Assessee wins deletion of Rs. 99 lakh additions under section 69A due to lack of evidence and proper inquiry

ITAT Ahmedabad upheld CIT(A)'s deletion of additions totaling Rs. 99,00,000 under section 69A for unexplained money. For Rs. 90,00,000 addition, assessee denied transaction and provided bank statements while AO failed to furnish alleged information or conduct independent inquiry. Remand report lacked substantiation and no tangible evidence supported the addition. For Rs. 9,00,000 addition, loan repayment was evidenced through ledger accounts and bank statements, with source being advance from property sale verified in previous assessment year. AO could not refute documentary evidence in original or remand proceedings.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

(a) Whether the addition of Rs. 99,00,000/- under section 69A read with section 115BBE of the Income Tax Act, 1961, made by the Assessing Officer (AO) based on alleged accommodation entries and unexplained cash credits, was justified in the absence of conclusive evidence or documentary proof from the Revenue.

(b) Whether the transactions with M/s Dishman Pharmaceuticals & Chemicals Ltd. and M/s Mainak Comtrade Pvt. Ltd., entities alleged to be involved in accommodation entries, could be treated as unexplained money liable to tax under section 69A.

(c) Whether the Assessing Officer complied with principles of natural justice by providing the assessee with the material relied upon and granting opportunity of hearing, including the request for rescheduling the video conference hearing.

(d) Whether the repayment of Rs. 9,00,000/- to M/s Mainak Comtrade Pvt. Ltd. constituted unexplained income or was a genuine repayment of a loan taken in an earlier year, supported by credible evidence.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (b): Justification of addition under section 69A r.w.s. 115BBE based on alleged accommodation entries

The relevant legal framework involves section 69A of the Income Tax Act, which deals with unexplained money, and section 115BBE, which prescribes tax on income from unexplained sources. The AO relied on information obtained from search operations and investigations involving entities linked to accommodation entry providers, specifically M/s Dishman Pharmaceuticals & Chemicals Ltd. and M/s Mainak Comtrade Pvt. Ltd.

The AO's reasoning was that the assessee had entered into transactions totaling Rs. 99,00,000/- with these entities, which were not satisfactorily explained or substantiated, thus qualifying as unexplained cash credits. The AO also initiated penalty proceedings under section 271AAC(1) for concealment of income.

The assessee categorically denied the transaction of Rs. 90,00,000/- with Dishman Group, furnishing complete bank statements from two banks showing no such receipt or payment during the relevant financial year. The assessee requested the AO to provide the specific material or information on which the addition was based, asserting the requirement to confront such material as per principles of natural justice.

Regarding the Rs. 9,00,000/- transaction with Mainak Comtrade Pvt. Ltd., the assessee explained it was a repayment of a loan originally taken in F.Y. 2014-15, funded by an advance from the sale of immovable property. Ledger accounts and bank statements were submitted to corroborate this explanation.

The AO did not produce any independent evidence or third-party confirmation to rebut the assessee's claim. The remand report merely reiterated the original allegations without providing new or substantive material. The AO also failed to furnish the information allegedly relied upon, despite the assessee's repeated requests.

The Tribunal emphasized that additions under section 69A require tangible evidence and cannot be sustained merely on vague or unsubstantiated information, especially when the assessee has furnished credible documentary proof denying the transactions. The absence of any material furnished to the assessee or independently verified by the AO rendered the addition unsustainable.

Issue (c): Compliance with principles of natural justice and opportunity of hearing

The assessee requested a personal hearing through video conferencing to present oral submissions, including a request for rescheduling due to technical difficulties. The AO scheduled a video conference hearing on 15.03.2023, which the assessee could not attend due to technical issues and requested rescheduling. The AO did not effectively grant this request or provide an alternative opportunity.

The Tribunal noted that principles of natural justice require that the assessee be confronted with the material on which adverse findings are based and be given a reasonable opportunity to be heard. The failure of the AO to provide the material or reschedule the hearing amounted to a procedural lapse, undermining the validity of the addition.

Issue (d): Nature of Rs. 9,00,000/- transaction with M/s Mainak Comtrade Pvt. Ltd.

The assessee substantiated that the Rs. 9,00,000/- was a repayment of a loan taken in an earlier year and funded by an advance from the sale of immovable property. This was supported by ledger accounts and bank statements. Furthermore, the source of funds was verified in reassessment proceedings for the subsequent year (A.Y. 2019-20), where the reassessment was dropped after verification.

The AO failed to refute these facts or provide any contrary evidence. The Tribunal held that even assuming the transaction was in doubt, any addition could only be made in the year of acceptance of the loan and not in the year of repayment, as repayment does not constitute income.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"In absence of any material any additions based merely on some information, which is even not furnished to the assessee the impugned addition cannot be sustained."

"The repayment source was out of advance from sale of property which was also verified in proceedings for A.Y. 2019-20, where reassessment was dropped after verification. The AO failed to refute these facts either in the original proceedings or in remand."

Core principles established include:

• Additions under section 69A require credible, tangible evidence and cannot be based on vague or unsubstantiated information, especially when the assessee furnishes credible documentary proof.
• The principles of natural justice mandate that the assessee be confronted with the material relied upon and be given a reasonable opportunity of hearing, including rescheduling of hearings where justified.
• Repayment of a loan is not income and cannot be taxed as unexplained cash credit in the year of repayment.

Final determinations on each issue were:

(a) The addition of Rs. 90,00,000/- was deleted as the assessee successfully disproved the alleged transaction with Dishman Group through bank statements and the AO failed to produce any material to the contrary.

(b) The addition of Rs. 9,00,000/- was deleted as it was a genuine repayment of a loan supported by documentary evidence and verified in subsequent proceedings.

(c) The AO's failure to provide material and to grant effective opportunity of hearing was a procedural infirmity that vitiated the addition.

(d) Overall, the CIT(A)'s order deleting the additions was upheld, and the Revenue's appeal was dismissed for lack of fresh material or evidence.

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