2024 (12) TMI 975 - AT - Income Tax

Disallowance of interest payment to the loan creditors - HELD THAT - The assessee repaid the loan interest to the loan-creditor. The transactions with assessee and loan creditors are duly recorded and reflected in the audited books of accounts of both the depositor as well as the recipient. The entire impugned assessment order as well as the impugned appeal order never rejected the documentary evidence filed by the assessee. Assessee was denied the opportunity to rely upon documents of the ld. AO. We respectfully relied on Kishinchand Chellaram 1980 (9) TMI 3 - SUPREME COURT and Ayachi Chandrashekhar Narsangji 2013 (12) TMI 372 - GUJARAT HIGH COURT - We set aside the impugned appeal order and the impugned assessment order is dismissed. The additions are quashed.

Issues Involved:

1. Legitimacy of the loan transactions and interest payments under Section 68 of the Income-tax Act, 1961.
2. Validity of the reassessment proceedings initiated under Section 148.
3. Admissibility and reliability of the statements made by third parties, particularly the statement of Shri Pravin Kumar Jain.
4. Disallowance of interest payments for the assessment year 2014-15.

Detailed Analysis:

1. Legitimacy of the Loan Transactions and Interest Payments:

The primary issue revolves around the addition of Rs. 1 crore under Section 68 of the Income-tax Act, 1961, which pertains to the genuineness of loans received by the assessee from M/s Olive Overseas Ltd and Triangular Infocom Ltd. The Assessing Officer (AO) treated these loans as accommodation entries based on a statement by Shri Pravin Kumar Jain, which was later retracted. The assessee contended that it had complied with all the requirements under Section 68, providing evidence of the identity, genuineness, and creditworthiness of the lenders. The Tribunal noted that the assessee had submitted comprehensive documentation, including ledger accounts, bank statements, IT returns, and affidavits from the lenders. The Tribunal found that the revenue authorities failed to provide any evidence contradicting the assessee's submissions and ruled that the additions made under Section 68 were unsustainable.

2. Validity of the Reassessment Proceedings:

The assessee challenged the jurisdiction of the AO to initiate reassessment proceedings under Section 148, arguing that the proceedings were based on borrowed satisfaction from the investigation wing without any independent inquiry. The Tribunal observed that there was no material linking the assessee to the alleged accommodation entries, and the reassessment was based solely on third-party information. The Tribunal relied on precedents that emphasize the need for independent satisfaction by the AO and concluded that the reassessment proceedings were invalid.

3. Admissibility and Reliability of Third-Party Statements:

The Tribunal addressed the issue of the reliability of Shri Pravin Kumar Jain's statement, which was used as the basis for the additions. The statement was retracted, and the assessee was never given the opportunity to cross-examine Shri Pravin Kumar Jain. The Tribunal emphasized that evidence from retracted statements, without corroboration, cannot be used against the assessee. The Tribunal cited judicial precedents supporting the need for cross-examination and the inadmissibility of uncorroborated retracted statements, leading to the conclusion that the statement had no evidentiary value.

4. Disallowance of Interest Payments for AY 2014-15:

The AO disallowed interest payments related to loans from Atharva Business Pvt. Ltd., Ansh Merchant Dyes Pvt. Ltd., and May Fair Management Services for the assessment year 2014-15. The assessee argued that these loans were genuine and had been accepted in previous years. The Tribunal found that the interest payments were related to loans accepted as genuine in earlier assessments and ruled that the disallowance of interest payments was unjustified.

Conclusion:

The Tribunal concluded that the assessee had adequately demonstrated the genuineness of the loan transactions and interest payments. The reassessment proceedings were deemed invalid due to the lack of independent inquiry. The Tribunal set aside the orders of the lower authorities, quashed the additions made under Section 68, and allowed the appeals filed by the assessee. The appeal regarding the repetition of the case was dismissed as infructuous.

← Previous Next →