2024 (7) TMI 1553 - AT - Income Tax

Assessee wins appeal as complete loan documentation satisfies section 68 requirements despite AO relying on retracted third-party statement

ITAT Mumbai allowed the appeal regarding reopening of assessment under section 147 and addition under section 68 for unsecured loans. The assessee had ... Reopening of assessment u/s 147 - addition u/s 68 of unsecured loans - HELD THAT:- AO has failed to make further enquiries and relied on the statement recorded, overlooking the factual aspects that the assessee has discharged the initial burden placed by furnishing the details. AR referred to the copy of details of unsecured loans provided by the lenders and subsequent repayment of loans along with the financial statements, confirmations and bank statements filed by the four unsecured loans creditors directly with the assessing officer in lieu of notice issued u/sec 133(6) of the Act in the assessment proceedings. Whereas the A.O has ignored the information, evidences and audited financial statements and unilaterally made addition u/sec 68 of the Act only on the basis of statement provided by third party without any iota of evidences discrediting the evidence furnished by the assessee and the statement of Shri Vipul Vidur Bhatt has been retreated which cannot use as reliable evidence. Information submitted by the assessee satisfied the three ingredients of provisions of Sec. 68 - the loan transactions are not believed and alleged as non genuine and treated as unexplained cash credit u/sec 68 of the Act and these unsecured loans were repaid through account payee / banking channels in the subsequent years which is not disputed. AR submitted that the assessee has substantiated the stand by submitting the details before the AO and CIT(A) and discharged the burden. We set-aside the order of the CIT(A) and direct the Assessing officer to delete the addition of unsecured loans and allow these grounds of appeal in favour of the assessee. Issues Involved:1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.2. Addition of Rs. 1,03,95,000/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961.3. Discharge of onus by the assessee regarding the genuineness, identity, and creditworthiness of loan creditors.4. Reliance on the statement of Shri Vipul Vidur Bhatt and its subsequent retraction.5. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Validity of the Notice under Section 148:The assessee challenged the reopening of the assessment under Section 148, arguing that the reasons recorded for reopening were arbitrary and lacked a rational basis. The assessee contended that the 'reason to believe' must be based on tangible material and not merely on suspicion or conjecture. The Tribunal noted that the Assessing Officer (AO) relied on information from the Investigation Wing, which alleged that the loans were accommodation entries. However, the details provided during the original assessment, such as loan confirmations and financial statements, were found genuine. The Tribunal referred to various judicial precedents, emphasizing that reopening should not be based on a mere change of opinion or suspicion.2. Addition of Rs. 1,03,95,000/- under Section 68:The AO added Rs. 1,03,95,000/- to the assessee's income, treating it as unexplained cash credit under Section 68. The assessee argued that it had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the loan creditors, including confirmations, bank statements, and financial statements. The Tribunal observed that the AO disregarded these documents and relied on the statement of Shri Vipul Vidur Bhatt, which was later retracted. The Tribunal noted that the loans were repaid in subsequent years, and the creditors had responded to notices under Section 133(6). The Tribunal held that the assessee discharged its burden of proof, and the AO's addition was unsustainable.3. Discharge of Onus by the Assessee:The assessee provided evidence such as loan confirmations, bank statements, and financial statements to substantiate the genuineness, identity, and creditworthiness of the loan creditors. The Tribunal noted that the AO failed to bring any cogent evidence to rebut the assessee's submissions. The Tribunal emphasized that the assessee had discharged its primary onus, and the AO's reliance on a third-party statement without corroborative evidence was insufficient to justify the addition.4. Reliance on the Statement of Shri Vipul Vidur Bhatt:The AO relied on the statement of Shri Vipul Vidur Bhatt, who allegedly provided accommodation entries. The assessee argued that the statement was retracted and lacked specific reference to transactions with the assessee. The Tribunal observed that the AO did not provide an opportunity for cross-examination and failed to corroborate the statement with independent evidence. The Tribunal held that reliance on a retracted statement without further inquiry was against the principles of natural justice.5. Imposition of Penalty under Section 271(1)(c):The assessee contested the penalty imposed under Section 271(1)(c) for concealment of income. The Tribunal did not specifically address this issue in detail, as the primary focus was on the addition under Section 68. However, given the Tribunal's decision to delete the addition, the basis for the penalty would likely be affected.Conclusion:The Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition of Rs. 1,03,95,000/- under Section 68. The Tribunal held that the assessee had adequately demonstrated the identity, creditworthiness, and genuineness of the loan creditors. The Tribunal emphasized the importance of following principles of natural justice and not relying solely on retracted statements without corroborative evidence. The grounds related to the validity of reassessment proceedings were left open, as the decision on merits rendered them academic.