Assessee wins appeal as Rs. 17 lacs addition under section 68 deleted for fully explained genuine banking transaction

ITAT Jaipur allowed the assessee's appeal, deleting the addition of Rs. 17 lacs made under section 68 for unexplained credit. The tribunal held that the deposit received on 13.11.2016 from Samsun Paul Gohil was fully explained as a genuine transaction through banking channels via RTGS. The source was already known to the department, making the addition under section 68 inappropriate since such additions require unexplained sources. The AO wrongly relied solely on investigation wing information without proper inquiry, and CIT(A) erred in confirming the addition without evidence of accommodation entry.

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Issues Involved
1. Disallowance of the addition of Rs. 17,00,000/- as unexplained credit.
2. Denial of opportunity to examine and cross-examine material evidence.

Issue-wise Detailed Analysis

1. Disallowance of the Addition of Rs. 17,00,000/- as Unexplained Credit
The appellant challenged the disallowance of Rs. 17,00,000/- added as unexplained credit under Section 68 of the Income Tax Act. The CIT(A) concluded that the amount credited to the appellant's account through RTGS was not substantiated with documentary evidence for the advance receipt for Dhaniya purchase. The CIT(A) further noted that the entity, M/s Bright Corporation, involved in the transaction, dealt in gold sales, rendering the transaction for agricultural commodities implausible. The investigation revealed that M/s Bright Corporation was a dummy concern providing accommodation entries, and the transaction was deemed a sham. The CIT(A) upheld the addition as unexplained credit, referencing the Supreme Court's decision in Sumati Dayal Vs Commissioner Of Income-Tax, emphasizing the need to consider human probabilities and surrounding circumstances.

2. Denial of Opportunity to Examine and Cross-Examine Material Evidence
The appellant argued that the addition was made based on the statement of a third party, Shri Samsun Paul Gohil, without providing the appellant an opportunity to cross-examine him. The appellant contended that the transaction was genuine, involving a trade advance for Dhaniya, which was later returned due to non-materialization of the deal. Despite requests, the AO did not provide the statement of Shri Samsun Paul Gohil or allow cross-examination, violating the principles of natural justice. The Tribunal noted that material gathered at the back of the assessee could not be used without cross-examination, citing several case laws, including Andman Timber Ind. Vs. Commission of Central Excise and COMMISSIONER OF INCOME TAX vs. BIJU PATNAIK, which emphasize the necessity of cross-examination to uphold the principles of natural justice.

Tribunal's Decision
The Tribunal found that the AO's action violated principles of natural justice by not providing the appellant with the statement of Shri Samsun Paul Gohil or the opportunity to cross-examine him. The Tribunal emphasized that the amount received by the appellant was through banking channels and was returned within a short period, indicating a genuine transaction. The Tribunal concluded that the source of the Rs. 17,00,000/- was adequately explained and should not be treated as unexplained credit. Consequently, the Tribunal directed the deletion of the addition of Rs. 17,00,000/- and allowed the appeal of the assessee.

Conclusion
The Tribunal allowed the appeal, holding that the addition of Rs. 17,00,000/- as unexplained credit was unjustified and violated principles of natural justice due to the denial of cross-examination. The Tribunal emphasized the need for fair opportunity and proper substantiation of claims, ultimately directing the deletion of the addition.

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