2022 (2) TMI 863 - AT - Income Tax

Addition u/s 68 - unsecured loans treated as unexplained credits - as per AO sole objective of providing accommodation entries and the creditworthiness of these parties along with the genuineness of the transactions have not been proved - directors of these companies were neither produced by the assessee before the AO nor did they present themselves for personal deposition in response to the summons issued u/s. 131 - HELD THAT - As gone through the details of all the 14 companies which have lent the amounts to the assessee. We have also gone through the details filed by various loan parties before the revenue authorities. After going through the entire details, we hold that the assessee has failed to undisputedly prove the genuineness of the loans or the creditworthiness of the parties. Revenue has also failed to conduct complete enquiries to bring much needed evidences on record. Hence, in the interest of justice to both the parties, we deem it proper to remand the matter to the file of the Assessing Officer with instructions to the Supervisory Officers to act in accordance with the provisions of the Income Tax Act in conducting the enquiries. Needless to say, the revenue shall follow principles of natural justice while concluding the proceedings. Appeal of the assessee is allowed for statistical purposes.

Issues Involved:
1. Rejection of appeal by CIT(A) based on surmise and conjectures.
2. Ignoring documentary evidence regarding identity, capacity, and financing of the amount.
3. Collection of documents by CIT(A) without giving the appellant an opportunity to respond.
4. Reliance on judgments with different facts and circumstances.
5. Drawing negative inferences from the material referred to in the appellate order.
6. Legality of the addition of ?40,29,22,500/- as unexplained credits.

Issue-wise Detailed Analysis:

1. Rejection of Appeal by CIT(A) Based on Surmise and Conjectures:
The assessee argued that the CIT(A) erred in rejecting the appeal without proper justification and based on assumptions. The CIT(A) concluded that the companies providing loans had no real business activity and were interconnected, showing frequent fund transfers and common shareholding patterns.

2. Ignoring Documentary Evidence Regarding Identity, Capacity, and Financing of the Amount:
The assessee contended that the CIT(A) ignored documentary evidence provided during assessment proceedings, which established the identity, capacity, and financing of the amount in question. The AO noted that the companies providing loans had either nil or marginal turnover and minimal profits, raising doubts about their creditworthiness.

3. Collection of Documents by CIT(A) Without Giving the Appellant an Opportunity to Respond:
The assessee claimed that the CIT(A) collected documents relating to the financing companies without giving them an opportunity to respond, drawing adverse inferences from these documents. The AO issued summons to the directors of these companies, none of whom complied, leading to adverse inferences regarding the genuineness of the transactions.

4. Reliance on Judgments with Different Facts and Circumstances:
The assessee argued that the CIT(A) relied on judgments that were not applicable to their case due to differing facts and circumstances. The AO observed that the companies had common directors, auditors, and registered addresses, suggesting they were shell companies providing accommodation entries.

5. Drawing Negative Inferences from the Material Referred to in the Appellate Order:
The CIT(A) drew negative inferences from the material referred to in the appellate order, concluding that the loan transactions were sham and the companies were engaged in money laundering. The AO highlighted that the assessee had no business activity, fixed assets, or loans from recognized financial institutions, raising doubts about the genuineness of the transactions.

6. Legality of the Addition of ?40,29,22,500/- as Unexplained Credits:
The AO treated the unsecured loans as unexplained credits under Section 68 of the Income Tax Act, adding ?40,29,22,500/- to the assessee's income. The AO concluded that the creditworthiness and genuineness of the transactions were not proved, as the directors of the lending companies did not appear for personal deposition, and the companies had no real business activity.

Conclusion:
The Tribunal reviewed the details and arguments presented by both parties and found that the assessee failed to prove the genuineness of the loans and the creditworthiness of the lending parties. However, the revenue also did not conduct complete enquiries to gather necessary evidence. Therefore, the Tribunal remanded the matter to the Assessing Officer for further investigation, instructing the supervisory officers to follow the provisions of the Income Tax Act and principles of natural justice.

Result:
The appeal of the assessee was allowed for statistical purposes, and the case was remanded to the Assessing Officer for further enquiry. The order was pronounced in the open court on 08/02/2022.

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