the same without any basis and could not satisfied the requirement of valid invocation of provision of section 68 - CIT(A) also noted the loans were taken though banking channels and AO did not bring any adverse or positive material against the assessee to prove the same as otherwise. In view of foregoing the order of Ld. CIT(A) granting relief to the assessee deleting the additions also gets strong support from the judgment of Winstral Petro Chemicals P Ltd 2010 (5) TMI 65 - HIGH COURT OF DELHI We are unable to see any valid reason to interfere with the findings arrived by the Ld. CIT(A) and therefore we uphold the same. Accordingly ground nos. 1 to 3 of revenue are dismissed for A.Y. 2010-11. Assessment order passed u/s. 153A - Necessity of approval u/s. 153D - application of assessee under Rule 27 of the ITAT Rules - Bogus creditors - Whether addition was based on incriminating material in the form of two balance sheets marked as real and final which was found during the course of search action? - HELD THAT - Approval u/s. 153D of the Act was sought by the DCIT/Assessing Officer on 28.03.2013 from ACIT which was granted on the same date i.e.28.03.2013 by the ACIT to the Assessing Officer and said approval has been held by the Tribunal in the case of Subhash Dabas 2022 (3) TMI 643 - ITAT DELHI and subsequent order 2021 (11) TMI 1140 - ITAT DELHI for A.Y. 2009-10 and 2010-11 2011-12. as has been given without application of mind and thus the same is invalid bad in law and liable to be quashed and Tribunal has quashed the same. Therefore, the application of assesses under Rule 27 of the ITAT Rules is allowed. We, therefore quash the assessment order passed u/s. 153A for A.Y. 2010-11 in the case of present assessee and all additions are deleted. The ground raised by the assessee under Rule 27 of the ITAT Rules is accordingly allowed.

Summary

Issues Involved:
1. Deletion of Rs. 1,76,00,000 added as unsecured loans under Section 68.
2. Deletion of Rs. 74,83,17,490 based on incriminating material.
3. Admission of additional evidence under Rule 46A.
4. Validity of approval under Section 153D.

Issue-wise Detailed Analysis:

1. Deletion of Rs. 1,76,00,000 Added as Unsecured Loans Under Section 68:
The Revenue challenged the deletion of Rs. 1,76,00,000 added to the assessee's income under Section 68 on account of unsecured loans. The Assessing Officer (AO) had added this amount due to the assessee's failure to prove the creditworthiness of the loan providers. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted this addition, concluding that the AO did not bring any material on record to disprove the assessee's evidence, which included confirmations, PAN details, and bank statements. The CIT(A) relied on the judgment of the Delhi High Court in CIT vs. Winstral Petro Chemical P Ltd., which held that if the identity, creditworthiness, and genuineness of the transactions are established, no addition under Section 68 is warranted. The Tribunal upheld the CIT(A)'s decision, noting the AO's failure to acknowledge the provided confirmations and other relevant documents.

2. Deletion of Rs. 74,83,17,490 Based on Incriminating Material:
The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 74,83,17,490 based on incriminating material found during a search, which included two balance sheets marked as real and final. The AO argued that the assessee had booked bogus creditors, and thus, the books of account could not be treated as correct. The CIT(A) concluded that the overstatement of work in progress and crediting accounts of various parties was meant to obtain loans from financial institutions and did not result in actual income. The Tribunal noted that the approval under Section 153D, which was necessary for the assessment, was given without application of mind and was thus invalid. This was supported by previous Tribunal orders in related cases, which had quashed the assessments on similar grounds.

3. Admission of Additional Evidence Under Rule 46A:
The Revenue argued that the CIT(A) erred in admitting additional evidence under Rule 46A without conducting an independent inquiry or directing the AO to do so. The Tribunal observed that the CIT(A) had admitted additional evidence and called for a remand report from the AO, who had the opportunity to verify the evidence. The Tribunal found no substantial adverse comments from the AO on the additional evidence, thereby justifying the CIT(A)'s decision to admit and rely on it.

4. Validity of Approval Under Section 153D:
The Tribunal addressed the validity of the approval under Section 153D, which was granted by the Additional Commissioner of Income Tax (ACIT) on the same day it was sought by the AO. The Tribunal found that the approval was given in a mechanical manner without proper application of mind. This was evident as the AO had made significant errors, such as adding opening balances as current year loans. The Tribunal referenced previous orders where similar approvals were quashed due to lack of proper scrutiny by the ACIT. Consequently, the Tribunal quashed the assessment order for the relevant assessment year, rendering the additions unsustainable.

Conclusion:
The Tribunal upheld the CIT(A)'s deletions of the additions made by the AO, citing lack of proper evidence and procedural lapses, particularly the invalid approval under Section 153D. The Tribunal's decision was consistent with legal precedents and previous Tribunal orders in related cases. The appeal by the Revenue was dismissed, and the assessment order was quashed.