2024 (2) TMI 274 - AT - Income Tax

Revenue fails to prove unsecured loans from shell companies despite complete documentation provided by assessee

Income Tax Officer, Ward-1 (1) (1), Ahmedabad Versus M/s Aashna Developers Pvt. Ltd., Ahmedabad

ITAT Ahmedabad dismissed Revenue's appeal regarding addition of unsecured loans from alleged shell companies. The assessee provided complete documentation ... Addition of unsecured loan taken from shell/paper companies - assessee company during the year has accepted unsecured loans from certain parties - material collected during the search at third party premises - as alleged by the AO that the parties from whom unsecured loans were accepted by the assessee are paper/shell companies and managed by the entry provider - as argued search materials and statement relied upon by the AO for making addition against the assessee were neither supplied to the assessee - CIT(A) deleted the additions. HELD THAT:- The entire thrust of the AO for treating the unsecured loan as unexplained cash credit was materials collected during the search proceeding from the premises of entry provider and his statement recorded during the search. However, we note that the learned CIT(A) has given categorical finding that the search materials and statement relied upon by the AO for making addition against the assessee were neither supplied to the assessee for rebuttal nor the opportunity of cross examination of Shri Mukesh Banka has been provided. It is settled position of law that not providing the material used against the assessee for rebuttable and opportunity of cross examination of the statement relied upon by the AO will vitiate the validity of the assessment. See Andaman Timber Industries vs. CCE [2015 (10) TMI 442 - SUPREME COURT] Onus to prove - Assessee in support of genuineness of loan have furnished all the necessary documents such as ledger of parties, contra ledger from the parties and confirmation, ITRs, bank statements and annual reports. However, the AO without pointing out any infirmity and application of mind on those documentary evidence, treated the loan amount as unexplained cash credit by relying upon the statement recorded and material collected during the search at third party premises and that too without providing the opportunity of rebuttal and cross examination. Hon’ble Supreme Court in the case of CIT vs. Odeon Builders Pvt Ltd [2019 (8) TMI 1072 - SUPREME COURT] has confirmed the concurrent finding of learned CIT(A), the ITAT and the High court in favour of the assessee. Once the assessee submits primary evidence with regard to identity and credit worthiness of creditor and the genuineness of the transaction the onus shifts on the AO to consider the material provided and make independent inquiry in order to find out genuineness of the evidence or bring material contrary to fact explained by the assessee. The AO cannot reject the primary evidence furnished by the assessee without appreciating the facts available on record or without bringing contrary material to form the belief that primary document or explanation furnished by the assessee is not satisfactory. Undeniably, the assessee during the assessment proceeding in support of genuineness of credit of unsecured loans has furnished ledger of parties, contra ledger from the parties and confirmation, ITRs, bank statements and annual report of parties along with their affidavit. The AO in assessment order has nowhere referred to any independent inquiry of whatsoever made to disprove the primary evidence provided by the assessee and not pointed out any infirmity in those evidence. As such, the AO merely on the basis statement of entry provider which has been retracted subsequently held the unsecured loans as unexplained cash credit. Thus approach taken by the AO is not justified. As such the AO failed to appreciate the facts, evidence provided, and case laws relied upon by the assessee company. Assessee company has taken loan through banking channel and repaid the same in the next year along with interest through banking channel and deducted TDS on the interest. It is also important to note that the interest has been allowed by the AO during the assessment which has direct nexus on the loan in dispute. As such the AO has taken a contrary stand. Thus, the loan amount of cannot be made subject to addition under the provisions of section 68 - Appeal of the Revenue is hereby dismissed. Issues Involved:1. Deletion of addition of unsecured loan taken from shell/paper companies.2. Violation of principles of natural justice.3. Application of Section 68 of the Income Tax Act, 1961.Summary:1. Deletion of Addition of Unsecured Loan:The only issue raised by the revenue is that the learned CIT(A) erred in deleting the addition of unsecured loan taken from shell/paper companies managed by Shri Mukesh Banka amounting to Rs. 6,74,81,741/-. The AO alleged that the assessee company accepted unsecured loans from paper/shell companies controlled by Shri Mukesh Banka, based on evidence found during search proceedings and statements recorded under section 132(4) of the Act. The AO treated these loans as unexplained cash credit under section 68 of the Act. However, the assessee provided documents such as ledger copies, confirmation letters, bank statements, ITRs, and annual reports to support the genuineness of the loans and argued that the loans were genuine intercorporate deposits repaid with interest in the next year. 2. Violation of Principles of Natural Justice:The CIT(A) deleted the addition made by the AO, noting that the materials and statements relied upon by the AO were neither supplied to the assessee for rebuttal nor was the opportunity for cross-examination of Shri Mukesh Banka provided. The CIT(A) emphasized that this constituted a clear violation of the principles of natural justice, as the show cause notice was not accompanied by the relevant material/information.3. Application of Section 68 of the Income Tax Act, 1961:The tribunal noted that the AO's decision was primarily based on third-party information and statements without independent verification or providing the assessee an opportunity for rebuttal. The assessee had furnished necessary documents to prove the genuineness of the loans. The tribunal highlighted that the AO failed to make independent inquiries or point out any infirmities in the evidence provided by the assessee. The tribunal referred to the Supreme Court judgment in CIT vs. P. Mohanakala, which mandates that the AO's opinion must be based on proper appreciation of material and other attending circumstances. The tribunal concluded that the AO's approach was unjustified and upheld the CIT(A)'s decision to delete the addition, noting that the interest on the loan was allowed by the AO, indicating a contradictory stance.Conclusion:The tribunal confirmed the CIT(A)'s findings and directed the AO to delete the addition, dismissing the revenue's appeal. The tribunal emphasized that the principles of natural justice were violated and the AO's approach lacked proper appreciation of the evidence provided by the assessee. The appeal of the revenue was dismissed, and the order was pronounced on 10/01/2024 at Ahmedabad.