DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(1), CHENNAI vs. ANIRUDH KHEMKA, CHENNAI

Aforesaid appeal by Revenue for Assessment Year (AY) 2012-13 arises out of the order of learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [CIT(A)] dated 18-09-2023 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 14(3) of the Act on 26-03-2015. The grounds taken by the Revenue read as under:- The order of the learned CIT(A) is contrary to law, facts and circumstances of the 1. case.

The Ld, CIT(A) has erred in deleting the addition of Rs.5,05,00,000/- being unexplained cash credit u/s.68 of the Act without discussing or bringing on record his findings on the material before him. For these and other grounds that may be adduced at the time of hearing, it is 4. prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored.

The Ld. Sr. DR submitted that Ld. CIT(A) erred in granting relief to the assessee whereas Ld. AR submitted that the assessee discharged the onus as required to be discharged u/s 68. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. Assessment Proceedings 3.1 The impugned addition stem from the fact that the assessee jointly with his brother had purchased a residential house property situated at Old no.2, New no.3, Gajapathy Road, Kilpauk, Chennai for aggregate consideration of Rs.700 Lacs (excluding registration fees and stamp duty) on 4-11-2011 vide Document Nos. 4201/2011 & 4202/2011. The assessee was accordingly required to explain the source of payment so made towards his share. It transpired that the assessee obtained loan of Rs.280 Lacs from M/s Aakansha Advisory Pvt. Ltd. and another loan of Rs.175 Lacs from M/s Rasili Barter Pvt. Ltd. besides loan of Rs.69 Lacs from Madhusudan Khemka. 3.2 To establish creditworthiness, the assessee produced ledger confirmations. However, the aforesaid corporate entities, as per information received from DGIT (Inv.), Kolkata, were amongst shell / paper companies operated for the purpose of providing accommodation entries as per the statement of one Shri Jivendra Mishra recorded on 11- 04-2014. Accordingly, Ld. AO held an opinion that these entities lacked creditworthiness and therefore, the amount of Rs.505 Lacs was added to assessee’s income as unexplained cash credit u/s 68 with respect to loan obtained from two corporate entities. The same include opening balance of Rs.50 Lacs as standing against M/s Rasili Barter Pvt. Ltd. The Ld. AO also estimated commission @0.2% against the same and made further addition of unexplained expenditure u/s 69C for Rs.1.01 Lacs while framing the assessment on 26-03-2015. Appellate proceedings 4.1 During appellate proceedings, the assessee submitted additional evidences and accordingly, a remand report was called form Ld. AO on 19-07-2016. However, despite lapse of more than 6 years, no such report was received despite various reminders. Accordingly, Ld. CIT(A) proceeded to examine the claim of the assessee in the light of submitted evidences. 4.2 The assessee submitted that the addition was merely based on third-party statement which is against the principle of natural justice and the additions were unjust. The assessee also furnished various documents to establish the fulfillment of requirement of Sec.68. The same include ledger confirmations, Income Tax Returns of lenders, Balance Sheet, affidavit of lenders confirming the payment of loan to the assessee. 4.3 The Ld. CIT(A), upon perusal of documents, noted that the assessee applied for loan from HDFC Bank but he could not get the same before the registration of documents. Accordingly, the assessee obtained loans from these two entities. The loan from Bank was disbursed on 08-11-2011 & 25-11-2011. Immediately upon receipt of the loan, the assessee repaid the loans to both the entities. Considering this fact as well as other documentary evidences as furnished by the assessee, Ld. CIT(A) concurred with the claim of the assessee and deleted the impugned addition as made by Ld. AO u/s 68 as well as estimated commission allegedly paid against these loans. Aggrieved, the revenue is in further appeal before us. Our findings and Adjudication 5. From the fact, it emerges that the assessee has purchased certain property and in the process, obtained loan from two corporate entities. The loan so obtained by the assessee has been utilized to purchase the properties. Another fact is that the assessee applied for certain bank loan which got delayed which led the assessee to obtain loan from these two corporate entities. When the loan was disbursed to the assessee by the Bank, the loan to both these entities was repaid within a very short time. The Ld. AO has added the loan so obtained by the assessee from two corporate entities as unexplained cash credit u/s 68 merely on the basis of third-party statement as recorded by DGIT (Inv.) in independent proceedings. However, no separate enquiries, whatsoever, have been conducted by Ld. AO to ascertain the genuineness of these loan transactions. The Ld. AO has merely borrowed the findings of DGIT (Inv.) and on the basis of the same, alleged that the lenders lacked creditworthiness. However, the same is third-party statement in independent proceedings and no opportunity of cross-examination has ever been provided to the assessee to controvert the same. The same is in gross violation of principle of natural justice and the assessment so framed, in such a case, is liable to be treated as bad-in-law as per the decision of Hon’ble Supreme Court in the case of Andaman Timber Industries vs CCE, Kolkata-II [2015] 62 taxmann.com 3 (SC) holding that when the statements of witnesses are made basis of demand, not allowing assessee to cross-examine witnesses, is a serious flaw which makes order nullity, as it amounts to violation of principles of natural justice. Therefore, on this fact only, the assessment order is to be held as nullity.