2024 (7) TMI 705 - AT - Income Tax

Addition u/s 68 r.w.s. 115BBE - money trail related to unsecured loan - Treatment of loans as unaccounted cash credits - HELD THAT - Since no specific names were mentioned in the SCN, the assessee submitted the details to the best of its understanding and the AO did not ask for any further details. The query in the SCN appears that the AO had already made up its mind to somehow make an addition indicating a pre-judgment. The assessee has produced the standard details as is required to establish the genuinity of the transaction. No further hearings were given after the info was received albeit partially from Karur Vysya Bank. No question was asked about the transaction with Shri Laxmipat Dudheria. The fact that all the parties being Dinesh Kumar Singhi, Snehalatha Singhi and Laxmipat Dudheria are assessed to tax for long period of time and the resources are adequate and reflected in the financial statements and that the transaction were through account payee cheques/ RTGS has been ignored. The assessee has discharged the basic onus and that the onus was shifted to the AO has been totally ignored. Loan from Laxmipat Dudheria - No adverse inference can be drawn on the assessee in this regard. The assessee has produced the standard details as is required to establish the genuinity of the transaction. The very edifice and the substratum based on which the addition is made does not exist and appears to be a wild imagination. There is no effort by the AO except summarily and erroneously causing a wrong addition. Any clarification could have been submitted by the assessee and examined by the AO had the same been brought to the knowledge of the assessee. The transaction is genuine, verifiable and can no stretch be called unexplained. Lack of understanding/inability to understand the explanation cannot be equated as unexplained. Loan from Dinesh Kumar Singhi - A bare verification of the ledger copies of Sagar Cements in Dinesh Kumar Singhi books and the confirmation of accounts given by Sagar Cements indicates that the closing balance of Rs. 1.57 crore matches with each other and indicates no discrepancy, Evidently the AO has misguided herself for the reason best known. Even a rudimentary analysis would indicate that there was no need to make such an inference and addition thereon. The very edifice and the substratum based on which the addition is made does not exist and appears to be a wild imagination. These clarifications could have been submitted by the assessee and examined by the AO had the same been brought to the knowledge of the assessee. The transaction is genuine, verifiable and can no stretch be called unexplained. Lack of understanding/inability to understand the explanation cannot be equated as unexplained. Loan form Snehalatha Singhi - The assessee has produced the standard details as is required to establish the genuinity of the transaction. Without calling for any further detail/explanation from the assessee, the AO has alleged that Snehalatha Singhi did not have source to advance loan to the assessee. The AO has not given any reason for making the said disallowance and thus is done without application of mind. The very edifice and the substratum based on which the addition is made does not exist and appears to be a wild imagination. There is no effort by the AO except summarily and erroneously causing a wrong addition. Onus on the assessee is not only limited to establish the identity of the person making the advance but also his capacity to make advances and it has to be proved that it had actually been received as a loan from the creditor. The documents produced by the assessee shall not only proving identity of the parties but also creditworthiness of the creditor who should have the financial capacity to make the advance in question, to the satisfaction of the AO, so as to discharge the primary onus. The ld. AO is duty bound to investigate the creditworthiness of the parties, verify the identity of the creditors and ascertain whether the transaction is genuine or these are bogus entries in the name of lenders. If the enquiries and investigations reveal that the identity of the creditors to be dubious or default or lack of creditworthiness, then the genuineness of the transaction would not be established. In view of the above, we are of the opinion that it is appropriate to remit this issue in dispute to the file of NFAC/CIT(A) to carry out further enquiry on this issue as deemed fit and to decide accordingly. Appeal of the assessee is partly allowed for statistical purposes.

Summary

Issues Involved:
1. Violation of natural justice and procedural fairness.
2. Addition of Rs. 150,13,10,676/- as unaccounted cash credit under Section 68 read with Section 115BBE of the Income Tax Act.
3. Treatment of specific loans from Dinesh Kumar Singhi, Snehalatha Singhi, and Laxmipat Dudheria as unaccounted cash credits.
4. Levy of interest under Sections 234B and 234C of the Act.

Detailed Analysis:

1. Violation of Natural Justice and Procedural Fairness:
The assessee argued that the Assessing Officer (AO) did not provide sufficient and adequate opportunity as required under law, thus violating principles of natural justice. The AO issued notices and collected partial information from Karur Vysya Bank without seeking further details or expressing any adverse view on the details filed by the assessee. The assessee was shocked to learn about the substantial addition made by the AO against the declared loss. The Tribunal noted that the AO did not conduct a thorough verification and failed to follow basic principles of natural justice.

2. Addition of Rs. 150,13,10,676/- as Unaccounted Cash Credit:
The AO made an addition of Rs. 150,13,10,676/- under Section 68 read with Section 115BBE of the Act, treating it as unaccounted cash credit. The assessee contended that all transactions were through banking channels and provided necessary documents like ledger accounts, confirmation statements, bank statements, income tax returns, and financial statements. The AO, however, did not make any further inquiries and summarily made the addition. The Tribunal observed that the AO failed to conduct an independent inquiry to verify the capacity of lenders and the genuineness of the transactions.

3. Specific Loans from Dinesh Kumar Singhi, Snehalatha Singhi, and Laxmipat Dudheria:

- Dinesh Kumar Singhi (Rs. 78,39,89,104/-):
The assessee provided details of loans, including bank statements and confirmation of accounts. The AO made an addition without further inquiries, relying on irrelevant material. The Tribunal noted that the AO failed to verify the transactions adequately and made a double addition by considering both Dinesh Kumar Singhi and Laxmipat Dudheria.

- Snehalatha Singhi (Rs. 1,03,21,572/-):
The assessee submitted necessary documents to prove the genuineness of the transaction. The AO, without giving any reason, made the disallowance. The Tribunal found that the AO did not make any effort to verify the transaction and summarily made the addition.

- Laxmipat Dudheria (Rs. 70,70,00,000/-):
The assessee provided standard details to establish the genuineness of the transaction. The AO did not ask for any further details and made an addition based on wild imagination. The Tribunal observed that the AO failed to follow the correct procedure and did not verify the transaction adequately.

4. Levy of Interest under Sections 234B and 234C:
The assessee disputed the levy of interest under Sections 234B and 234C, arguing that no opportunity was given before the levy. The Tribunal noted that these grounds are consequential and mandatory in nature and should be computed accordingly.

Conclusion:
The Tribunal found that the AO failed to conduct a thorough verification and follow principles of natural justice. The case was remitted to NFAC/CIT(A) for further inquiry and fresh consideration. The appeal was partly allowed for statistical purposes. The Tribunal emphasized the need for the AO to conduct an independent inquiry and verify the capacity of lenders and the genuineness of transactions before making any additions under Section 68 of the Act.