2024 (1) TMI 649 - AT - Income Tax

Revenue's appeal dismissed for section 68 addition on cash loans without proving undisclosed income source

The ITAT Mumbai dismissed the Revenue's appeal regarding addition under section 68 for unexplained cash loan and interest income. The AO made additions ... Addition u/s 68 - Cash loan and interest income earned on such cash loan unexplained - assessee submitted no addition could be made on the basis of the third party evidence unless copy of the same is provided to the assessee - HELD THAT:- As contention of the AO that cash loan would had been extended out of accumulated cash balance by way of showing low house withdrawals, can’t withstand. Further, it is not understandable as how the cash loan are unexplained, when the AO has not indicated any source of cash accumulation as from undisclosed sources, thus, even otherwise extending of such cash loans out of accumulated cash balance (presumably out of cash saved by way not showing full household withdrawal) does not justify for addition u/s 68. Thus, in our opinion, there no circumstances evidences, which indicate or establish that the assessee would have extended cash loan to ‘Wadhwa group’ except the statement of ‘Wadhwa group’ but no such documents in support of contention have been supplied to the assessee. Therefore, in view of the decision in the case of CIT v. Ashwani Gupta [2010 (2) TMI 42 - DELHI HIGH COURT] the action of the AO being in violation of principle of natural justice, the deletion of the addition by the CIT(A) is justified. We do not find any infirmity in the order of the Ld. CIT(A) in deleting the addition. The grounds of the appeal of the Revenue are accordingly dismissed. Issues Involved:1. Deletion of addition on account of cash loan and interest income.2. Validity of reassessment proceedings.3. Opportunity for cross-examination.Summary:Issue 1: Deletion of Addition on Account of Cash Loan and Interest IncomeThe Revenue challenged the deletion of an addition of Rs. 16,67,41,120/- made by the Assessing Officer (AO) on account of cash loan and interest income. The AO's addition was based on information from the Income Tax Settlement Commission, which indicated that the assessee had given cash loans to M/s Wadhwa Group and received interest income. The Ld. CIT(A) deleted the addition on the grounds that the assessee was not provided an opportunity for cross-examination, violating the principles of natural justice. The Tribunal upheld the Ld. CIT(A)'s decision, citing the Supreme Court's ruling in Anadaman Timber Industries vs. Commissioner of Central Excise, which emphasized the necessity of cross-examination when statements are used as the basis for an order. The Tribunal also referenced the Delhi High Court's decision in CIT v. Ashwani Gupta, reinforcing that additions based on third-party evidence without providing the assessee an opportunity for cross-examination are unsustainable.Issue 2: Validity of Reassessment ProceedingsThe assessee's cross-objections included challenging the validity of the reassessment proceedings under section 147 of the Income-tax Act, 1961. However, since the Tribunal upheld the deletion of the addition by the Ld. CIT(A), the grounds challenging the reassessment's validity were rendered academic and were not adjudicated upon.Issue 3: Opportunity for Cross-ExaminationThe Tribunal emphasized that the AO's reliance on circumstantial evidence without disclosing it to the assessee or providing an opportunity for cross-examination was against the principles of natural justice. The Tribunal noted that the AO failed to provide the material basis for the addition, and the assessee was not allowed to cross-examine the third party, which was a serious flaw making the order a nullity.Conclusion:The Tribunal dismissed the appeals of the Revenue and the cross-objections of the assessee for both assessment years 2015-16 and 2016-17. The deletion of the addition by the Ld. CIT(A) was upheld, and the reassessment's validity was not adjudicated due to the primary issue's resolution. The Tribunal's decision was pronounced in open court on 02/11/2023.