2025 (2) TMI 121 - AT - Income Tax

Additions made u/s. 69 - alleged advancement of cash loan and addition of notional interest thereon on estimate basis - Additions are entirely based on the document seized during the search conducted in the premises of third party and statements u/s. 132(4) of the Act were recorded - later retraction of statements as recorded under duress and when the statements were recorded they were not in proper frame of mind - HELD THAT - When the assessee as well as Shri Nilesh Shamji Bharani and other individuals have denied of alleged cash transaction in subsequent events the duty of the AO was to gather more corroborative evidence to establish on record that the entries appearing in the seized material actually represent cash loan transaction of the assessee. However except the seized material and the statements recorded u/s. 132(4) of the Act from some third-party individuals the AO has absolutely no other evidence on record to corroborate the alleged cash loan transaction of the assessee. Pertinently though during the time search and seizure operation was carried out in case of M/s. Evergreen Enterprises and Shri Nilesh Shamji Bharani a search and seizure operation was also carried out in case of the assessee however not a single piece of incriminating material was recovered from the assessee indicating involvement of assessee in the alleged cash loan transaction or any other illegal activity. It is quite surprising that considering the magnitude of the alleged cash loan transaction appearing in the seized document not a single piece of incriminating material relating a cash loan transaction was recovered from the assessee during the search and seizure operation conducted on assessee. If the version of Mr. Jagdish T Ramani that the promissory note given by the borrower is delivered to the lender is to be taken on face value then at least if not all few such promissory notes would have been recovered in course of search and seizure operation carried out in case of the assessee. It is quite improbable that such huge amount of cash loan transaction would not leave any trace of incriminating material /evidence with the assessee. Thus on cumulative analysis of facts and materials available on record we are of the opinion that is no conclusive evidence was available with the AO to establish on record that the entries appearing in the seized material actually represent cash loan transaction of the assessee. Thus we have no hesitation in holding that the additions made on account of unexplained investment on account of alleged cash loan transaction and addition made on account of notional interest thereon being not based on cogent evidence are unsustainable. Decided in favour of assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issues considered in this judgment are:

1. The validity of the proceedings initiated under Section 153A of the Income Tax Act.

2. The merits of the additions made under Section 69 of the Income Tax Act, concerning alleged cash loan advancements and the computation of notional interest on an estimated basis.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Proceedings under Section 153A of the Act

The legal framework for this issue involves Section 153A of the Income Tax Act, which allows the initiation of proceedings following a search and seizure operation. The Tribunal did not delve deeply into this issue, as it became academic following the decision on the merits of the additions.

2. Additions under Section 69 of the Act

Relevant Legal Framework and Precedents

Section 69 of the Income Tax Act pertains to unexplained investments, which can be added to the income of an assessee if not satisfactorily explained. The Tribunal examined whether the alleged cash loan transactions and notional interest could be considered unexplained investments under this section.

Court's Interpretation and Reasoning

The Tribunal focused on the lack of corroborative evidence to support the Assessing Officer's (A.O.) conclusion that the entries in the seized documents represented cash loans advanced by the assessee. The Tribunal noted that the primary evidence consisted of documents seized from the premises of a third party, Shri Nilesh Shamji Bharani, and statements recorded under Section 132(4) of the Act.

Key Evidence and Findings

The A.O. relied on documents (Annexure A-1 to A-117) and statements from individuals associated with M/s. Evergreen Enterprises, including Shri Nilesh Shamji Bharani, to assert that the assessee was involved in cash loan transactions. However, the Tribunal found that these statements were subsequently retracted, and no incriminating material was recovered from the assessee during the search.

Application of Law to Facts

The Tribunal applied the law by assessing the credibility of the evidence presented. It emphasized the importance of corroborative evidence, noting that the A.O. failed to provide any additional evidence beyond the seized documents and retracted statements to substantiate the alleged cash loan transactions.

Treatment of Competing Arguments

The Tribunal considered the assessee's consistent denial of any cash loan transactions and the retraction of statements by the individuals from whom the statements were initially recorded. The Tribunal also took into account the cross-examination of Shri Nilesh Shamji Bharani, where he denied any cash dealings with the assessee.

Conclusions

The Tribunal concluded that the additions made by the A.O. were unsustainable due to the lack of cogent evidence. It directed the A.O. to delete the additions for all the assessment years under dispute.

SIGNIFICANT HOLDINGS

The Tribunal's significant holdings include:

Preserve Verbatim Quotes of Crucial Legal Reasoning

"...except the so-called incriminating material seized from the premises of Shri Nilesh Shamji Bharani and some statements recorded u/s. 132(4) of the Act from individuals related to M/s. Evergreen Enterprises, the A.O. had no other corroborative evidence available with him to establish that the assessee had actually advanced any cash loan to Shri Nilesh Shamji Bharani."

Core Principles Established

The Tribunal established that mere possession of documents and statements, especially when retracted, without corroborative evidence, is insufficient to substantiate allegations of unexplained investments under Section 69 of the Act.

Final Determinations on Each Issue

The Tribunal directed the deletion of additions made under Section 69 for unexplained investments and notional interest, rendering the legal grounds academic. Consequently, all appeals were allowed.