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Facts
The Assessing Officer (AO) made an addition of Rs. 2.50 crores under Section 68 of the Income Tax Act, 1961, treating loans from Arihant Exports and Karnavat Impex Pvt. Ltd. as unexplained cash credits. The assessee submitted documentary evidence, including bank statements, IT returns, and financial statements of the lenders, and claimed that the loans were genuine, repaid with interest, and the lenders' statements were later retracted.
Held
The CIT(A) deleted the addition, holding that the assessee had discharged the initial onus by providing sufficient evidence of identity, creditworthiness, and genuineness of the transactions. The CIT(A) found that the AO did not conduct independent inquiries, and the statements relied upon were retracted. The CIT(A) also noted that the proviso to Section 68, requiring proof of the source of the source, was not applicable to the assessment year in question. The Tribunal confirmed the CIT(A)'s order, finding that the AO had failed to properly investigate the matter and had violated principles of natural justice by not allowing cross-examination.
Key Issues
Whether the addition made by the Assessing Officer under Section 68 of the Income Tax Act, 1961, treating the loans as unexplained cash credits, was justified, considering the evidence provided by the assessee and the failure of the AO to conduct independent inquiries and allow cross-examination.
Sections Cited
68, 133A, 131, 132(4), 159
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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
This appeal is filed by the assessee against the appellate order passed by the Commissioner of Income-tax (Appeals)-53, Mumbai [the learned CIT (A)] for A.Y. 2012-13, dated 30th January, 2023, wherein the appeal filed by the assessee against the assessment order passed under Section 143(3) of the Income-tax Act, 1961 (the Act) dated 29th March, 2015, was allowed.
“i. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made u/s.68 of the Income Tax Act, 1961 of Rs.2,50,00,000/- ignoring the fact that the assessee has failed to prove the capacity, credit worthiness of the loan givers and genuineness of the said loans and therefore the A.O. rightly treated the same as unexplained cash credit u/s.68 of the Act. ii. The appellant craves to leave, to add, to amend and / or to alter any of the ground of appeal if need be.”
03. Brief facts of the case shows that assessee is a individual engaged in the business of Civil Contractor carrying on government and semi government and other private work of road construction, road repairs, etc. Assessee Shri Nitin Rajmal Shah is a proprietor of Speco Infrastructure. He filed his return of income on 30 September 2012, at a total income of ₹3,02,63,658/-. This return was picked up for scrutiny.
The learned Assessing Officer noted that a survey under Section 133A of the Act was conducted in the case of RPS Infra Projects Limited on 26 November 2012, wherein several of the group companies have obtained accommodation entries as well as bogus purchase. Information was also received from the DGIT,
The notice was issued to the assessee with respect to the above loans to be treated as unexplained cash credit under Section 68 of the Income-tax Act, 1961 (the Act).
6. Assessee submitted that it has taken loan from both the parties for personal purposes and interest has been paid to that. The assessee also provided
i. copies of the bank statement of the parties along with ii. their return of income iii. their income tax permanent account number, iv. ledger confirmation and v. Financial statement of both the parties.
7. The assessee also submitted that he has taken loan by account payee cheque, interest have been paid through account payee cheques and further these loans have been repaid by account payee cheques. Assessee also requested LD AO to provide information received from
The learned AO considered the submission of the assessee and rejected the same holding that one Mr. Rajendra Jain in a statement recorded under section 132 (4) of the IT act has admitted that the entities from whom the assessee has taken loan are controlled and managed by him. Proprietor of lender also confirmed the same in statement recorded under section 131 of the act. Accordingly the learned assessing officer held that alleged loan of Rs. 1 crore received from exports and ₹ 1.5 crore from Kanavati Impex Private Limited are added to the total income of the assessee under section 68 of the act. Accordingly the assessment order under section 143 (3) of the income tax act, 1961 was passed on 29/3/2015 wherein the total income of the assessee is assessed at ₹ 55,263,660/– against the total income returned by the assessee of ₹ 30,263,658/– wherein the addition under section 68 of the act of Rs. 2.5 crores was made.
Assessee aggrieved, preferred an appeal before the learned CIT – A wherein the main ground of appeal was that the addition has been made under section 68 of the income tax act ignoring the evidences filed by the assessee and merely on conjectures and surmises without bringing any facts to establish that the loan accepted are not genuine. It was further stated that the assessing officer has not given any material to show the allegation stated in the assessment order as well as of granting
The learned CIT – A held that during the assessment proceedings the assessee has given the details regarding the identity, creditworthiness and genuineness of the entire transaction and the corresponding parties and therefore the assessee has discharged his primary onus by giving the bank statement, income tax returns, permanent account number is, Ledger confirmation and financial statements of the lender. The learned assessing officer has not pointed out any deficiency in the above statement of the appellant without making any independent enquiry or specific discrepancies other than the statements recorded by the investigation wing. He further noted that the transactions have taken place through bank accounts, assessee has paid interest thereon as and has not claimed any benefit of deduction on account of the interest and further entire sum has been repaid in the calendar year 2014 much before the information was received from the office of investigation wing Mumbai. It was further held that proviso to section 68 requiring to prove the source of source was inserted with effect from 2013 – 14 and does not apply to the assessment year under consideration and therefore even if the source of credit in the counterparty may remain suspicious it cannot be the basis of confirming the addition. Accordingly, the addition was deleted.
When the appeal was heard earlier it was found that the form number 36 filed by the learned AO has made the respondent who is a diseased assessee and therefore such appeal filed by the revenue is not valid. Now the revised form number 36 and additional ground of appeal as been filed by the learned assessing officer by filing amended form number 36 wherein Hetal N Shah legal hair of the assessee has been made the respondent and additional ground is raised holding that in terms of provisions of section 159 of the act the appeal of the revenue may be admitted.
13. On careful consideration of the fact that the revenue has revised form number 36 and as the learned CIT – A despite knowing that the assessee has passed away passed the appellate order in the name of diseased assessee, the revised form number 36 is accepted and the appeal of the revenue is now found to be valid. Therefore, the arguments of the assessee with respect to the invalidity of the appeal of the learned assessing officer are dismissed. Accordingly, additional ground filed by the revenue is allowed.
The learned authorized representative submitted that assessee has discharged its initial onus cast upon the assessee by submitting the bank statement of the lenders, the acknowledgement of the return of income filed for assessment year 2012 – 13 of the lenders, the confirmation of the lenders and the financial statements of the lender. It was further stated that these loans have been repaid and such repayment confirmation is also furnished he further referred to paper book filed by him containing 407 pages wherein up to page number 38 – 141 of the paper book he referred to various evidences submitted by him. He also referred to his written submission placed before the learned CIT – A which is placed at page number 142 – 161 of the paper book and further relied upon the several judicial precedents starting from page number 162 – 407 of the paper book.
His main arguments were that the assessee has discharged its onus by furnishing all the evidences placed before the learned assessing officer in the form of confirmation, bank account, return of income, confirmation, even then said of the repayment of loan. The learned assessing officer has not made any inquiries on
We have carefully considered the rival contention and perused the orders of the lower authorities. The allegation against the assessee is that assessee has obtained a loan on 18/file/2011 from Arihant exports of Rs. 1 crore that have been repaid by the assessee on 18/1/2014 of ₹ 35 lakhs and on 21/6/2014 of 65 lakhs. Further from karnavati Impex Private Limited assessee has taken a loan of ₹ 1.5 crores on 9/file/2011 which has been repaid on
Further, the assessee has repeatedly asked before the assessing officer to give the evidences against the assessee on which the AO wants to rely. The AO has not given such evidences to the assessee. Even the opportunity of cross-examination was also not given. Therefore, the evidences have been used behind the back of the assessee. In such circumstances the decision of the honourable Delhi High Court in 322 ITR 396 (Delhi) clearly
“5. 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
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 17-3- 2005 [2005 (187) E.L.T. A33 (S.C.)] 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 notice.” 020. Honourable Supreme Court in case of Principal Commissioner of Income Tax (Central) - 1 vs. NRA Iron
• Proof of Identity of the creditors;
• Capacity of creditors to advance money; and • Genuineness of transaction
This Court in the land mark case of Kale Khan Mohammad Hanif v. CIT MANU/SC/0292/1963 : (1963) 50 ITR 1 (SC) and, Roshan Di Hatti v. CIT MANU/SC/0192/1977 : (1977) 107 ITR (SC) laid down that the onus of proving the source of a sum of money found to have been received by an Assessee, is on the Assessee. Once the Assessee has submitted the documents relating to identity, genuineness of the transaction, and credit-worthiness, then the AO must conduct an inquiry, and call for more details before invoking Section 68. If the Assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the Revenue to hold that it is the income of the Assessee, and there would be no further burden on the revenue to show that the income is from any particular source.”
The learned CIT – A while allowing the appeal of the assessee has also categorically held that assessee has discharged his onus cast upon him under section 68 of the act by proving the identity and creditworthiness of the lender along with genuineness of the transaction by producing the confirmation, Ledger, bank statement of the lender and the income tax returns. The assessee has also produced the evidence of repayment of loan. Thus, initial onus is discharged by the assessee. The AO has not thrown back the onus of the above three ingredients back
In the result, we admit the appeal of the AO as it has been replaced by bringing the legal heir of deceased assessee on record but dismissed the appeal on the merits of the addition.
Order pronounced in the open court on 22.01. 2024.