2024 (7) TMI 958 - AT - Income Tax

Unexplained credit u/s 68 - treating the deposit as accommodation entry - main issue of source of deposit being Bright corporation/Samsun Paul Gohil was lost site off and uncalled for attention was centered on the trade deal of Dhaniya HELD THAT - Sum received on 13.11.2016 stands fully explained. It is a genuine transaction through banking channels. The amount was remitted in the account of the assessee through RTGS. The source of deposit was already known to the department i.e. Shri Samsun Paul Gohil. Thus, the source of deposit also stood fully explained. There was no case for treating the same as unexplained u/s 68. Addition u/s 68 can be made only if the source of amount remains unexplained. In the case of the assessee the source of deposit was already on record with the department. Hence, the AO has wrongly made addition u/s 68. CIT(A) has also erred in confirming the same. Thus there were no case for treating the amount as accommodation entry. There is no statement of Samsun Paul Gohil that the amount of Rs. 17,00,000/- was remitted to the assessee in view of cash receipts of the assessee. The investigation wing has also not furnished any material to establish that the amount received by the assessee was an accommodation entry. So far as the assessee is concerned, the transaction of receipt of Rs. 17,00,000/- and the returned thereof are genuine transactions. Hence, the addition made in the hands of the assessee are totally uncalled for and unlawful. The same was wrongly made by the AO only on the ground that the information was received from the investigation wing. AO has wrongly acted upon the receipt of information from the investigation wing as a thumb rule, without causing any enquiry at his level - CIT(A) has also erred in confirming the same. Hence, addition of Rs. 17.00 lacs is directed to be deleting by allowing the appeal of the assessee.

Summary

Issues Involved
1. Disallowance of the addition of Rs. 17,00,000/- as unexplained credit.
2. Denial of opportunity to examine and cross-examine material evidence.

Issue-wise Detailed Analysis

1. Disallowance of the Addition of Rs. 17,00,000/- as Unexplained Credit
The appellant challenged the disallowance of Rs. 17,00,000/- added as unexplained credit under Section 68 of the Income Tax Act. The CIT(A) concluded that the amount credited to the appellant's account through RTGS was not substantiated with documentary evidence for the advance receipt for Dhaniya purchase. The CIT(A) further noted that the entity, M/s Bright Corporation, involved in the transaction, dealt in gold sales, rendering the transaction for agricultural commodities implausible. The investigation revealed that M/s Bright Corporation was a dummy concern providing accommodation entries, and the transaction was deemed a sham. The CIT(A) upheld the addition as unexplained credit, referencing the Supreme Court's decision in Sumati Dayal Vs Commissioner Of Income-Tax, emphasizing the need to consider human probabilities and surrounding circumstances.

2. Denial of Opportunity to Examine and Cross-Examine Material Evidence
The appellant argued that the addition was made based on the statement of a third party, Shri Samsun Paul Gohil, without providing the appellant an opportunity to cross-examine him. The appellant contended that the transaction was genuine, involving a trade advance for Dhaniya, which was later returned due to non-materialization of the deal. Despite requests, the AO did not provide the statement of Shri Samsun Paul Gohil or allow cross-examination, violating the principles of natural justice. The Tribunal noted that material gathered at the back of the assessee could not be used without cross-examination, citing several case laws, including Andman Timber Ind. Vs. Commission of Central Excise and COMMISSIONER OF INCOME TAX vs. BIJU PATNAIK, which emphasize the necessity of cross-examination to uphold the principles of natural justice.

Tribunal's Decision
The Tribunal found that the AO's action violated principles of natural justice by not providing the appellant with the statement of Shri Samsun Paul Gohil or the opportunity to cross-examine him. The Tribunal emphasized that the amount received by the appellant was through banking channels and was returned within a short period, indicating a genuine transaction. The Tribunal concluded that the source of the Rs. 17,00,000/- was adequately explained and should not be treated as unexplained credit. Consequently, the Tribunal directed the deletion of the addition of Rs. 17,00,000/- and allowed the appeal of the assessee.

Conclusion
The Tribunal allowed the appeal, holding that the addition of Rs. 17,00,000/- as unexplained credit was unjustified and violated principles of natural justice due to the denial of cross-examination. The Tribunal emphasized the need for fair opportunity and proper substantiation of claims, ultimately directing the deletion of the addition.