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 statements from DGIT investigation without conducting independent enquiries or providing cross-examination opportunity, violating natural justice principles. Assessee furnished adequate documentation including ledger confirmations, lenders' ITRs, balance sheets, and affidavits establishing identity, genuineness, and creditworthiness. CIT(A) properly exercised coterminous powers to examine evidence when AO failed to complete remand proceedings after six years. Assessee successfully discharged onus under section 68. Revenue's appeal dismissed.

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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.

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