2024 (3) TMI 422 - AT - Income Tax

Addition u/s 68 - onus prove - non-compliance by the lender - Treating the loan transaction as a mere accommodation entry - CIT(A) deleted the additions - HELD THAT - As both assessee as well as lender have produced tell-tale evidences to support the propriety of loan transaction albeit in the remand proceedings. The loan from Sunmoon has not only carried charge of interest but has also been partly repaid prior to search. Such traversing facts requires to be given due weightage. The lender has confirmed the loan. The capacity of loan has not been doubted by the Revenue Authorities. Thus, when seen on standalone basis, one cannot say that identity, creditworthiness of lender and genuineness of transaction is lacking in any manner to a reasonable person instructed in law. Thus, statutory discretion vested with the AO under Section 68 is fairly required to be exercised in favour of the assessee as rightly held by the CIT(A). We also simultaneously note that the AO himself has legitimized the transactions with different parties appearing under the head Entry in the loose paper by accepting the bonafides of transactions qua different entities. The transaction with Sunmoon was disputed in isolation on the grounds of non-compliance by the lender. As loose paper found in the course of search do not constitute incriminating material belonging to the assessee per se. As noted, the AO himself has found the other transactions mentioned in the loose paper to be correct and worthy of acceptance. The only transaction qua Sunmoon has been questioned, that too, owing to non responsive lender in the course of original proceedings. As a corollary, the provision of Section 68 has been applied dehors any incriminating material found in the course of search. Such course of action is not permissible in law in the light of Abhisar Buildwell ( 2023 (4) TMI 1056 - SUPREME COURT The statement made by the Director of the assessee is required to be read down owing to its retraction. In such circumstances existing the present case, it is difficult to accept the stand of the Revenue that loan from Sunmoon is a mere accommodation entry where it has been demonstrated that the assessee has incurred interest cost as well as displayed his intention to make repayment thereof. Decided against revenue. Unaccounted sales - AO has made estimated addition being 1% of the total sales holding it to be unaccounted sales on the basis of statement of the Director in the course of search proceedings - CIT(A) has referred to several decisions to hold that there is no scope of extrapolation in the search assessment based solely on assumptions and surmises in the absence of any tangible material qua the relevant assessment year - HELD THAT - We have perused the process of reasoning adopted by the CIT(A) carefully and see no reason to depart therefrom. As observed in several judicial precedents, the additions based on extrapolation of material relating to different other years is not permissible in a search assessment. We thus see no error in the conclusion drawn by CIT(A). The action of the CIT(A) reversing the adhoc additions made by AO without any tangible material qua A.Y. 2013-14 in question is justified on facts as well as in law and thus does not call for any interference. The appeal of the Revenue on this point thus does not hold any water.

Summary

Issues Involved:
1. Deletion of addition of Rs. 66,80,471/- under business income for under-reporting of sales.
2. Deletion of addition of Rs. 2,24,50,000/- as an accommodation entry.

Summary:

Issue 1: Deletion of Addition of Rs. 66,80,471/- under Business Income
The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 66,80,471/- made under business income for under-reporting of sales, based on the director's statement during the search and seizure operation. The AO made an ad hoc addition of Rs. 66,80,471/- as unaccounted business income, extrapolating from sheets related to AY 2017-18 to 2020-21, suggesting out-of-books cash sales. The CIT(A) found these additions to be based on estimates and not on any material found during the search, thus reversing the AO's decision. The Tribunal upheld the CIT(A)'s decision, emphasizing that additions based on extrapolation without tangible material for the relevant assessment year are not permissible in a search assessment.

Issue 2: Deletion of Addition of Rs. 2,24,50,000/- as an Accommodation Entry
The Revenue argued that the CIT(A) erred in deleting the addition of Rs. 2,24,50,000/-, which the AO treated as an accommodation entry based on a statement made by the company's director during the search. The AO added Rs. 2,24,50,000/- under Section 68, alleging unexplained cash credit from Sunmoon Vision Infra Developers Pvt. Ltd. The CIT(A), after obtaining a remand report, found that the identity, creditworthiness, and genuineness of the lender were established through banking channels, loan agreements, and responses to notices. The Tribunal concurred with the CIT(A), noting that the transaction was bona fide, supported by documentary evidence, and not merely an accommodation entry. The Tribunal also highlighted that no incriminating material was found during the search to support the AO's addition under Section 68.

Conclusion:
The Tribunal dismissed the Revenue's appeal on both counts, upholding the CIT(A)'s decision to delete the additions of Rs. 66,80,471/- and Rs. 2,24,50,000/-, emphasizing the lack of tangible evidence and the improper use of extrapolation in the search assessment.