2018 (8) TMI 1766 - AT - Income Tax

Tribunal upholds CIT(A)'s decision to delete addition under Section 68

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition under Section 68 of the Income Tax Act, disallowance ... Addition u/s. 68 - AO took the view that the assessee has introduced its unaccounted cash through the bogus loans - disallowance of interest expenditure and addition of commission payment - non-furnishing of documents relied upon by the AO and non-providing of opportunity to cross examine - Held that:- The assessing officer did not issue summons and instead relied upon the inferences drawn by the search officials. Hence, in our view, the decision rendered by Hon’ble Supreme Court in the case of Orissa Corporation (P) Ltd [1986 (3) TMI 3 - SUPREME COURT] will also come to the support of the assessee. Operative portion of the order passed by CIT(A) says that the first appellate authority has placed reliance on various other case laws also. In effect, CIT(A) has examined the documents furnished by the assessee and has held that the assessee has discharged the initial burden of proof placed upon it u/s 68 - He has also held that the non-furnishing of documents relied upon by the AO and non-providing of opportunity to cross examine the Shri Bhanwarlal Jain and others would make the addition to fail. Even in respect of documents relied upon by the AO, the Ld CIT(A) has found the same to be inadequate to warrant the additions made u/s 68 of the Act. Hence, we are of the view that the Ld CIT(A) has passed a reasoned order by considering the facts of the case, applicable case laws and has taken a justifiable view in this matter - thus confirm the order passed by Ld CIT(A) in deleting the addition of ₹ 24.75 crores made u/s 68 of the Act. Since we have confirmed the order of Ld CIT(A) in deleting the addition made u/s 68 of the Act, the interest disallowance is also liable to be deleted. - Decided in favour of assessee. Issues Involved:1. Addition under Section 68 of the Income Tax Act.2. Disallowance of interest expenditure.3. Addition of commission payment.Issue-Wise Detailed Analysis:1. Addition under Section 68 of the Income Tax Act:The Revenue's appeal contested the deletion of an addition of Rs. 24.75 crores made by the Assessing Officer (AO) under Section 68 of the Income Tax Act. The AO's addition was based on the findings from search and seizure operations in the case of Mr. Bhanwarlal Jain and his group, which revealed that they provided accommodation entries in the form of unsecured loans and bogus sale bills. The AO concluded that the assessee introduced unaccounted cash through bogus loans from entities linked to Mr. Bhanwarlal Jain. Despite the assessee providing comprehensive documentation to prove the genuineness of the loans, the AO did not furnish the requested documents or allow cross-examination of the individuals involved. The CIT(A) deleted the addition, stating that the assessee had discharged its initial burden under Section 68 by proving the identity, creditworthiness, and genuineness of the transactions. The CIT(A) also noted the AO's reliance on inadequate evidence and the violation of natural justice principles. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO failed to disprove the evidence provided by the assessee and improperly relied on statements and materials not confronted with the assessee.2. Disallowance of Interest Expenditure:The AO disallowed the interest expenditure claimed by the assessee on the alleged bogus loans. The CIT(A) deleted this disallowance, and the Tribunal upheld this decision. Since the addition under Section 68 was deleted, the disallowance of interest expenditure, which was consequential to the addition, was also deemed unjustified.3. Addition of Commission Payment:The AO estimated and added a commission expense of Rs. 59.40 lakhs, assuming that the assessee must have paid commission for availing the accommodation entries. The CIT(A) deleted this addition, and the Tribunal confirmed this deletion. The Tribunal reasoned that since the primary addition under Section 68 was deleted, the consequential addition of commission expenses also could not stand.The Tribunal's decision was based on several key points:- The assessee provided detailed documentation proving the genuineness of the loans.- The AO did not conduct further inquiries or disprove the evidence provided by the assessee.- The AO relied on materials and statements from the search operations without confronting the assessee or allowing cross-examination.- The principles of natural justice were violated as the assessee was not given access to the materials used against it.- The Tribunal emphasized the need for the AO to substantiate inferences drawn from search operations with corroborative evidence.Conclusion:The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s order that deleted the addition under Section 68, the disallowance of interest expenditure, and the addition of commission payment. The Tribunal's decision was grounded in the assessee's fulfillment of the initial burden of proof and the AO's failure to disprove the evidence or adhere to principles of natural justice.