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2021 (5) TMI 904 - AT - Income TaxAddition u/s. 69 based on information received from Australian Tax authorities - HELD THAT - Addition is solely made on the basis of statement of the assessee s son before Australian Tax Authorities and affidavit by the assessee before them that fund found in possession of the son were arranged by assessee by hawala transaction. When confronted by the investigation department of the Revenue, the assessee has rebutted the above allegation. The rebuttal or refusal by the assessee has only been referred by the A.O. without bringing on record the actual rebuttal. There is absolutely no other material in the hand of the A.O. of proving the addition in the hands of the assessee. Despite the assessee s request, the copy of information received from Australian tax Authority has not been given to the assessee. In these circumstances, the addition made, which is based upon the information from a foreign source, without confronting the same to the assessee and without any corroborative material is not at all sustainable. Deduction u/s 36(1)(vii) r.w.s. 36(2) - assessee has written off the balance loan outstanding in profit and loss account - company has not returned the loan to the assessee and it has become time barred - HELD THAT - We find that the assessee s claim is that the assessee has given a loan to a party in the course of business several years ago. Since, the party has not repaid the loan and it has requested its name to be struck off from the Register of company by ROC, the assessee has claimed it u/s.36(2) as bad debt. The revenue has held that this cannot be allowed as it was not a debt which has been written off. We note that if a loan is no longer recoverable that can be considered as a loss and allowed u/s.37(i) of the Act. Quoting a wrong section is not falal. Hence, the fact that the amount has become irrecoverable needs to be examined. Hence, we remit the issue to the file of the A.O. to examine the case of the assessee in light of our observation as above. Needless to add that the assessee should be given an opportunity of being heard.
Issues Involved
1. Addition of ?25,97,980/- under Section 69 based on information received from Australian Tax authorities. 2. Addition of ?30,00,000/- on account of loan written off through Profit & Loss account. Issue-wise Detailed Analysis Issue 1: Addition of ?25,97,980/- under Section 69 Facts of the Case: The case involved information received from the Australian Tax authorities regarding the transfer of funds by the assessee to his son and other family members through the hawala system. The Australian Taxation Office reported that the funds were used to purchase a property in Australia. The Assessing Officer (A.O.) added ?25,97,980/- to the assessee's income as unexplained investment under Section 69 of the Income Tax Act, based on the affidavit and statements given by the assessee and his son before the Australian Taxation Office. Assessee's Arguments: 1. No addition can be made based on mere information received from foreign authorities without any evidence on record. 2. The assessee argued that the transactions were between non-residents and outside the jurisdiction of the Indian Income Tax Act. 3. The assessee contended that the information from the Australian Tax authorities was not provided to him, and no independent verification was done by the Indian authorities. 4. It was argued that the addition under Section 69 was not justified as the investment was in the name of the son and the property was located in a foreign country. CIT(A) Findings: The CIT(A) confirmed the addition, holding that the affidavit submitted by the assessee to the Australian Tax Office clearly indicated that funds were transferred through hawala. The CIT(A) also noted that the funds were not recorded in the assessee's books of accounts and the nature and source of the funds were not conclusively proven. Tribunal's Decision: The Tribunal found that the addition was solely based on the statement of the assessee's son and the affidavit before the Australian Tax Authorities. The Tribunal noted that the assessee's rebuttal was not properly considered and the actual rebuttal was not on record. Moreover, the information from the Australian Tax Authority was not provided to the assessee. Hence, the Tribunal concluded that the addition based on foreign information without confronting the assessee and without corroborative material was not sustainable. The Tribunal cited several case laws supporting the assessee's position and deleted the addition. Issue 2: Addition of ?30,00,000/- on account of Loan written off through Profit & Loss account Facts of the Case: The A.O. noted that the assessee had written off ?30,00,000/- in the Profit & Loss account, which was claimed to be a loan given to a party that had become time-barred and irrecoverable. The A.O. held that the amount could not be written off as it was related to immovable property. Assessee's Arguments: The assessee argued that the loan was given in the course of business and had become irrecoverable, hence it was written off. The assessee provided the address and PAN of the party to whom the loan was given. CIT(A) Findings: The CIT(A) found that the amount involved was never credited to the Profit & Loss account in any earlier year. Referring to Section 36(2), the CIT(A) held that the debt was not taken into account in computing the income of the assessee in any previous year and did not represent money lent in the ordinary course of business. Hence, the deduction under Section 36(1)(vii) read with Section 36(2) was disallowed. Tribunal's Decision: The Tribunal noted that if a loan becomes irrecoverable, it can be considered a loss and allowed under Section 37(1) of the Act. The Tribunal remitted the issue back to the A.O. to examine the case in light of the Tribunal's observations, allowing the assessee an opportunity to be heard. Other Appeals (ITA Nos. 1435, 1436, and 1437/Mum/2018 for A.Y. 2011-12, 2012-13, and 2013-14) Facts: These appeals involved similar additions under Section 69 for different assessment years, based on the same information from the Australian Tax authorities. Tribunal's Decision: The Tribunal's adjudication in ITA No. 1434/Mum/2018 applied mutatis mutandis to these appeals. Hence, the issues were decided in favor of the assessee, and the additions were deleted. Final Outcome: ITA No. 1434/Mum/2018 was partly allowed, and all other appeals were allowed. The judgments were pronounced in the open court on 24.05.2021.
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