2023 (2) TMI 1408 - AT - Income Tax

Revenue authorities cannot add unexplained credit under Section 68 without proving fabrication claims despite rejecting evidence

ITAT Ahmedabad allowed the assessee's appeal against addition under Section 68 for unexplained credit. Revenue authorities alleged fabrication of sale ... Unexplained credit u/s 68 - fabrication of sale bill and copy of ledger bill - HELD THAT:- As assessee has filed confirmation copy of sale bill, copy of ledger bill account but the remark of the AO that same was fabricated has not been substantiated by the AO in the assessment order as well as by the CIT(A). The statement of fact filed by the assessee has given the details about confirmation from SVP Corporation, Sales Bill, Stock Register, PAN Card of proprietor (Vishal Pandya), Sales Register, Purchase Register etc. In fact, the accounting entries are passed in Bank book, Sales register and Stock register were duly recorded by the assessee in its books of accounts as per the statement of facts filed by the assessee. All these contentions were not taken into account by the AO as well as CIT(A). The observation of the AO as well as CIT(A) that the documents were fabricated was not established by the revenue authorities at any point of time and merely rejecting the evidences filed by the assessee cannot be sole criteria for making addition. Therefore, the addition does not sustain. Hence, the appeal of the assessee is allowed. The core legal questions considered by the Appellate Tribunal (AT) in this appeal are:1. Whether the Assessing Officer (AO) violated the principles of natural justice by not providing the assessee an opportunity to cross-examine the person whose statement was relied upon for making additions.2. Whether the AO had valid jurisdiction to pass the assessment order in the absence of an order under Section 127 of the Income Tax Act.3. Whether the invocation of Section 115BBE of the Income Tax Act was justified when the transactions occurred prior to the insertion of this provision.4. Whether the addition made under Section 68 of the Act amounting to Rs. 31,81,000/- was justified.5. Whether the order passed by the Commissioner of Income Tax (Appeals) (CIT(A)) was erroneous in upholding the assessment order.Issue-wise Detailed AnalysisIssue 1: Alleged violation of the principle of natural justice by not allowing cross-examinationThe legal framework mandates that principles of natural justice, including the right to cross-examine witnesses or persons whose statements are relied upon, must be adhered to during assessment proceedings. The assessee contended that the AO violated this principle by not allowing cross-examination of the person whose statement was the basis for the addition.However, the Tribunal noted that the assessee did not raise this issue substantively before the CIT(A), nor was any evidence placed on record to establish prejudice caused by such omission. Moreover, the assessment order and appellate order did not indicate any procedural irregularity or denial of opportunity. The Tribunal did not find merit in this ground as the assessee failed to substantiate the claim of violation of natural justice.Issue 2: Jurisdiction of AO in absence of order under Section 127Section 127 of the Income Tax Act deals with the transfer of cases from one AO to another. The assessee argued that the AO lacked jurisdiction as no order under Section 127 was passed. The Tribunal examined the assessment record and found that the AO had jurisdiction over the assessee for the relevant assessment year. No evidence was furnished by the assessee to demonstrate that the AO was not competent to pass the order. The Tribunal held that the contention was without basis.Issue 3: Applicability of Section 115BBE to transactions prior to its insertionSection 115BBE prescribes a special rate of tax on unexplained income or investment. The assessee contended that invocation of this section was erroneous as the transactions occurred prior to the insertion of this provision into the statute.The Tribunal observed that the assessment year under consideration was 2017-18, and Section 115BBE was inserted with effect from assessment year 2013-14 onwards. Therefore, the provision was applicable for the year under consideration. However, the Tribunal noted that the addition under Section 115BBE was not sustained since the addition under Section 68 itself was deleted (discussed below). Hence, this issue became infructuous.Issue 4: Validity of addition under Section 68 of Rs. 31,81,000/-Section 68 of the Income Tax Act requires that when any sum is found credited in the books of an assessee and the assessee fails to satisfactorily explain the nature and source of such sum, it is treated as unexplained credit and added to income.The AO made an addition of Rs. 31,81,000/- on the ground that the amount received from M/s. SVP Corporation was an accommodation entry and not genuine consideration for sale. The assessee refuted this allegation by submitting confirmation from SVP Corporation, copies of sale bills dated 13.11.2016, ledger accounts, PAN details of the proprietor, sales and purchase registers, and stock registers. The assessee contended that the amount was received as genuine sale proceeds and not as accommodation entries.The AO and CIT(A) rejected the explanation, alleging fabrication of documents, but did not substantiate this allegation with any material evidence. The Tribunal emphasized that mere rejection of the documents without any proof of fabrication cannot justify the addition. The Tribunal carefully examined the evidentiary material submitted by the assessee, including accounting entries in bank books, sales registers, and stock registers, all corroborating the genuineness of the transaction.The Tribunal held that the AO and CIT(A) failed to discharge the burden of proving that the documents were fabricated or the transaction was not genuine. The Tribunal applied the principle that the burden of proof lies on the revenue to establish that the credit is unexplained and not genuine. The Tribunal concluded that the addition under Section 68 was not sustainable and therefore deleted it.Issue 5: Legality of the CIT(A) order upholding the assessment orderThe CIT(A) had dismissed the assessee's appeal and upheld the addition. The Tribunal observed that the CIT(A) did not properly consider the detailed evidences and confirmations filed by the assessee. The Tribunal found that the CIT(A) merely concurred with the AO's findings without independently evaluating the material on record.The Tribunal held that such a mechanical approach was erroneous and that the CIT(A) ought to have given due weightage to the documentary evidence and explanations provided by the assessee. Consequently, the Tribunal reversed the CIT(A) order and allowed the appeal.Significant Holdings'The observation of the Assessing Officer as well as CIT(A) that the documents were fabricated was not established by the revenue authorities at any point of time and merely rejecting the evidences filed by the assessee cannot be sole criteria for making addition.''The accounting entries are passed in Bank book, Sales register and Stock register were duly recorded by the assessee in its books of accounts as per the statement of facts filed by the assessee.''The burden lies on the revenue to prove that the addition under Section 68 is justified; mere suspicion or conjecture cannot be the basis for addition.''The addition under Section 68 does not sustain in absence of any material to show that the transaction was not genuine.''The CIT(A) erred in not appreciating the evidences on record and in mechanically confirming the addition without proper evaluation.'The Tribunal conclusively held that the addition under Section 68 of Rs. 31,81,000/- was not sustainable due to lack of evidence of fabrication or unexplained credit. The appeal was allowed, and the addition deleted.