2024 (8) TMI 1597 - AT - Income Tax

ITAT upholds deletion of Section 69A addition for cash loans lacking proper verification and corroborative evidence

The ITAT Nagpur held that addition of cash loan under section 69A was unjustified. The assessee had disclosed brokerage income from cash loans in the ... Addition of cash loan u/s 69A - documents seized contain transactions which have been entered either through Cheques / Banking channels or Cash Transactions - HELD THAT:- A.R. had rightly placed before us the family profile of the assessee is quite moderate and it will be preposterous to thrust upon him to be the owner of such undisclosed investment. He has categorically submitted that assessment order is silent as to how the interest income added has been worked out. In case of search proceedings, there cannot be any extrapolation of income unless it is backed by cogent and reliable evidence. Application of section 69A of the Act was also misconceived according to him because the assessee was not found owner of any money or valuable. We actually fail to understand that when the assessee has disclosed the brokerage income from cash loans in the return of income under section 153C of the Act and the same having been accepted, it cannot be inferred that the assessee had introduced his own money in giving loans. Thus, the Revenue cannot take diametric opposite stand in same set of transactions. CIT(A) had cogently arrived at his conclusions which cannot be summarily dismissed. Moreover, we are in consonance with the reasoning that same documents cannot be interpreted differently for similar transactions. AO had simply kept his hands shut and did not conduct any enquiry to examine the veracity of the seized documents. It is not the case that the AO did not have the particulars of lenders before him. He did not understand the trite fact that an individual lender cannot earn brokerage from himself which is an impossible situation when the assessee had denied that his own funds were involved in cash loans, the Assessing Officer needed to controvert the same by unearthing some corroborative evidences which he had miserably failed to do so. There are absolutely no credible and reliable evidences to establish that entire loans in cash were from the undisclosed funds whereas loan in cheques were accepted to be that of person other assessee and his role as a conduit or a mere intermediary was established. It is quite natural that the assessee is in a vantage position to mediate for loans in cash also. Decided against revenue. ISSUES: Whether addition under section 69A of the Income Tax Act, 1961 can be made on cash loans advanced by the assessee when such loans are not recorded in the books of the assessee or borrowers and are evidenced only by documents seized during search under section 132.Whether interest income earned on such cash loans can be added to the assessee's income under section 69A.Whether the Assessing Officer (AO) was justified in treating cash loan transactions as undisclosed money of the assessee despite acceptance of cheque transactions as loans between lenders and borrowers.Whether the presumption under section 132(4A) applies to the entire contents of seized documents including both cheque and cash transactions.Whether the AO was required to collect corroborative evidence from borrowers to establish ownership of the cash loans by the assessee.Whether the discretion under section 69A to treat unexplained investments as income must be exercised judiciously and supported by cogent evidence.Whether the principle of reading seized documents as a whole precludes selective acceptance of parts of the documents. RULINGS / HOLDINGS: The deletion of addition of Rs. 87,00,000/- under section 69A on account of cash loans was upheld because the AO 'failed to adduce any evidence to establish that the money recorded in the documents seized ... belonged to the appellant' and the assessee's contention that the loans were advanced by third-party lenders was accepted.The addition of Rs. 1,25,25,852/- on account of interest income on cash loans was deleted as the seized documents did not reflect that the assessee received interest, and the AO did not collect any evidence from borrowers regarding interest payments to the assessee.The AO's acceptance of cheque transactions as loans between lenders and borrowers but rejection of the same contention for cash transactions was held to be inconsistent and erroneous; 'no different views can be taken for separate entries of the same documents.'The presumption under section 132(4A) applies to the entire contents of the seized documents, and 'a document found in search should be treated as genuine with respect to all the entries recorded therein.'The AO's failure to make inquiries or produce corroborative evidence to rebut the assessee's explanation shifted the burden back on the Department, which was not discharged.The discretion under section 69A is not mandatory ('the word 'may' used in the section, indicates a discretion') and must be exercised judiciously based on 'totality of circumstances and preponderance of probability.'Given the moderate family profile and lack of evidence of undisclosed wealth, the explanation that the cash loans were not the assessee's own money was accepted.Consequently, all additions under section 69A and related interest income additions for the assessment years 2016-17 to 2019-20 were dismissed. RATIONALE: The court applied the statutory framework of sections 69A, 132, and 132(4A) of the Income Tax Act, 1961, which govern unexplained investments, search and seizure operations, and presumption of truth of seized documents respectively.The court emphasized the principle that seized documents must be read as a whole, and selective acceptance or rejection of parts of the same document is impermissible.The judgment relied on precedents including rulings by various Tribunals and High Courts that finance brokers maintaining diaries of loans arranged are not liable to have such amounts taxed as their income under section 69/69A unless ownership is established.The court highlighted the discretionary nature of section 69A additions, referencing the Supreme Court decision that the assessing authority is not obliged to treat unexplained investments as income in every case where the explanation is unsatisfactory.The court noted the AO's failure to conduct meaningful inquiries or produce corroborative evidence to rebut the statutory presumption under section 132(4A) and to establish ownership of the cash loans by the assessee.The decision reflects a doctrinal adherence to principles of natural justice and evidentiary standards in search and seizure assessments, preventing arbitrary or inconsistent treatment of transactions recorded in seized documents.