2022 (3) TMI 672 - AT - Income Tax

Validity of reopening under section 147 - Reassessment based on information of investigation by search party on third, however, in revised grounds of appeal the assessee has raised altogether new grounds of appeal against re-opening - HELD THAT - We find that no such ground of appeal challenging the validity of reopening was raised. No application for raising such additional or legal grounds of appeal is filed before Tribunal. Therefore, raising of such revised or substituted grounds of appeal are not in order. However, we shall discuss such issue at later stage. Addition u/s 68 - assessee received unsecured loan - HELD THAT - The Hon ble Gujarat High Court in case of Pr.CITVs. Skylark Build 2018 (10) TMI 1513 - BOMBAY HIGH COURT held that when amount borrowed by the assessee as unexplained cash credit to make the addition by provisions of section 68, no addition can be made when such borrowing was repaid. Further, the Hon ble Gujarat High Court in case of CIT v. Ayachi Chandrasekhar Narsangji 2013 (12) TMI 372 - GUJARAT HIGH COURT also held that where the department has accepted repayment of loan in subsequent order, no addition was to be made in the current year for cash credit. We find that case of assessee is a better footing as the assessee received unsecured loan in the month of October and repaid the same in February, 2007 along with interest. Further, the Revenue has not disputed the payment of loan in the same assessment year. The Hon ble jurisdictional High Court in case of DCIT Vs Rohini Builders 2001 (3) TMI 9 - GUJARAT HIGH COURT held that when the Assessing Officer has not disallowed the interest in relation to credit in the assessment year and the assessee as deducted tax at source for the interest paid to the creditors, the Department is not justified in making addition under section 68 of the Act. When the unsecured loan has been paid within a short span of time for which the assessee has paid interest and deducted tax thereon. Therefore, the Assessing Officer was not justified in making addition under section 68. Thus, substantial ground of appeal is allowed.

Issues Involved:
1. Validity of reassessment under section 147 read with section 143(3) of the Income Tax Act.
2. Addition of ?1.50 Crores as unexplained cash credit under section 68 of the Income Tax Act.
3. Allegation of accommodation entry for money laundering.
4. Non-provision of cross-examination opportunity.
5. Levy of interest under sections 234A/B/C&D of the Income Tax Act.
6. Initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act.

Detailed Analysis:

1. Validity of Reassessment under Section 147 read with Section 143(3):
The assessee argued that the reassessment was based on information from the Investigation Wing, Mumbai, following a search action at a third party premises, and was simply a change of opinion. The Tribunal noted that the reassessment was initiated based on concrete information regarding the assessee being a beneficiary of bogus unsecured loans provided by Rajendra Jain Group. The Tribunal found that the Assessing Officer (AO) had duly recorded reasons for reopening and provided these to the assessee. Citing various judicial precedents, the Tribunal upheld the validity of the reassessment proceedings.

2. Addition of ?1.50 Crores as Unexplained Cash Credit under Section 68:
The AO treated the unsecured loan of ?1.50 Crores received and returned by the assessee during the year as unexplained cash credit under section 68. The assessee contended that it had discharged the primary onus by providing complete details, including the name, address, PAN, balance sheet, and return of income of the depositor. The Tribunal observed that the assessee had indeed provided sufficient documentary evidence to substantiate the loan transaction. Furthermore, the loan was repaid within the same financial year, and interest was paid after deducting tax at source. The Tribunal referred to precedents such as DCIT v. Rohini Builders and Pr. CIT v. Skylark Build, concluding that the addition under section 68 was unjustified since the loan was repaid within a short span of time.

3. Allegation of Accommodation Entry for Money Laundering:
The AO alleged that the loan was an accommodation entry to facilitate money laundering. The assessee argued that the loan was genuine, supported by documentary evidence, and repaid with interest. The Tribunal noted that the AO's conclusion was based on the statement of Rajendra Jain, which was later retracted. The Tribunal found that the AO failed to provide concrete evidence to substantiate the allegation of money laundering and that the transaction appeared genuine based on the available documentation.

4. Non-provision of Cross-examination Opportunity:
The assessee claimed that it was not provided an opportunity to cross-examine Rajendra Jain, whose statement was used against it. The Tribunal highlighted that the statement of Rajendra Jain was recorded during the assessment proceedings of the assessee's sister concerns, where similar loans were accepted as genuine. The Tribunal emphasized that the failure to provide an opportunity for cross-examination rendered the statement less credible and could not be solely relied upon for making the addition.

5. Levy of Interest under Sections 234A/B/C&D:
The assessee contested the levy of interest under sections 234A/B/C&D of the Income Tax Act. Given that the primary addition under section 68 was deleted, the Tribunal found the levy of interest to be unjustified.

6. Initiation of Penalty Proceedings under Section 271(1)(c):
The assessee argued that the initiation of penalty proceedings under section 271(1)(c) was unjustified. Since the Tribunal deleted the primary addition under section 68, it concluded that the initiation of penalty proceedings was also unwarranted.

Conclusion:
The Tribunal allowed the appeal of the assessee, deleting the addition of ?1.50 Crores made under section 68 and holding the reassessment proceedings to be valid. The Tribunal also found the levy of interest and initiation of penalty proceedings to be unjustified. The decision was announced on 14th March 2022.

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