2022 (7) TMI 848 - AT - Income Tax

Tribunal Overturns AO's Section 68 Additions, Emphasizes Need for Incriminating Evidence

The Tribunal allowed all the appeals filed by the assessees, directing the AO to delete the additions made under section 68 of the Income Tax Act, 1961. ... Assessment u/s 153A - Addition u/s 68 - unsecured loans - No identity of the contributor/creditor as well as the genuineness of the transactions provided - search operation under section 132 - HELD THAT:- In the absence of incriminating material found as a result of search, no addition can be made in the assessment completed under section 143(3) r.w.s. 153A/153C of the Act, if such assessments are unabated on the date of search. See Meeta Gutgutia [2018 (7) TMI 569 - SC ORDER] In this case, there is no dispute with regard to the fact that the search was conducted on 18.12.2012 and as on date of search assessment for the assessment year 2011-12 is unabated and thus in the absence of any incriminating material, no addition can be made including the addition of share capital under section 68 of the Act. In this case, if we go through the addition made under section 68 of the Act, we find that there is no reference to any incriminating material and thus, we are of the considered opinion that the addition made under section 68 of the Act cannot be sustained and thus, we direct the Assessing Officer to delete the addition made in respect of share capital under section 68 of the Act in the case of Shri Pankaj Agarwal, Smt. Shobha Agarwal and Smt. Rita Agarwal. We find that the sole basis for the Assessing Officer to make the addition under section 68 of the Act is that investigation carried out by the Income Tax Department on certain entry providers and statement recorded from them. Except this, no other evidence was available with the Assessing Officer to prove that share capital received from M/s. Kaner Investments Ltd. is accommodation entry taken to convert unaccounted income of the assessee. On the other hand, the assessee has filed all the evidences including name and address of the creditors, confirmation from the parties, financial statements, etc. to prove the identity of the creditor and also filed necessary bank statement to prove the genuineness of the transaction. Further, the investing company has sufficient source to explain the investment made to the assessee company. From the above what is clear is that the assessee has discharged the onus cast upon her as per the provisions of section 68 of the Act by filing necessary evidences. Therefore, once it is proved that the assessee has discharged her onus, then the onus shift to the Assessing Officer to prove otherwise. In this case, except statement of third party, the Assessing Officer does not have any other evidence to justify the accommodation entry was provided to the assessee. In this case, the Assessing Officer has made the addition only on the basis of the information received from the Investigation Wing ignoring all the evidences filed by the assessee and thus, the Assessing Officer has erred in making the addition under section 68 of the Act. Accordingly, we direct the Assessing Officer to delete the addition made under section 68 of the Act. - Appeal of assessee allowed. Issues Involved:1. Confirmation of addition made under section 68 of the Income Tax Act, 1961.2. Jurisdiction of the Assessing Officer in completing the assessment under section 143(3) r.w.s. 153A of the Act in the absence of any incriminating material seized.3. Right of cross-examination of witnesses whose statements were relied upon by the Assessing Officer.Issue-wise Detailed Analysis:1. Confirmation of Addition Made Under Section 68 of the Income Tax Act, 1961:The primary issue in all the appeals was the confirmation of addition made under section 68 of the Income Tax Act, 1961. The Assessing Officer (AO) had made an addition of Rs. 1,25,00,000/- under section 68, treating the unsecured loans received by the assessee as unexplained credits. The AO's conclusion was based on the investigation report which indicated that the lender, M/s. Echolac Vinimay Pvt. Ltd., was a shell company used for providing accommodation entries. The AO observed that the lender did not have sufficient funds and operated through dummy directors controlled by an accommodation entry operator.The assessee contended that the identity, creditworthiness, and genuineness of the transactions were established through various documents, including bank statements, financial statements, and incorporation details. The assessee also argued that the right to cross-examine the witnesses whose statements were used against them was denied, thus violating the principles of natural justice.The Tribunal noted that the AO had relied on statements from third parties and general modus operandi of shell companies without providing concrete evidence directly linking the assessee to the alleged accommodation entries. Furthermore, the Tribunal emphasized that the assessee had provided sufficient documentation to establish the genuineness of the transactions. Therefore, the Tribunal directed the AO to delete the addition made under section 68 in respect of the share capital.2. Jurisdiction of the Assessing Officer in Completing the Assessment Under Section 143(3) r.w.s. 153A of the Act in the Absence of Any Incriminating Material Seized:The assessee challenged the jurisdiction of the AO in completing the assessment under section 143(3) r.w.s. 153A of the Act, arguing that no incriminating material was found during the search. The Tribunal referred to various judicial pronouncements, including the decisions of the Hon'ble Bombay High Court and the Hon'ble Delhi High Court, which held that no addition could be made in the absence of incriminating material if the assessment was unabated on the date of search.The Tribunal observed that in the present case, the assessment for the assessment year 2011-12 was unabated as on the date of search. There was no reference to any incriminating material in the addition made under section 68. Therefore, the Tribunal concluded that the addition could not be sustained and directed the AO to delete the addition.3. Right of Cross-Examination of Witnesses Whose Statements Were Relied Upon by the Assessing Officer:The assessee argued that the AO's reliance on statements from third parties without providing an opportunity for cross-examination was unjust. The Tribunal acknowledged the importance of the right to cross-examine witnesses but also noted that this right is not absolute. The Tribunal referred to the decision in the case of Soman Sun Citi Vs JT. CIT (ITAT Mumbai), which held that the right to cross-examine becomes absolute only if the assessee has discharged its primary onus.In the present case, the Tribunal found that the assessee had provided sufficient evidence to discharge the primary onus. The AO's reliance on statements from third parties without corroborative evidence was not justified. Therefore, the Tribunal concluded that the assessee's claim for cross-examination was tenable, and the addition made based on such statements could not be sustained.Conclusion:The Tribunal allowed all the appeals filed by the assessees, directing the AO to delete the additions made under section 68 of the Income Tax Act, 1961. The Tribunal emphasized the importance of incriminating material for making additions in search assessments and upheld the right of the assessee to cross-examine witnesses whose statements were used against them.