2021 (6) TMI 417 - AT - Income Tax

Validity of assessment passed u/s.143(3) r.w.s. 153C - proof of incriminating material found as a result of search or not - addition u/s 68 - HELD THAT - In this case, the AO has made additions on the basis of statement recorded from one Shri V.K. Keshari without providing said statement to the assessee and also without providing an opportunity of cross examination, even though the assessee has sought for such cross examination, in contravention of principles of natural justice. Therefore, on this count additions made by the AO cannot be sustained. Addition u/s 68 - As per the findings of the ld.CIT(A), the assessee has filed name, address and PAN card of the company and its Directors. The assessee has also filed financial statements of loan creditors and their bank statements. As per financial statements, creditors are having sufficient source of income to establish creditworthiness of loan transactions with the assessee. Further, all loan transactions are routed through proper banking channels - the assessee has repaid said loans along with interest much before the date of initiation of search proceedings in the case of the assessee. As also an admitted fact that the assessee has obtained loans through Shri K.K. Parsuramka, a Chartered Accountant by profession and said loans are backed by equitable mortgage of immovable properties in favour of Shri K.K. Parsuramka, the person who arranged loans. From the above findings of the ld.CIT(A), it is very clear that the assessee had discharged its burden cast upon u/s.68 of the Act. In this case, the AO has made additions only on the basis of statement recorded from third party ignoring various evidences filed by the assessee to prove unsecured loans taken from said parties. Therefore, AO was erred in making addition towards unsecured loans and consequent interest paid on said loans u/s.68 - Appeal of revenue dismissed.

Summary

Issues Involved:
1. Validity of assessment under section 143(3) read with section 153C of the Income Tax Act, 1961.
2. Deletion of addition towards unexplained cash credit under section 68.
3. Deletion of disallowance towards interest claimed on the sum treated as unexplained cash credit.

Issue-wise Detailed Analysis:

1. Validity of Assessment under Section 143(3) read with Section 153C:
The assessee contended that the assessment under section 143(3) read with section 153C is invalid as it was completed without complying with statutory requirements. The assessee argued that the addition was made without any incriminating material found during the search, and the assessing officer (AO) failed to record the necessary satisfaction as required under section 153C before issuing the notice. The Tribunal observed that the proceedings under section 153C were initiated based on documents seized and statements recorded during the search. The AO also relied on statements from third parties during the search in Kolkata. The Tribunal upheld the validity of the assessment, rejecting the assessee's legal ground.

2. Deletion of Addition towards Unexplained Cash Credit under Section 68:
The AO made an addition towards unsecured loans taken from various companies, treating them as unexplained cash credits under section 68 due to the assessee's failure to prove the identity, genuineness, and creditworthiness of the parties. The CIT(A) deleted the addition, noting that the AO relied on third-party information without providing an opportunity for cross-examination, violating principles of natural justice. The CIT(A) found that the assessee had discharged its burden by submitting necessary details, including the name, address, PAN numbers, financial statements, and bank statements of the creditors, proving the genuineness and creditworthiness of the transactions. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO's addition based on third-party statements without cross-examination was unjustified.

3. Deletion of Disallowance towards Interest Claimed on the Sum Treated as Unexplained Cash Credit:
The AO disallowed the interest claimed by the assessee on the sum treated as unexplained cash credit. The CIT(A) deleted the disallowance, noting that the loans were backed by equitable mortgage of immovable properties, and the assessee had repaid the loans along with interest before the initiation of search proceedings. The Tribunal upheld the CIT(A)'s decision, stating that the assessee had provided sufficient evidence to prove the genuineness of the transactions and the creditworthiness of the creditors. The Tribunal also noted that the AO failed to provide an opportunity for cross-examination of the third parties whose statements were used against the assessee.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the cross-objection filed by the assessee. The Tribunal upheld the CIT(A)'s decision to delete the additions made by the AO towards unexplained cash credits and the disallowance of interest claimed on those sums. The Tribunal emphasized the importance of providing an opportunity for cross-examination and adhering to principles of natural justice.