Unexplained loan credits via alleged paper entities under s. 68, evidence and cross-exam denial led to deletion

Addition under s. 68 for unexplained loans allegedly routed through benami/paper entities was examined in light of the assessee's evidence and the Revenue's reliance on search statements and seized material of an alleged accommodation-entry group. The Tribunal held that the assessee discharged the initial onus under s. 68 by producing primary documentation, and the AO neither rebutted it with positive evidence nor demonstrated perversity in the CIT(A)'s appraisal. Further, the AO based the addition solely on investigation inputs and s. 132(4) statements/seized documents that were not furnished to the assessee and without granting requested cross-examination, violating natural justice; consequently, the s. 68 addition was unsustainable and the Revenue's appeal was dismissed.

---

---

Issues: Whether the additions made by the Assessing Officer under section 68 of the Income-tax Act, 1961 namely (i) Rs. 1,00,00,000 on account of unsecured loans from M/s Ankita Exports and (ii) Rs. 9,14,301 (approx. Rs. 1,04,301) on account of interest paid on such loans are sustainable where the assessee produced documentary evidence and where the AO relied on information and statements from the investigation wing without providing the assessee copies of such material or opportunity to confront/cross-examine.

Analysis: The Tribunal examined whether the assessee discharged the initial onus under section 68 by producing confirmations, bank statements, PAN and audited financials of the creditors, and whether the AO produced positive material to controvert those documents. The Tribunal compared the facts with its earlier decision for AY 2012-13 where similar additions were deleted. It considered established authorities holding that material gathered in private inquiries or from investigation wings may not be used against an assessee unless disclosed and the assessee given an opportunity to explain or to cross-examine. The Tribunal found that the AO relied solely on information from the investigation wing and statements recorded under section 132(4) but did not furnish copies of such incriminating documents/statements to the assessee nor permit confrontation/cross-examination despite specific requests. The AO also did not bring positive evidence to rebut the documentary proof submitted by the assessee regarding identity, capacity and genuineness of the creditors. In these circumstances the Tribunal held that principles of natural justice were violated and that the additions could not be sustained.

Conclusion: The additions of Rs. 1,00,00,000 and Rs. 9,14,301 made under section 68 are unsustainable and are deleted; the Revenue's appeal is dismissed (decision in favour of the assessee).

---