2024 (12) TMI 1384 - AT - Income Tax

Revision u/s 263 - Additions u/s 68 - unexplained cash credit - unexplained expenditure u/s 69C - HELD THAT - Receipt Alleged to be unexplained cash credit is offshoot of earlier grant of loan to M/s. Shalini Holdings Ltd. The receipt of money by way of repayment of loan earlier granted cannot be taken in the same pedestal as that of receipt of loan per se. Requirement of proving creditworthiness in such a situation of repayment has been read down in SBD Estates P. Ltd. 2018 (3) TMI 1592 - BOMBAY HIGH COURT and Vijay Dewellers Pvt. Ltd 2019 (3) TMI 291 - ITAT MUMBAI It was observed that in the case of repayment of loan earlier given by the assessee, there is no requirement on the part of the assessee to prove the source of funds of the borrower making repayment towards its existing obligation. Similar view has been expressed in Veedhata Tower P. Ltd. SBD Estate 2018 (4) TMI 1004 - BOMBAY HIGH COURT Thus on this score itself on standalone basis, the addition made is unsustainable in law. We further advert to the other line of plea such as placing reliance on statement of searched person without providing cross-examination as well as the seized documents involving the assessee. The assessee on its part has duly attended before the AO in pursuance of notice issued u/s 131 of the Act and provided the requisite explanations. It is also noticed that the assessment of borrower showing repayment of loan has been duly made wherein no adverse observations have been made by the AO towards providing any accommodation entry to any person. Thus, when seen holistically, the receipt of money can neither be regarded as accommodation entry by way of loan nor the assessee has been provided with the cross-examination of the searched person giving rise to the consequential action against the assessee. The order of the CIT(A) is thus set aside and the AO is directed to delete the additions so made under section 68 69C of the Act. Appeal of the assessee is allowed.

ISSUES PRESENTED and CONSIDERED

The core legal questions in this case are:

Whether the initiation of proceedings under section 263 of the Income Tax Act was valid?
Whether the additions made under sections 68 and 69C of the Act were justified?
Whether the reassessment order and revisionary order were legally sound?

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Proceedings under Section 263

Relevant legal framework and precedents: The assessee challenged the initiation of proceedings under section 263, alleging procedural irregularities and lack of opportunity for cross-examination.
Court's interpretation and reasoning: The Court noted the failure to provide necessary documents and cross-examination opportunities to the assessee, highlighting violations of natural justice.
Key evidence and findings: The Court considered the grounds raised by the assessee regarding the initiation of penalty proceedings under section 271(1)(c).
Application of law to facts: The Court emphasized the importance of following due process and providing opportunities for cross-examination in such proceedings.
Conclusions: The Court found the initiation of proceedings under section 263 to be flawed due to procedural deficiencies.

Issue 2: Justification of Additions under Sections 68 and 69C

Relevant legal framework and precedents: The additions under sections 68 and 69C were challenged by the assessee, arguing that the amounts were not unexplained cash credits or expenditure.
Court's interpretation and reasoning: The Court analyzed the transactions between the assessee and M/s. Shalini Holdings Ltd., concluding that the receipt of money was a repayment of an earlier loan and not an unexplained cash credit.
Key evidence and findings: The Court examined the details of the loan transactions and highlighted the lack of adverse findings in the assessment of M/s. Shalini Holdings Ltd.
Application of law to facts: The Court applied precedents that exempt the assessee from proving the source of funds in cases of loan repayments.
Conclusions: The Court ruled in favor of the assessee, directing the deletion of the additions made under sections 68 and 69C.

Issue 3: Legality of Reassessment and Revisionary Orders

Relevant legal framework and precedents: The assessee raised legal infirmities regarding the reassessment order and revisionary order, alleging lack of jurisdiction and procedural errors.
Court's interpretation and reasoning: The Court considered the arguments related to the validity of the reassessment order and its impact on subsequent proceedings.
Key evidence and findings: The Court examined the actions of the assessing officer in issuing multiple notices and the timing of the reassessment notice.
Application of law to facts: The Court evaluated the legal grounds raised by the assessee concerning the validity of the reassessment and revisionary orders.
Conclusions: The Court did not delve deeply into this issue due to the favorable ruling on the merits of the additions.

SIGNIFICANT HOLDINGS

Based on the analysis, the Court found the initiation of proceedings under section 263 to be flawed and directed the deletion of additions made under sections 68 and 69C.
The Court emphasized the importance of following due process, providing opportunities for cross-examination, and exempting the assessee from proving the source of funds in cases of loan repayments.
Ultimately, the appeal of the assessee was allowed, and the Court pronounced the order in favor of the assessee on 12th December, 2024.

← Previous Next →