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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’: NEW DELHI
Before: SHRI J.S. REDDY, & SHRI CHANDRA MOHAN GARG
PER CHANDRA MOHAN GARG, JUDICIAL MEMBER
This appeal by the Revenue and cross objection by the assessee are directed against the order of the CIT(A)-VII, New Delhi, dated 21/07/2010 for A.Y 2005-06 in first appeal No. 148/2007-08.
The revenue has raised the following grounds of appeal in its appeal:
“1. The order of the learned CIT(Appeals) is erroneous & contrary to facts & law.
2. On the facts and in the circumstances of the case, the Ld CIT (A) erred in deleting the addition of RS. 50,00,000/- made by the A.O u/s 68 of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] being the unexplained cash credits and Rs. 2,58,220/- being the interest paid on these unexplained cash credits.
2.1. The Ld. CIT (A) ignored the fact that the assessee did not discharge the onus of proving the creditworthiness of the credits and genuineness of the transactions. The ld. CIT(A) also ignored the findings recorded by the A.O that the assessee received the money in question from the country operators.
3. The appellant craves leave to add, to alter, or amend any grounds of the appeal raised above at the time of the hearing”.
3. The assessee has raised the following grounds in its cross
objection:
“1. That the learned Commissioner of Income Tax, (Appeals) grossly erred in law and on the facts of the appellant case in confirming the adhoc disallowance of Rs. 1 lakh u/s 14A of the Income-tax Act.
2. That the learned Commissioner of Income Tax further erred in directing the AO to recalculate the amount of disallowance in accordance with Rule 8D of the I.T. Rules, 1962.
That Ruler 8D is not applicable to the year under assessment.
4.That the order passed by the ld. CIT(A) on this issue is bad in law.”
Revenue’s appeal
Ground Nos. 1 and 3 of the Revenue being general in nature need no adjudication. Hence Ground Nos. 1 and 3 of the Revenue stand dismissed.
The ld. DR contended that the ld CIT (A) erred in deleting the addition of RS. 50,00,000/- made by the A.O u/s 68 of the Income- tax Act, 1961 being the unexplained cash credits and Rs. 2,58,220/- being the interest paid on these unexplained cash credits. The ld. DR further submitted that the ld. CIT(A) ignored the fact that the Ld. CIT (A) ignored the fact that the assessee did not discharge the onus of proving the creditworthiness of the credits and genuineness of the transactions. The ld. CIT(A) also ignored the findings recorded by the A.O that the assessee received the money in question from the country operators.
On the other hand, the ld. AR supported the action of the ld. CIT(A) and contended that all the impugned monies have been received and returned to the respective parties during the relevant financial period and interest was also paid to the creditors thereon. The ld. AR, therefore, contended that the ld. CIT(A) after observing the facts of the issue which were ignored by the AO, granted relief to the assessee and therefore, the impugned order may be upheld.
We have heard the arguments of both the sides and carefully perused the relevant material placed on record before us. We find that the ld. CIT(A) has granted relief to the assessee by observing and recording the following findings:
“4.6 On these facts and circumstances of the case and in the light of the case laws mentioned above, it is observed that the assessee has duly discharged its onus of proving the identity and creditworthiness of the persons and genuineness of the transactions by furnishing the confirmation letters, assessment particulars including PAN and copy of acknowledgement of Income
Tax Return of the loan creditors,|. Inspector’s report balance- sheet & P&L account. Bank statement to show that the payments have been made through banking channels by the loan creditors. The identity of the aforementioned loan creditors has been established by submitting their permanent account number(PAN) and income tax returns. It is also observed that all the 8 loan creditors or lenders are corporate assessees, incorporated under Indian Companies Act; genuineness has been proved by the fact that the transactions have taken place through banking channels which is reflected in the bank statements of the bank accounts of the respective loan creditors and the creditworthiness has been established through submission of their balance sheet and profit & loss account. Needless to mention that the creditworthiness is reflected through sources of funds in the balance sheet, the details ol which were made available by the assessee during the assessment/ remand and appellate proceedings, on the basis of which it can be concluded that the lenders had sufficient funds to make the investment and to advance loans and those investments/ loans have been duly disclosed in its Balance Sheet.
4.7 When the assessee had filed the confirmation letters and the details such as permanent account number (PAN), copy of Income tax return, balance sheet and profit & loss account, A.O. cannot be precluded from further investigation for the purpose of finding the genuineness of transaction and creditworthiness of the creditors. In the instant case, nothing of that sort has been undertaken by the A.O. It is also observed that the Assessing Officer could not point out any discrepancy in the evidences relied upon by the assessee. He has neither brought out any direct or inferential evidence to contradict the contention of the assessee. It is further observed that even though A.O. has vast powers u/s 131 and 133(6) of the Act, he has not used any of his powers to verify the genuineness of the claim of the assessee by verifying the documents furnished by it. If A.O. had doubted the impugned transaction after receiving the evidences which had been produced by the assessee in support of its claim it was very much open to the A.O. to do his independent enquiry and verification. This has not been done by the A.O. Further, what is the desired documentary evidence required to support the claim of the assessee as required by the A.O. is not coming out of the order of the A.O. Though, the loan creditors could not be examined by the AO, since they were existing on the file of the Income Tax Department and their income-tax details were made available to the AO, it was equally the duty of the AO to have taken steps to verify their assessment records and if necessary to also have them examined by the respective AOs having jurisdiction over them (loan creditors), which has not been done by him.
4.8 It is further observed that tax has been duly deducted from the interest payments on the impugned loans which is evident from the Tax Audit Report filed alongwith the return of income filed by the assessee for the assessment year under consideration. The perusal of the Tax Audit Report also reveals that the impugned loans have been repaid to the loan creditors during the year under consideration itself. 6
4.9 It has also been contended on behalf of the appellant that the Assessing Officer did not provide the copies of the statements of the person(s) recorded by the Investigation Wing of the Income Tax Department on the basis of which addition in respect of the loans fom the three parties, namely,Maestro Marketing and Advertising Pvt. Ltd, Rajkar Electrical and Electronics Ltd and SRB Merchandise Pvt. Ltd. has been made. It has also been contented that no opportunity has been provided to the appellant to cross examine the parties rendering such statement. It is settled proposition of law that the information gathered behind the back assessee cannot be used against him unless until an opportunity of rebutting the same is to the assessee. It is against the principle of natural justice. Reliance is placed on the on of Hon’ble Supreme Court in case of Prakash Chand Nahta v. Union of India [2001] 247 ITR 274 in support of the proposition that cross-examination of the witness is must, before the A.O. relies on the statement of the witness for making addition. The assessee has the right to cross-examine if an assessing authority is relying on the testimony of a witness. The assessee is to be afforded an opportunity to cross-examine him as held in the case of CIT v. Eastern Commercial Enterprises, (1994) 210 ITR 103, 111 (Cal), wherein it was observed by the High Court of Calcutta that it is trite law that cross-examination is the sine qua non of due process of taking evidence and no adverse inference can be drawn against a party unless the party is put on notice of the case made out against him. He must be supplied the contents of /all such evidence, both oral and documentary, so that he can prepare to meet the case against him. This necessarily also postulates that he should cross-examine the witness hostile to him. In C. Vasantlal & Co. v. CIT (1962) 45 ITR 206 (SC), the Supreme Court held that it was open to an Income-tax Officer to collect materials to facilitate assessment even by private enquiry. But if he desires to use the materials so collected, the assessee must be informed of the materials and must be given an adequate opportunity of explaining it. Similar view was expressed in Dhakeswari Cotton Mills Ltd. v. CIT (1954) 26 ITR 775 (SC). Reliance is also placed on the decision of the jurisdictional High Court i.e. Delhi High Court in Commissioner of Income-tax Vs. Pradeep Kumar Gupta and Vijay Gupta(2008) 303 ITR 95(Delhi) wherein it was held that reopening of assessment is not permissible on mere adverse statements from others. Such statement by itself does not constitute information, unless the Assessing Officer has made enquiries thereon and inferred understatement of income. I am therefore inclined to agree with the submissions made on behalf of the appellant to the effect that statement recorded behind back of the assessee without being subjected to cross-examination cannot be fully admitted as evidence against the assessee.
4.10 During the appellate proceedings the appellant was specifically directed in terms of Rule 46A(4) of the Income Tax Rules, 1962 to produce balance sheet for the relevant assessment year and income-tax details and PAN in order to establish the creditworthiness of the following three Loan Creditor Companies :-
Maestro Marketing and Advertising Pvt.Ltd. Rs.5,00,000/- i) Rajkar Electrical and Electronics Ltd. Rs.5,00,000/- ii) iii) SRB Merchandise Pvt. Ltd. Rs.2,50,000/-
In compliance with the above directions the copies of the Audited balance sheet and profit Moss account for the year ended 31.03.2006 and the assessment particulars including PAN and copy of acknowledgement of Income Tax Return of the loan creditors in respect of Maestro Marketing and Advertising PVT furnished on behalf of the appellant, the perusal of which reveals that (a) the aforementioned Companies are having funds consisting of share capital and reserve and surplus to the extent of Rs.90.10 lacs and Rs. 1 crore respectively during financial year and (b) their permanent account number are AACCM 0826H and AABCR 4897G respectively. In respect of SRB Merchandise Pvt. Ltd the copies of assessment particulars including PAN and copy of acknowledgement of Income Tax Return of the loan creditors were furnished on behalf of the appellant, the perusal of which reveals that (a) its permanent account number is AABCS 6278E; (b)an amount of Rs.250000/- has been received vide cheque no.932849 dated 21.7.2004 drawn on The Federal Bank Ltd.., Padam Singh Road, Karol Bagh, New Delhi;&(c) SRB Merchandise Private Limited is engaged in real estate business and it is having its office at -416, Antariksh Bhawan,K.G. Marg,Connaught Place,New Delhi – 110001.
4.11 Under the facts and circumstances of the case stated above, it is held that the addition of Rs.50,00,000/- made on account of unsecured loans from the loan creditors cannot be sustained and accordingly, the same is directed to be deleted. The consequential addition on account of interest paid to the extent of Rs. 2,58,220/- to the loan creditors is also directed to be deleted. As a result, ground of appeal no. 2 is allowed”
In view of the above, when we logically analyse the rival contentions of both the sides, then, we clearly observe that the assessee had filed confirmation letters and details such as PAN, copy of Income-tax Return, balance sheet and profit and loss account of the alleged creditors and the CIT(A), after considering these documentary evidences, concluded that the primary onus of proof has been discharged by the assessee. We further observe that the CIT(A) also noted that the AO did not provide copies of the statements of the persons recorded by the Investigation Wing of the Income-tax Department on the basis of which addition in respect of loans from three parties i.e. Maestro Marketing and Advertising (P)
Ltd, Rajkumar Electricals and Electronics (P) Ltd and SRB Merchandise (P) Ltd has been made. The CIT(A) was right in placing reliance on the decision of the Hon’ble Supreme Court in the case of Prakash Chand Nahta Vs. UOI [2001] 247 ITR 274 [SC] wherein it has been held that the assessee has the right to cross examine if an assessing authority is relying on the testimony of a witness. The ld. CIT(A) also invoked the provisions of section 46A(4) of the I.T. Rules, 1962 and directed the assessee to produce the balance sheet for the relevant A.Y. and the Income-tax details and PAN in order to establish the creditworthiness of the aforementioned three loan creditors and the assessee complied with the said directions by filing the same.
In this situation, the CIT(A) was quite correct and justified in holding that the addition made on account of unsecured loans from loan creditors cannot be sustained and the consequential addition on account of interest paid to the loan creditors is also not sustainable. We may point out that during the arguments before us, the ld. DR could not controvert this fact that the assessee received all the impugned loans and returned the same during the same F.Y and interest was also paid thereon to the creditors. In this situation, the amount of loan which has been returned to the respective creditors and interest paid thereon cannot be taxed in the hands of the assessee as its income. Therefore, we have no reason to interfere with the conclusion of the CIT(A) on this issue and thus we uphold the same.
Accordingly, Ground Nos. 2 and 2.1 of the Revenue are dismissed.
Cross Objection of the assessee
The ld. AR did not press Ground No. 1 relating to confirmation of the adhoc disallowance of Rs. 1 lakh u/s 14A of the Act. Hence the same is dismissed as not pressed.
In the result, the appeal of the revenue as well as the cross objection of the assessee are dismissed.
The order is pronounced in the open court on 22.07.2016.