2025 (7) TMI 1745 - AT - Income Tax

Additions under Sections 68 and 69 deleted without corroborative evidence; joint assessment valid under Section 159; capital loss allowed

Mrs. Malavika Hegde, L/R of Late Shri V.G Siddhartha Versus The Dy. Commissioner of Income Tax, Central Circle - 1 (3), Bangalore. And (Vice-Versa) And Mr. Amarthya Siddhartha, L/R of Late Shri V.G Siddhartha, Mr. Ishaan Hegde, L/R of Late Shri V.G Siddhartha Versus The Dy. Commissioner of Income Tax, Central Circle - 1 (3), Bangalore.

The ITAT Bangalore allowed the assessee's appeals on multiple grounds. Additions under sections 69 and 68 relating to unexplained investments and ... Addition u/s 69 - Unexplained investment - HELD THAT:- We find that there is force and substance in the claim of the assessee that the cash payable on account of purchase of shares to Shri M.M. Anandram or Premkumar M.A. family is adjusted against the cash consideration receivable on account of transfer of land to them. Accordingly, in our considered opinion the sources of cash investment to the extent of 3 crore/ Rs. 2,67,69,600/- in the shares of M/s Kumergode Estates Ltd has been explained. The provision of section 69 of the Act applies where assessee failed to offer explanation about the nature and sources of investment or the explanation offered found not satisfactory. In the case on hand the source of cash investment to the extent of Rs. 3 crores out of Rs. 11.625 crores accepted by the assessee is the amount receivable on account of land property by M/s Kumergode Estates Ltd or in other words, the amount payable on purchase of share was adjusted toward the amount’s receivable on account of transfer of land. Furthermore, the contention raised by the assessee about such adjustment of Rs. 3 crores in the manner discussed was nowhere doubted by the authorities below. As such no verification was carried out by the lower authorities despite having all the details of the parties and power under section 133(6)/ 131 of the Act. Therefore, in the given facts and circumstances no addition can be made in the hand of the assessee under section 69 of the Act. Hence the ground of appeal of the assessee is hereby allowed. Validity of the assessment order passed by the AO in the joint names of the legal heirs of late Assessee and the corresponding demand notice issued under section 156 - HELD THAT:- The provision of section 159 of the Act, provides that upon the death of an assessee, his legal representatives shall be liable to pay any tax due on behalf of the deceased. However, such liability is limited to the extent of the estate inherited by them. The legal representatives do not become personally liable beyond the value of the assets they receive from the deceased. In the present case, the AO has passed a single assessment order in the combined name of the three legal heirs—Smt. Malavika Hegde, Shri Amartya, and Shri Ishan—without issuing separate assessments for each legal representative. Additionally, only one demand notice has been issued collectively in the names of all three legal heirs. Thus, the argument of the assessee that the AO’s action results in an excessive tax burden and contradicts the principles of taxation is devoid of any merit. Since no separate or duplicate assessments have been made on each legal heir individually, the allegation of multiple tax assessments on the same income does not hold valid contention/ground. The AO’s approach merely consolidates the tax liability of the estate without imposing independent tax obligations on each legal heir. The provision of section 292B of the Act provides that minor error, omissions, or misdescriptions in an assessment order do not render it invalid, as long as the substance of the proceedings remains legally correct. Here, the AO’s approach is consistent with the statutory framework and judicial principles, ensuring that the liability is assessed at the estate level rather than imposing an undue burden on any single legal representative. While the appellants may dispute the quantum of tax liability, the procedural framework adopted by the AO does not suffer from a jurisdictional error that would render the assessment void. The assessment order is, therefore, legally valid. Hence, the additional ground of appeal raised by the assessee is hereby dismissed. Unexplained cash credit u/s 68 in an unabated assessment u/s 153A - There was no document of incriminating nature found by the revenue during the search pertaining to the year in dispute. Thus, in the absence of any incriminating material for the completed assessment year, the AO cannot acquire the jurisdiction to assess the total income which is settled position of law in the case of Abhisar Buildwell (P.) Ltd. [2023 (4) TMI 1056 - SUPREME COURT] and different Hon’ble High Courts. Accordingly, we hold that the addition made by the AO by treating the unsecured loan from 7 parties as unexplained cash credit is unsustainable in the given facts and circumstances. Hence, the ground of appeal of the assessee is hereby allowed. Unaccounted cash loan - the financial transactions forming the crux of the dispute—being cash movements and alleged interest payments— pertain squarely to MACEL and not to the individual assessee, Late Shri V.G. Siddhartha. The use of Shri Siddhartha's statement—given under presumed duress during a search and based on the unverified remarks of an employee—cannot alone be a conclusive basis for sustaining the addition. As such, the admissions made during search proceedings, especially when based on statements of employees and made without verification of accounting records, cannot be solely relied upon to justify additions, particularly where the transactions are later clarified and appropriately explained. The protective additions made in MACEL’s hands further reinforce that the real entity responsible for the questioned transactions is MACEL, not the assessee. Accordingly, we hold that the addition cannot be made in the hands of the assessee, as the transactions relate to MACEL, and there is no evidence proving otherwise. Similarly, the interest payments allegedly made to Shri Ankith and Shri Rachit are claimed to have been made out of cash withdrawn from MACEL's bank account through self-cheques. The assessee has clearly explained that these transactions were accounted for in MACEL’s books and not claimed as expenses by the assessee. Entries in question—made as journal debits to the proprietary concern of the assessee (Chethanhally D Estate)— represent subsequent internal adjustments within MACEL’s accounts and cannot establish the existence of actual third-party loans. The mere presence of such journal entries does not establish a link between the cash withdrawals and any benefit accrued to the individual assessee. In the absence of a direct nexus between the alleged interest payments and the individual, the onus lies on MACEL to explain the nature and source of these entries, not the assessee. No justifiable ground to sustain the addition on account of interest in the hands of the assessee. CIT(A) has rightly deleted these additions, and we find no reason to interfere with that conclusion. Disallowance representing the capital loss arising from the redemption of debentures - We hold that the assessee’s claim of capital loss is genuine and allowable under the law. The waiver of interest does not attract disallowance since the corresponding party has not claimed it as an expense. Moreover, the department cannot question the assessee’s business judgment or commercial decisions. We, therefore, set aside the orders of the learned CIT(A) and direct the AO to allow the claimed capital loss as per law. Hence the ground of appeal of the assessee is hereby allowed. Addition u/s 68 - treating the unsecured loan as unexplained cash credit - HELD THAT:- We find the CIT(A) before accepting the additional evidence provided sufficient opportunity to the AO. However, the AO besides opposing the admittance of additional evidence not pointed out any infirmity in such evidence. Therefore, in our considered opinion the CIT(A) rightly admitted such evidence and provided the appropriate relief to the assessee. Remaining loan credits, we note that assessee before us submitted that amount from these loan creditors were received through banking channels and further except for Rajesh Kamath and Preetha MC, the loan received from the other 8 individuals was repaid in full through banking channels. AR in this respect draws our attention to paper book where the ledger account, leger confirmation and bank statement are placed showing the loan amount were received through the banking channel and repaid in the year under consideration itself or in the subsequent years. Therefore, we are of the considered opinion that once it is established the unsecured loan was received through banking channel and subsequently repaid through the banking channel, the genuineness of such loan transaction cannot be questioned. We hold that addition in respect of loan credit from 8 parties. Receipt of loan of Rs. 60 Lakh from party namely Rajesh Kamath, considering the facts that loan amount received through banking channel and repaid through banking channel in subsequent years. The genuineness of such credit is established and addition made under section 68 of the Act cannot be sustained. Loan amount of Rs. 2 Preetha MC we note that the assessee has already provided name address and PAN of the impugned party. Therefore, considering the facts that the assessee has established the genuineness of almost entire loan credit we hold that assessee has discharged primary onus reading the credit of Rs. 2 lakh from Preetha MC. Unaccounted cash loan from Shri Chiman Lal - Additions made solely on the basis of uncorroborated statements are unsustainable in law. In the case of PCIT v. Best Infrastructure (India) Pvt. Ltd. [2017 (8) TMI 250 - DELHI HIGH COURT] held that mere admission in a statement without any independent evidence cannot justify addition. In the present case, the AO failed to conduct any further inquiry even after receiving a detailed reply supported by records. The AO did not attempt to examine the bank transactions, verify the accounting entries, or summon Shri Chiman Lal to confirm the nature of the transactions. Therefore, the approach of the AO, based solely on unverified and general statements, runs contrary to the settled principles of law. We concur with the findings of the learned CIT(A) that only the cash component of Rs. 1 crore admitted and disclosed in the return can be brought to tax. The addition of Rs. 2 crores for A.Y. 2015– 16 and the protective addition of Rs. 3 crores for A.Y. 2017–18 are not supported by cogent material evidence and are liable to be deleted. Accordingly, we uphold the order of the learned CIT(A) and direct the AO to delete the addition made by him. Hence, the ground of appeal of the Revenue is hereby dismissed. Addition of interest paid in cash - Addition made by the AO is based solely on the statement of Shri K.M. Deekshith, who admitted that interest was paid in cash on a loan of ₹12.75 crores from Shri Prakash B. Talreja. However, there was no evidence found during the search to prove that the interest was actually paid. No documents, records, or confirmations supported the statement. Also, the AO did not conduct any further independent inquiry to verify this claim. The assessee, Late Shri V.G. Siddhartha, had already admitted and offered the principal loan amount of ₹12.75 crores for taxation. The Learned CIT (A) rightly held that once the principal amount is taxed, there is no clear basis to assume interest was also paid, especially when there is no proof. Even if it is assumed that interest was paid, it could reasonably be considered to have been paid from the same loan amount that has already been taxed. In such a case, the assessee should get the benefit of 'telescoping', which means avoiding double taxation on the same funds. Addition made on account of unaccounted cash payment of interest to Mamta Ajila - addition of the AO is based solely on entries found in certain diaries seized during a search at the residence of Smt. Mamta Ajila, as well as her subsequent statement - HELD THAT:-We are of the view that the learned CIT(A) rightly observed that since Shri V.G. Siddhartha had passed away, the question of cross-examining Smt. Mamta Ajila could not arise. In the absence of any evidence found from the assessee’s side, and since the additions were made purely based on third-party statements and documents without the assessee's involvement or opportunity to respond, the learned CIT(A) rightly held that the addition was unjustified and deleted it. Agreeing with the order of ld. CIT(A), we find that the AO’s actions were procedurally flawed and lacked sufficient evidentiary support. Therefore, the deletion of the addition is upheld. Hence the ground of appeal filed by the Revenue is hereby dismissed. Addition u/s 69 - unexplained investment in the Athigere Estate - basis of the addition made by the AO was the voluntary admission made by late Shri V.G. Siddhartha under section 132(4) of the Act, wherein he offered the said amount as unaccounted income - HELD THAT:- As addition was made solely on the basis of an admission recorded during search, without corroborating it with independent material disproving the assessee’s explanation regarding the source, cannot be sustained in the eyes of law. The Hon’ble Courts have repeatedly held that while an admission is a relevant piece of evidence, it is not conclusive, and where an assessee is able to satisfactorily demonstrate with cogent material that the amount in question is duly explained, no addition ought to be made. In the present case, the assessee has successfully demonstrated that the cash payment of Rs. 50 lakh was made out of available recorded cash balance and there is no evidence to show otherwise. Therefore, in our considered opinion, the addition of Rs. 50 lakhs under section 69 of the Act is not justified. Consequently, the addition made by the AO and sustained by the learned CIT(A) is directed to be deleted. Hence the ground of appeal of the assessee is allowed. ISSUES: Whether addition under section 69 of the Income Tax Act for Rs. 3 crores on account of alleged unaccounted investment in shares of M/s Kumergode Estates Ltd. is justified.Validity of joint assessment order passed in the names of multiple legal heirs of a deceased assessee and whether the same income can be assessed substantively in the hands of all legal heirs simultaneously.Whether additions under section 68 of the Act treating unsecured loans as unexplained cash credits are sustainable in the absence of incriminating material found during search proceedings.Whether additions on account of alleged cash loans and interest payments to certain parties based on statements recorded under section 132(4) of the Act and seized documents are justified.Whether capital loss claimed on redemption of debentures is genuine and allowable despite initial admission under section 132(4) and subsequent retraction.Admissibility and consideration of additional grounds of appeal raised for the first time before the Tribunal.Whether additions on account of cash found during search at third-party premises can be treated as unexplained income without corroborative evidence.Whether deletion of additions made on account of interest payments to certain parties and investors is justified based on explanation of source of funds.Whether the AO's rejection of confirmations and additional evidence regarding unsecured loans was justified. RULINGS / HOLDINGS: The Tribunal held that the source of Rs. 3 crores of alleged unaccounted cash investment was satisfactorily explained as adjustment against cash receivable from land transfer by M/s Kumergode Estates Ltd., and thus, no addition under section 69 is warranted.The joint assessment order passed in the names of all legal heirs collectively is valid; no multiple substantive assessments on each legal heir were made, and the liability of legal representatives is limited to the extent of the estate inherited under section 159 of the Act. Hence, the claim of triple taxation is unfounded and the assessment order is not void.Additions under section 68 treating unsecured loans as unexplained cash credits in unabated/completed assessment years without incriminating material related to those loans are unsustainable and liable to be deleted.Additions on account of alleged cash loans and interest payments to parties like Shri Ankith, Shri Rachit, and others were confirmed only where the assessee failed to satisfactorily explain or substantiate the transactions; however, additions on interest payments were deleted where the source was explained via cash withdrawals from company accounts.Capital loss on redemption of debentures is genuine and allowable as the transactions were made with independent parties through proper banking channels with RBI approvals; initial admission under section 132(4) without corroborative evidence cannot sustain disallowance.The Tribunal exercised its discretion to admit additional grounds of appeal involving pure questions of law not requiring fresh evidence, consistent with Supreme Court precedents.Additions based solely on diary entries and statements of third parties without opportunity of cross-examination and without corroborative evidence were held to violate principles of natural justice and thus deleted.The deletion of additions related to interest payments to M/s Kummergode Investors and others was upheld as the payments were accounted for and source was satisfactorily explained.The learned CIT(A) rightly admitted additional evidence regarding unsecured loans and deleted additions to the extent confirmations and credible evidence were furnished; additions confirmed only where no confirmations or credible evidence were provided. RATIONALE: The Tribunal applied provisions of sections 69, 68, 69A, 69C, 132, 153A, 143(3), 156, and 159 of the Income Tax Act, 1961, along with settled judicial precedents emphasizing the need for corroborative evidence beyond statements under section 132(4) for sustaining additions.It relied on the principle that legal representatives are liable only to the extent of the estate inherited (section 159), and that multiple substantive assessments on the same income in different hands are impermissible, referencing Supreme Court rulings including Lalji Haridas.The Tribunal followed the Supreme Court's guidance in PCIT vs. Abhisar Buildwell that in unabated/completed assessments, additions can be made only if incriminating material related to the specific transaction is found during search; absence thereof precludes additions.Regarding capital loss, the Tribunal distinguished the present case from judgments on tax avoidance and colorable devices, emphasizing that business expediency and genuine commercial transactions cannot be questioned by revenue authorities.The Tribunal acknowledged its wide powers under section 254 to admit new grounds involving questions of law and upheld the admission of additional grounds consistent with National Thermal Power Co. Ltd. vs. CIT.Principles of natural justice were underscored, particularly the need for opportunity to cross-examine witnesses whose statements form basis of additions, as held in Andaman Timber Industries and Common Cause.The Tribunal emphasized the burden on the assessee to prove identity, creditworthiness, and genuineness of loan creditors under section 68, and that mere banking channel transactions do not automatically establish genuineness unless confirmed and corroborated.Where the assessee provided credible ledger confirmations, settlement agreements, and evidence of repayments through banking channels, the Tribunal held that the onus was discharged and additions were rightly deleted.