2024 (10) TMI 655 - AT - Income Tax

AO's addition of loans as unexplained cash credit under section 68 improper without independent enquiries or cross-examination opportunity

ITAT Chennai held that AO's addition of loans from two corporate entities as unexplained cash credit u/s 68 was improper. AO relied solely on third-party ... Unexplained cash credit u/s. 68 - assessee has purchased certain property and in the process, obtained loan from two corporate entities - borrowed staisfaction v/s independent application of mind - loan so obtained by the assessee has been utilized to purchase the properties and as assessee applied for certain bank loan which got delayed which led the assessee to obtain loan from these two corporate entities - CIT(A) deleted addition - Whether assessee discharged the onus as required to be discharged u/s 68? HELD THAT:- AO has added the loan so obtained by the assessee from two corporate entities as unexplained cash credit u/s 68 merely on the basis of third-party statement as recorded by DGIT (Inv.) in independent proceedings. No separate enquiries, whatsoever, have been conducted by Ld. AO to ascertain the genuineness of these loan transactions. AO has merely borrowed the findings of DGIT (Inv.) and on the basis of the same, alleged that the lenders lacked creditworthiness. The same is third-party statement in independent proceedings and no opportunity of cross-examination has ever been provided to the assessee to controvert the same. The same is in gross violation of principle of natural justice and the assessment so framed, in such a case, is liable to be treated as bad-in-law as per the decision of Andaman Timber Industries[2015 (10) TMI 442 - SUPREME COURT] holding that when the statements of witnesses are made basis of demand, not allowing assessee to cross-examine witnesses, is a serious flaw which makes order nullity, as it amounts to violation of principles of natural justice. Therefore, on this fact only, the assessment order is to be held as nullity. Violation of principles of natural justice - Assessee has furnished various documents during the course of appellate proceedings to establish the identity of the lender, genuineness of the transactions as well as creditworthiness of the lender as per the requirement of Sec.68. These include ledger confirmations, Income Tax Returns of lenders, Balance Sheet, affidavit of lenders confirming the payment of loan to the assessee. These additional evidences were subject matter of remand proceedings. Despite lapse of more than 6 years, the aforesaid report was never furnished / not forthcoming. Left with no option, Ld. CIT(A) proceeded to examine the claim of the assessee in the light of these additional evidences It is settled law that the powers of Ld. CIT(A) is coterminus with the powers of Ld. AO. If Ld. AO has failed to do something, it is well within the powers of Ld. CIT(A) to examine the claim of the assessee after conducting necessary enquiries and verification. The present case is exactly like this only wherein Ld. AO has failed to culminate remand proceedings and left with no option, Ld. CIT(A) went ahead with adjudication of the appeal. The aforesaid action is well within four corners of law and could not be faulted with. Even during hearing before us, no remand report has been shown to us. Onus as required under law was duly discharged by the assessee and the onus was on Ld. AO to rebut the same. There is nothing on record which would controvert the documents furnished by the assessee. As decided in the case of PCIT vs Ambe Tradecorp (P) Ltd. [2022 (7) TMI 902 - GUJARAT HIGH COURT] held that where the assessee took loan from two parties and the assessee had furnished requisite material showing identity of loan givers and that assessee was not beneficiary as loan was repaid in subsequent year, no addition under section 68 could be made on account of such loan. The same duly supports the adjudication of Ld. CIT(A). Decided against revenue. Issues:Addition made by Ld. AO u/s 68 as unexplained cash credit.Detailed Analysis:1. Assessment Proceedings:The case involves the addition of Rs. 5,05,00,000 as unexplained cash credit u/s 68 by the Ld. AO. The assessee had purchased a property and obtained loans from corporate entities. The AO considered these entities as lacking creditworthiness based on third-party statements without conducting separate inquiries. The AO added the loan amounts to the assessee's income as unexplained cash credit. Additionally, the AO estimated commission and made further additions under section 69C.2. Appellate Proceedings:During the appellate proceedings, the assessee submitted additional evidence to establish the genuineness of the transactions and the creditworthiness of the lenders. The Ld. CIT(A) noted that the loans were obtained due to delays in bank loan disbursement and were repaid promptly upon receiving the bank loan. Considering the documentary evidence provided by the assessee, the Ld. CIT(A) deleted the addition made by the AO u/s 68. The revenue appealed against this decision.3. Findings and Adjudication:The Tribunal found that the AO's reliance on third-party statements without allowing the assessee to cross-examine the witnesses was a violation of natural justice. The Tribunal also noted that the assessee had furnished various documents to establish the identity of the lenders and the genuineness of the transactions. The Tribunal held that the onus placed on the assessee under Sec. 68 was discharged, and the AO failed to rebut the same. The Tribunal referred to a Gujarat High Court case supporting the assessee's position and upheld the Ld. CIT(A)'s decision to delete the addition.4. Conclusion:The Tribunal dismissed the appeal, emphasizing that the assessment order was null and void due to the violation of principles of natural justice. The Tribunal upheld the Ld. CIT(A)'s decision based on the documentary evidence provided by the assessee, which demonstrated the genuineness of the transactions and the repayment of loans. The Tribunal found no reason to interfere with the Ld. CIT(A)'s decision and upheld the deletion of the addition made by the AO u/s 68.Judgment:The appeal was dismissed on 10th October 2024.