2024 (5) TMI 1203 - AT - Income Tax

Addition u/s 68 - identity, creditworthiness and genuineness of the loan creditors not proved - burden to prove - Disallowance of Interest Expenditure HELD THAT - Once, the assessee has discharged the burden to prove prima-facie nature and source of the credit entries, onus shifted to the AO to rebut it with cogent evidence. In this case, the AO based on the statement of Shri Vipul Vidur Bhatt has disbelieved the transaction of loan taken from M/s. Shipra Fabrics Pvt. Ltd., and M/s. Lunkad Textile Pvt. Ltd., because, Shri Vipul Vidur Bhatt had admitted before the search team that these two entities were his paper companies. Assessee has brought to the notice of the AO as well as the CIT(A) that Shri Vipul Vidur Bhatt has retracted his statement by filing Affidavit alleging coercion and duress for eliciting such a statement. In such a scenario, the AO ought to have summoned Shri Vipul Vidur Bhatt and cross-examined him; and in that process ought to have elicited from him about the genuineness of the lenders viz M/s. Shipra Fabrics Pvt. Ltd. and M/s. Lunkad Textile Pvt. Ltd. i.e, whether these companies actually conducted any business or were only his paper companies engaged in providing accommodation entries. AO, however, has not endeavored to take such a course of action and instead has brushed aside the Affidavit of retraction on the specious plea that the DDIT Investigation Report is silent about it. Such action of the AO cannot be accepted and since, the assessee has discharged his burden to prove the identity, creditworthiness and genuineness of the loan creditors, and the assessee has shown to have re-paid loan the loan in question the addition made u/s 68 of the Act cannot be sustained. Moreover, the only material on the basis of which Assessing Officer has taken adverse view against assessee was the untested statement of Shri Vipul Bhat, who admittedly has not been allowed to be cross-examined by assessee, so in view of retracted statement (Affidavit), it would be unsafe to draw adverse view against assessee. Therefore, the additions made deserves to be deleted. For taking such a view, we rely on the decision of case of PCIT v. Paradise Inland Shipping (P.) Ltd. 2017 (11) TMI 1554 - BOMBAY HIGH COURT and direct deletion of the addition to the tune and it would be gainful to refer to the decision in the case of PCIT v. Paradise Inland Shipping (P.) Ltd. 2017 (11) TMI 1554 - BOMBAY HIGH COURT Thus we direct deletion of the addition made by the AO u/s 68 ; and the interest expenditure claimed by assessee given to the two entities in AY 2014-15 for AY 2015-16 after duly deducting TDS, need to be allowed

Summary

Issues Involved:
1. Addition of Rs. 1,17,00,000/- under Section 68 of the Income Tax Act, 1961.
2. Disallowance of interest expenditure of Rs. 4,80,000/- for AY 2014-15 and Rs. 10,53,000/- for AY 2015-16.

Issue-wise Detailed Analysis:

1. Addition of Rs. 1,17,00,000/- under Section 68 of the Income Tax Act, 1961:

The main grievance of the assessee was against the addition of Rs. 1,17,00,000/- made under Section 68 of the Income Tax Act, 1961. The assessee, engaged in construction activities, had filed his return of income for AY 2014-15 and declared a total income of Rs. 1,12,28,840/-. Based on information from the DDIT (Inv.) Unit 7(4), Mumbai, the case was reopened, and it was noted that the assessee had transactions with two entities, M/s. Shipra Fabrics Pvt. Ltd and M/s. Lunkad Textile Pvt. Ltd, which were identified as paper companies operated by Shri Vipul Vidur Bhatt. The AO alleged that the loans amounting to Rs. 77 Lakhs and Rs. 40 Lakhs from these entities were accommodation entries and added Rs. 1.17 Cr as income under Section 68.

The assessee provided various documents to prove the nature and source of the loans, including returns of income, balance sheets, P&L accounts, audit reports, bank statements, and confirmations from the lenders. Despite this, the AO was dissatisfied, citing a lack of response to notices issued under Section 133(6) and the statement of Shri Vipul Vidur Bhatt admitting to providing accommodation entries. The AO did not accept the retraction of Shri Vipul Vidur Bhatt's statement, as it was not mentioned in the DDIT (Inv.) report.

The Tribunal noted that the assessee had discharged the burden of proving the nature and source of the credit entries through primary documents. The AO's reliance on the untested statement of Shri Vipul Vidur Bhatt, without allowing cross-examination, was deemed insufficient. The Tribunal cited the jurisdictional High Court's decision in PCIT v. Paradise Inland Shipping (P.) Ltd., which emphasized that once the assessee produces documentary evidence, the burden shifts to the Revenue to rebut it. The Tribunal concluded that the addition under Section 68 could not be sustained and directed the deletion of Rs. 1.17 Cr.

2. Disallowance of Interest Expenditure of Rs. 4,80,000/- for AY 2014-15 and Rs. 10,53,000/- for AY 2015-16:

The assessee also challenged the disallowance of interest expenditure claimed on the alleged bogus loans. For AY 2014-15, the interest expenditure was Rs. 4,80,000/-, and for AY 2015-16, it was Rs. 10,53,000/-. The AO disallowed these amounts, contending that the loans were not genuine.

The Tribunal, after examining the evidence, found that the assessee had duly deducted TDS on the interest paid and had repaid the loans to the lenders. Given that the primary documents provided by the assessee were not effectively rebutted by the AO, the Tribunal directed that the interest expenditure claimed by the assessee should be allowed.

Conclusion:

The Tribunal allowed the appeals of the assessee, directing the deletion of the addition of Rs. 1.17 Cr under Section 68 and allowing the interest expenditure of Rs. 4,80,000/- for AY 2014-15 and Rs. 10,53,000/- for AY 2015-16. The Tribunal emphasized the need for the Revenue to provide cogent evidence to rebut the primary documents produced by the assessee and criticized the AO's reliance on an untested statement without allowing cross-examination. The decision was pronounced in the open court on 02/05/2024.