2023 (1) TMI 966 - AT - Income Tax

Tribunal reverses CIT(A) decision, directs removal of loan additions, emphasizes cross-examination & verification

Super Iron Foundry Versus Assistant Commissioner of Income Tax, Circle-36 Kolkata

Super Iron Foundry Versus Assistant Commissioner of Income Tax, Circle-36 Kolkata - TMI Issues Involved:1. Confirmation of addition of Rs. 4,76,50,000/- on account of unsecured loan under Section 68 of the Income Tax Act.2. Confirmation of addition of Rs. 21,87,350/- on account of interest on the above unsecured loan.Issue 1: Confirmation of Addition of Rs. 4,76,50,000/- on Account of Unsecured Loan under Section 68 of the Income Tax ActThe assessee filed a return of income showing total income of Rs. 20,45,832/-. During the assessment proceeding, the Assessing Officer (AO) observed that the assessee had taken an unsecured loan from M/s. Fairplan Vincom Pvt. Ltd. amounting to Rs. 5,23,50,000/-. The AO issued notices under Sections 133(6) and 131 of the Act to verify the transaction, but they were returned unserved. The director of the investment company was eventually produced, and his statement was recorded under Section 131, wherein he admitted to arranging an accommodation entry for the assessee and charging a commission. Consequently, the AO added Rs. 5,23,50,000/- under Section 68 of the Act as unexplained cash credit along with interest of Rs. 21,87,350/-.In the appellate proceeding, the Ld. CIT(A) partly allowed the appeal, reducing the addition to Rs. 4,76,50,000/- after verifying that cheques worth Rs. 47,00,000/- were not cleared. The CIT(A) noted that the appellant did not cooperate with the AO and failed to produce the director of the lender company for cross-examination.The assessee argued that all necessary evidence was provided, including the name, PAN, bank statements, confirmation from the loan creditor, and other relevant documents. The assessee contended that the addition was based on a statement recorded behind their back, which was later retracted. The retraction affidavit stated that the loan was genuine and no cash was given in lieu of the loan. The assessee cited several judicial decisions emphasizing that additions cannot be made based on retracted statements without allowing cross-examination.The Tribunal observed that the assessee had provided substantial evidence supporting the loan transaction and noted that the assessment in the lender's case did not result in any addition. The Tribunal held that the addition based on a retracted statement without cross-examination was unsustainable. The Tribunal referred to various judicial decisions, including Andaman Timber Industries Vs. CIT, where it was held that cross-examination is essential for the credibility of statements used against the assessee.Issue 2: Confirmation of Addition of Rs. 21,87,350/- on Account of Interest on the Above Unsecured LoanThe AO added Rs. 21,87,350/- as interest on the unsecured loan, which was also confirmed by the CIT(A). The assessee argued that the interest was paid after deducting tax at source and that all relevant documents were provided to support the genuineness of the transaction. The Tribunal, considering the same facts and legal principles applied to the unsecured loan, directed the AO to delete the addition of interest as well.Conclusion:The Tribunal set aside the order of the CIT(A) and directed the AO to delete the additions of Rs. 4,76,50,000/- and Rs. 21,87,350/-. The Tribunal emphasized the importance of cross-examination and the inadmissibility of retracted statements without proper verification, aligning with the principles of natural justice and various judicial precedents.