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

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