2019 (12) TMI 765 - AT - Income Tax

Addition u/s.68 - CIT(A) has changed the addition to section 69 - HELD THAT In the case of Andaman Timber Industries v. CCE 2015 (10) TMI 442 - SUPREME COURT wherein it was held that not allowing the assessee to cross-examination witnesses by taxing authority, though subsequent of those statements were made basis of the impugned order amounts to a serious flaw which makes impugned order nullity in as much as it amounted to violation of principles of natural justice. Though the CIT(A) by not allowing opportunity to the assessee cross-examination as violated the principles of natural justice. We further observe that the addition is not sustainable u/s.69. We further observed that the assessee has repaid all the loans to the lenders in the subsequent year through cheque which has been appeared in their bank account also therefore when the assessee has repaid the loans by cheques which has in cash to the respective parties, and the assessee has furnished complete details and address, and thus the assessee has discharged the onus u/s.68 of the Act, hence addition is not sustainable in law. The addition sustained by the CIT(A), by u/s.69 is not found sustainable in the law. Accordingly, the same is directed to be deleted. Accordingly, these grounds of appeals are allowed.

Issues:
1. Appeal against order of Ld. Commissioner of Income Tax (Appeals) for assessment year 2010-11.
2. Discrepancy in treatment of addition under sections 68 and 69 of the Income Tax Act.
3. Verification of unexplained credits and creditworthiness of lenders.
4. Applicability of section 69 for unexplained investments.
5. Lack of proper notice and opportunity in modifying the section for addition.
6. Onus of proof on revenue for payments made outside books of account.
7. Violation of principles of natural justice in denying cross-examination.
8. Repayment of loans through cheques as evidence of genuineness.

Analysis:
1. The appeal was filed against the order of Ld. Commissioner of Income Tax (Appeals) for the assessment year 2010-11. The issue raised was the discrepancy in treatment of addition under sections 68 and 69 of the Income Tax Act. The appellant argued that the addition made by the Assessing Officer under section 68 was changed to section 69 by the CIT(A) without proper notice or verification.

2. The case involved the verification of unexplained credits and creditworthiness of lenders. The Assessing Officer found discrepancies in the loans taken by the assessee from seven parties, leading to doubts about the genuineness of transactions. The CIT(A) confirmed the addition under section 69 for unexplained deposits, as the creditworthiness of certain lenders could not be established.

3. The applicability of section 69 for unexplained investments was a crucial issue. The appellant contended that the onus was on the revenue to prove that the assessee made investments not recorded in the books of account. The CIT(A) modified the order without establishing such investments, leading to the appeal being partly allowed.

4. The lack of proper notice and opportunity in modifying the section for addition was highlighted. The appellant argued that the CIT(A) should have given notice regarding the intention to modify the section under which the addition was proposed, which was not done in this case.

5. The onus of proof on the revenue for payments made outside books of account was emphasized. The Tribunal held that the revenue failed to establish such payments, supporting the appellant's argument based on the decision in the Bafakyh Export House case.

6. Violation of principles of natural justice in denying cross-examination was raised as a concern. The appellant cited the case of Andaman Timber Industries to support the argument that not allowing cross-examination of witnesses amounted to a serious flaw.

7. The repayment of loans through cheques was presented as evidence of genuineness. The appellant demonstrated that all loans were repaid to lenders through cheques, showing a legitimate transaction, and thus, the addition under section 69 was deemed not sustainable.

8. In conclusion, the Tribunal found that the addition sustained under section 69 was not legally sound and directed its deletion, ultimately allowing the appeal of the assessee.

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