MANOJ ANAND,GUWAHATI vs. ITO W-2(2) GHY, GUWAHATI

Per Rajesh Kumar, AM:

This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 08.10.2024 for the AY 2018-19.

3.2. In the appellate proceedings, the ld. CIT (A) also confirmed the order of the ld. AO by dismissing the appeal of the assessee by observing and holding as under:-

3.4. The ld. AR also submitted that the assessment framed by the ld. AO is bad in law even on the ground of violation of natural justice. The ld. AR submitted that the ld. AO collected the material and statement behind back of the assessee which were used against him in making addition but no opportunity was provided to the assessee to examine the adverse material or adverse witnesses. The ld. AR submitted that it is a well settled law that if cross examination is not allowed then material collected by the AO cannot be used against the assessee and no adverse inference can be drawn for the purpose of making disallowance/ addition. In defense of his arguments the ld. AR relied on the decision of Hon'ble Apex court in the case of Andaman Timber Industries in Civil Appeal No.4228 of 2006 (2015) (324) ELT 641 (SC).

3.5. The ld. DR on the other hand relied on the orders of the authorities below by submitting that the assessee has taken accommodation entries from M/s Urch Trading Pvt. Ltd., which is a shell company engaged in the business of providing the bogus loans/ accommodation entries to various entities. The ld. DR submitted that the ld. AO has rightly acted on the basis of report of the investigation wing and the information available on the insight portal of the

3.6. After hearing the rival contentions and perusing the materials available on record, we find that the assessee raised a loan of ₹3,43,50,000/- from M/s Urch Trading Pvt. Ltd. and immediately thereafter it was advanced to educational institution namely; AARDA Education and the money was used for setting up a DPS School in Kamrup, Assam. We note that Aarda Education was a Section 8 company jointly promoted by the assessee and the lender for setting up the DPS School at Baihata Chariali, Assam. This clearly demonstrates the clear commercial rationale and bona fide nature of the transaction and therefore we are not in agreement with the conclusion of the ld. CIT(A) that it is an accommodation entry or colorable device. We note that the assessee furnished before both the authorities below all the evidences proving the identity and creditworthiness of the lenders and genuineness of the transactions. During the course of assessment proceedings as well as in the appellate proceedings, the assessee had filed all the documents before the authorities comprising ITR, audited balance sheet, loan confirmation, bank statement and even assessment order u/s 143(3) of the Act foray 2017-18 in case of the lender. We also note that the ld. AO in order to independently verify the transactions issued notice u/s 133(6) of the Act to M/s Urch Trading Pvt. Ltd., which was duly replied by the said party by confirming the transactions as is apparent from the records before us. The authorities below have not pointed out any defect or deficiency in the documents furnished by the assessee as well as by the lender by doing any further enquiry. Therefore, we are not in a position to sustain the order passed by the

“4. Before we examine the correctness of the order passed by the Tribunal and consider whether a substantial question of law arises for consideration in this appeal we need to take note of section 68 of the Act. This provision deals with cash credits. It states that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year. The crucial words in the said provision are "assessee offers no explanation". This would mean where the assessee offers no proper, reasonable and acceptable explanation as regard the amount credited in the books maintained by the assessee. No doubt the Income-tax Act places the burden of proof on the tax payer. However, this is only the initial burden. In cases where the assessee offers an explanation to the credit by placing evidence regarding the identity of the investor or lender along with their conformations, it has been held that the assessee has discharged the initial burden and, therefore, the burden shifts on the Assessing Officer to examine the source of the credit so as to be justified in referring to section 68 of the Act. After the Assessing Officer puts the assessee on notice and the assessee submits the explanation with regard to the cash credit, the Assessing Officer should consider the same objectively before he takes a decision to accept or reject it. In Sreelekha Banerjee v. CIT [1963] 49 ITR 112 (SC), it was held that if the explanation given by the assessee shows that the receipt is not of income nature, the department cannot convert good proof into no proof or otherwise unreasonably reject it. On the other hand, if the explanation is unconvincing, the same can be rejected and an inference shows that the amount represents undisclosed income either from a disclosed or an undisclosed source CIT v. P. Mohanakala [2007] 161 Taxman 169/291 ITR 278/210 CTR 20 (SC). The explanation given by the assessee cannot be rejected arbitrarily or capriciously, without sufficient ground on suspicion or on imaginary or irrelevant grounds Lal Mohan Krishna Lal Paul v. CIT [1944] 12 ITR 441 (Cal.) and Anil Kumar Singh v. CIT [1972] 84 ITR 307 (Cal.). 5. Further to be noted that where the assessee furnishes full details regarding the creditors, it is up to the department to pursue the matter further to locate those creditors and examine their creditworthiness. It has been further held in A.S. Sivan Pillai v. CIT [1958] 34 ITR 328 (Mad.) that while drawing the inference, it cannot be assumed in the absence of any material that there has been some illegalities in the assessee's transaction. Thus, more importantly, as held by the Hon'ble Supreme Court in CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC), the onus of proving that the appellant was not the real was on the party who claims it to be so. Bearing the above legal principles in mind, if we examine the case on hand, it is clear that the assessing officer issued show cause notice only in respect of one of the lender M/s. Fast Glow Distributors. The assessee responded to the show cause notice and submitted the reply

“"According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross- examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were. in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross- examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal." 3.8. Considering the facts and circumstances of the case and also the ratio laid in the above decisions, we are inclined to set aside the

Order pronounced in the open court on 02.12.2025.

Sd/- Sd/- (MANOMOHAN DAS) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Guwahati, Dated: 02.12.2025 Sudip Sarkar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT DR, ITAT, 4. 5. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Guwahati