2019 (12) TMI 745 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - loans received by the assessee were not genuine - HELD THAT - Order passed by the Ld.CIT(A) is in gross violation of the principles of natural justice being based on material collected at the back of the assessee. The entire case of the CIT(A) for holding the credits ingenuine rests on information derived from the bank statements of the creditors, information derived from internet about the creditors, and on the basis of findings recorded by the ITAT in case of one of the creditors. The bank statements of the creditors admittedly were additional evidences filed by the assessee showing cheque issued for making loans to the assessee. As rightly pointed out by assessee, CIT(A) had not admitted the evidences for adjudication. From the bank statements, we find, the Ld.CIT(A) collected information that there were amounts deposited before the issuance of cheques to the assessee in all cases. Further the Ld.CIT(A) extracted information from the internet that the name of one of the depositor companies had been struck off from the register of companies. She also had information in her possession that the ITAT has held in case of one depositor company that it was engaged in providing accommodation entry only. Reading all the aforesaid information together, the Ld.CIT(A) held that the loans received by the assessee were not genuine. Undeniably, the aforesaid information was not confronted to the assessee. Even the Ld. DR has admitted to the said fact and we have not been able to find anything in the order of the CIT(A) showing that the said information was confronted to the assessee. Clearly, the impugned order has been passed in gross violation of the principles of natural justice, that none should be condemned unheard. Restore the matter back to the CIT(A) for adjudication afresh. The additional evidences filed by the assessee, being imperative to establish the claim of the assessee that the transaction was genuine , are directed to be admitted for adjudication. Appeal filed by the assessee is allowed for statistical purposes. The Ld.CIT(A) is further directed to obtain report from the AO on the evidences as per the provisions of Rule 46A of the Income Tax Rules,1962 and after confronting all material to the assessee, to decide the issue in accordance with law - Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Addition of ?50 lacs as unexplained unsecured loans under Section 68 of the Income Tax Act.
2. Admission of additional evidence by the assessee.
3. Violation of principles of natural justice by the CIT(A).

Issue-wise Detailed Analysis:

1. Addition of ?50 lacs as unexplained unsecured loans under Section 68 of the Income Tax Act:
The core issue in the appeal was the addition of ?50 lacs to the assessee's income, which the Assessing Officer (AO) made under Section 68 of the Income Tax Act, 1961. The AO held that the assessee failed to discharge the onus of proving the identity, genuineness, and creditworthiness of the loan depositors, M/s Freak Buildcon Pvt. Ltd. and M/s Strum Infra Developments Pvt. Ltd., each loaning ?25 lacs. The AO's decision was based on the assessee's inability to provide sufficient evidence during the assessment proceedings.

2. Admission of additional evidence by the assessee:
During the appeal to the Commissioner of Income Tax (Appeals) [CIT(A)], the assessee submitted additional evidence, including bank statements of the loan depositors, which were not presented during the assessment. The CIT(A) forwarded these to the AO for a remand report. The AO objected to the admission of these additional evidences, asserting that the assessee had ample opportunity to submit them during the assessment. Despite this, the CIT(A) considered the additional evidences but ultimately rejected them, stating that the assessee failed to provide a reasonable cause for not submitting them earlier.

3. Violation of principles of natural justice by the CIT(A):
The CIT(A) dismissed the assessee's appeal ex parte, relying on adverse inferences drawn from the additional evidence and information gathered independently from the internet, without confronting the assessee with this information. The CIT(A) found that the loan transactions were not genuine, citing that the depositor companies were involved in providing accommodation entries and that one of the companies was struck off from the register of companies. The CIT(A) also referenced an ITAT Delhi decision that identified M/s Strum Infra Developments Pvt. Ltd. as a conduit company providing accommodation entries.

The assessee contended that the CIT(A)'s order violated principles of natural justice, as it was based on evidence not admitted for adjudication and information collected at the back of the assessee without giving an opportunity to respond. The appellate tribunal found merit in this contention, noting that the CIT(A) failed to confront the assessee with the adverse material and information relied upon. The tribunal emphasized that the principles of natural justice require that a party should be apprised of the case to be met with and given an adequate opportunity to make its representation.

Conclusion:
The tribunal restored the matter to the CIT(A) for fresh adjudication, directing the admission of the additional evidence submitted by the assessee. The CIT(A) was instructed to obtain a report from the AO on the additional evidence as per Rule 46A of the Income Tax Rules, 1962, and to confront the assessee with all material before deciding the issue in accordance with the law. The tribunal underscored the necessity of granting the assessee due opportunity of hearing, thereby ensuring adherence to the principles of natural justice.

Order:
The appeal filed by the assessee was allowed for statistical purposes, and the matter was remanded back to the CIT(A) for fresh adjudication, with specific directions to ensure compliance with the principles of natural justice.