2019 (7) TMI 1497 - AT - Income Tax

Addition made u/s 68 - addition made on the basis of specific information of providing loan to the CHL Group which was revealed during search operation and opportunity of cross examination was also provided to the assessee - HELD THAT - Hon ble jurisdictional High Court in THE PR. CIT VERSUS SHRI PUKHRAJ SONI 2019 (2) TMI 733 - MADHYA PRADESH HIGH COURT held that the additions cannot be made merely based on the basis of random sheets, loose papers, computer prints, hard disk and pen drive etc found from the third party without there being any nexus with other incriminating material establishing the live link of the assessee with the alleged transaction. In the instant case also the addition has been made only on the basis of pen drive seized from the third person i.e. Accountant of BHL group. Revenue authorities have failed to establish any connection either business or personal of the assessee with the Accountant or with the Directors of CHL group. No efforts were made by the revenue authorities to summon the Directors of CHL group. Assessee has denied to have entered into the alleged transaction through an affidavit. No other incriminating material was found during the search. Therefore in our considered view CIT (A) was justified in deleting the addition made by the A.O. No interference is therefore called for in the finding of Ld. CIT(A) and the same is confirmed. In the result the appeal of the revenue stands dismissed.

Summary

Issues Involved:
1. Deletion of addition made under Section 68 of the Income Tax Act.
2. Validity of proceedings initiated under Section 147 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made Under Section 68 of the Income Tax Act:

The primary issue in the revenue's appeal was the deletion of an addition made under Section 68 of the Income Tax Act amounting to ?85,31,830/-. The addition was based on information found in a pen drive seized from the accountant of CHL Hospital during a search operation. The pen drive allegedly contained details of a cash loan of ?1.05 crores received from the assessee and interest paid on it. However, the assessee denied any financial transactions with CHL Hospital and stated that no such loan was ever given. The CIT(A) deleted the addition on the grounds that the addition was made based on surmises and suspicion without concrete evidence. The Tribunal upheld the CIT(A)'s decision, emphasizing that the pen drive belonged to a third party (the accountant of CHL Hospital) and there was no corroborative evidence linking the assessee to the alleged loan transaction. The Tribunal cited several judicial precedents to support its decision, including the principle that entries found in the books of a third party cannot be used against another party without sufficient corroborative material.

2. Validity of Proceedings Initiated Under Section 147 of the Income Tax Act:

The assessee also filed a cross-objection challenging the validity of the reopening of the assessment under Section 147 of the Income Tax Act. The assessee argued that the reopening was based on assumptions and presumptions regarding the alleged unsecured loan recorded in the pen drive found with the accountant of CHL Hospital. The CIT(A) did not decide on the validity of the proceedings under Section 147. However, during the Tribunal proceedings, the assessee chose not to press this ground, leading to its dismissal as not pressed. Consequently, the cross-objection filed by the assessee was dismissed.

Conclusion:

The Tribunal dismissed both the revenue's appeal and the assessee's cross-objection. The Tribunal confirmed the CIT(A)'s deletion of the addition made under Section 68, emphasizing the lack of concrete evidence linking the assessee to the alleged loan transaction. The Tribunal also dismissed the cross-objection challenging the validity of the reopening of the assessment under Section 147 as it was not pressed by the assessee. The order was pronounced in the open court on 29.07.2019.