2019 (2) TMI 282 - AT - Income Tax

Tribunal rules loan genuine, rejects third-party statements. Cross-examination crucial in tax cases.

Smt. Ritu Kamal Singhal Versus Income Tax Officer-24 (3) (4), MUMBAI

The tribunal ruled in favor of the assessee, finding that the loan of Rs. 20,00,000/- was genuine and properly documented through various supporting ... Addition u/s 68 - unsecured loan treated as unexplained fund - addition on the basis of the statement of Shri Bhanwarlal Jain Group without providing to the assessee an opportunity of cross examination - denial of natural justice - Held that:- The assessee has brought on record, PAN of the loan creditor and evidence of filing of Income Tax return. AO has also noted that notice u/s 133(6) was issued to the lender company and reply is also received. Hence, the assessee has established the identity of the loan creditor in question. In respect of creditworthiness of the said loan creditor, the assessee has brought on record, the audited balance Sheet of the said company, relevant bank statement and as per this balance sheet, the net worth of this company is ₹ 83.34 lacs and the loan amount in question is only ₹ 20 lacs. It has to be accepted that the creditworthiness of the said loan creditor is also established at least prima facie. Regarding genuineness of the transaction in question, the assessee has brought on record bank statement and loan confirmation to establish that the loan was received by account payee cheque and it was returned in the next year by account payee cheque. Hence, genuineness of the transaction in question is also established at least prima facie. AO has come to a different conclusion mainly . Hence, it is seen that except the statement of Shri Bhanwarlal Jain Group, there is no adverse material brought on record by the AO. No shortcoming is pointed out in various documents brought on record by the assessee to establish the identity and credit worthiness of the loan creditor and genuineness of the transaction as noted above. Since, the AO has not provided an opportunity of cross examination of Shri Bhanwarlal Jain Group, the adverse statements of that group cannot be used against the assessee. Case of KISHINCHAND CHELLARAM VERSUS COMMISSIONER OF INCOME-TAX, BOMBAY CITY II [1980 (9) TMI 3 - SUPREME COURT] to be followed. - Decided in favour of assessee. Issues Involved:1. Addition of unsecured loan as unexplained fund.2. Consideration of submission/documentary evidence.3. Opportunity for cross-examination of third-party statements.Detailed Analysis:1. Addition of Unsecured Loan as Unexplained Fund:The primary issue is the addition of Rs. 20,00,000/- as an unexplained fund by the Commissioner of Income Tax (Appeals). The assessee contended that the loan was genuine, received from M/s. Tanika Commodities Pvt. Ltd., and repaid in the subsequent year. The loan was received through normal banking channels, supported by various documents such as the lender's ITR acknowledgment, ledger copy, loan confirmation, and relevant bank statements.2. Consideration of Submission/Documentary Evidence:The assessee argued that the assessing officer ignored vital facts and documentary evidence proving the genuineness of the transaction, identity of the lender, and creditworthiness of the investor. The documents included the lender's PAN, CIN, income tax return acknowledgment, audited balance sheet, and bank statements. The assessee also highlighted that the lender confirmed the loan under section 133(6) to the assessing officer. The appellant emphasized that the net worth of the lender company was Rs. 83.34 lakhs, significantly higher than the loan amount, thus proving the lender's creditworthiness.3. Opportunity for Cross-Examination of Third-Party Statements:The assessee requested an opportunity to cross-examine any party whose statement was recorded at the back of the assessee. The assessing officer based the addition on the statement of Shri Bhanwarlal Jain, recorded during a search, which alleged that the loan was an accommodation entry. The assessee argued that without the opportunity for cross-examination, such statements could not be used against them, citing the Supreme Court judgment in Kishan Chand Chellaram vs. CIT. The tribunal agreed, noting that the assessing officer did not provide an opportunity for cross-examination, making the adverse statements unreliable.Conclusion:The tribunal concluded that the assessee had established the identity, creditworthiness, and genuineness of the transaction through documentary evidence. The assessing officer's reliance on third-party statements without providing an opportunity for cross-examination was improper. Therefore, the addition of Rs. 20,00,000/- as an unexplained fund was deleted, and the appeal was allowed in favor of the assessee.