2020 (4) TMI 261 - AT - Income Tax

Addition u/s 68 as unexplained cash credit - no opportunity to cross examination given to assessee - HELD THAT - A.O. has based his finding purely on the basis of the findings of the other officers and the material gathered at the back of the assessee. In our considered view, the assessee should have been confronted with the material so gathered and the assessee was ought to have been given opportunity to cross examination. Considering these facts, the impugned assessment order is set aside to the file of the A.O. to be decided afresh. The A.O. would verify the claim of the assessee, which he had filed in the form of additional evidences before Ld. CIT(A) and would also make independent enquiries, if he so deem fit while framing the assessment afresh. Assessee's grounds raised in the appeal are allowed for statistical purposes.

Issues Involved:
1. Addition of ?15,00,000/- as unexplained cash credit under Section 68.
2. Addition of ?63,123/- as interest on the unexplained cash credit.
3. Violation of principles of natural justice by not providing the assessee an opportunity to rebut adverse information or cross-examine witnesses.

Issue-wise Detailed Analysis:

1. Addition of ?15,00,000/- as unexplained cash credit under Section 68:
The primary issue in this appeal was the addition of ?15,00,000/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961. The assessee had taken an unsecured loan of ?15,00,000/- from M/s. Jayant Securities and Finance Ltd., Vadodara. The Assessing Officer (A.O.) made this addition on the grounds that the lender company was a shell company engaged in providing bogus accommodation entries and had no genuine business activity. The A.O. observed that the lender had minimal income and was not engaged in any substantial business activity. The CIT(A) upheld this addition, emphasizing that the assessee failed to prove the genuineness of the transaction and the creditworthiness of the lender. The CIT(A) relied on several judicial precedents to support the view that merely providing basic details such as the name, address, PAN, and bank statements of the lender was insufficient to discharge the onus under Section 68. The assessee was required to produce the lender for interrogation to establish the genuineness of the transaction, which was not done.

2. Addition of ?63,123/- as interest on the unexplained cash credit:
The second issue was the addition of ?63,123/- as interest on the unexplained cash credit. Since the loan itself was found to be bogus, the interest paid on such a loan was also disallowed. The CIT(A) confirmed this addition, stating that the interest payable on a non-genuine loan is not an allowable expenditure.

3. Violation of principles of natural justice:
The assessee contended that the A.O. collected and used adverse material without providing an opportunity to rebut the same or to cross-examine the witnesses, which was against the principles of natural justice. The Tribunal observed that the A.O. based his findings on material gathered at the back of the assessee without confronting the assessee with such material or providing an opportunity for cross-examination. The Tribunal held that the assessee should have been given an opportunity to rebut the adverse information and to cross-examine the witnesses. Consequently, the Tribunal set aside the impugned assessment order and remanded the matter back to the A.O. for a fresh decision. The A.O. was directed to verify the assessee's claims, consider the additional evidence filed before the CIT(A), and make independent inquiries if deemed necessary.

Conclusion:
The Tribunal allowed the appeal of the assessee for statistical purposes, setting aside the assessment order and remanding the matter back to the A.O. for a fresh decision, ensuring that the principles of natural justice are adhered to. The A.O. was instructed to verify the claims and additional evidence and to provide the assessee an opportunity to rebut the adverse material and cross-examine the witnesses. The order was pronounced in the open court on 23.01.2020.

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