2011 (9) TMI 1225 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition made under Section 68 of the Income Tax Act.
2. Condonation of delay in filing the appeal by the Revenue.
3. Admissibility and reliability of statements recorded under Section 132(4) of the Income Tax Act.
4. Principles of natural justice and the right to cross-examine witnesses.
5. Evaluation of evidence and corroborative material.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made Under Section 68 of the Income Tax Act:
The primary issue in this case revolves around the deletion of an addition of Rs. 10,00,000 made under Section 68 of the Income Tax Act by the Assessing Officer (A.O.). The A.O. had added this amount to the assessee's income, alleging it was unaccounted money introduced as an unsecured loan from M/s. Globe Stocks & Securities Ltd. The A.O.'s decision was based on statements made by Sri Arun Kr. Khemka, who claimed the loan transactions were accommodation entries. However, the assessee contested this addition before the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the A.O. had not adhered to the principles of natural justice and had relied on statements recorded without giving the assessee an opportunity to cross-examine the witnesses or examine the evidence.

2. Condonation of Delay in Filing the Appeal by the Revenue:
The appeal by the Revenue was filed one day late. The Assistant Commissioner of Income Tax (A.C.I.T.), C.C.-XXIV, Kolkata, provided reasons for this delay and requested its condonation. The Tribunal, after considering the reasons and hearing the parties, found that the department was prevented by sufficient and reasonable cause in filing the appeal belatedly and condoned the delay, admitting the appeal for disposal on merit.

3. Admissibility and Reliability of Statements Recorded Under Section 132(4) of the Income Tax Act:
The A.O. relied heavily on the statements made by Sri Arun Kr. Khemka under Section 132(4) of the Act, where he admitted that the loan transactions were accommodation entries. However, Sri Khemka later retracted his statement, claiming it was made under coercion and threat by the search team. The CIT(A) noted that the A.O. did not accept the retraction and relied on the Supreme Court decision in Surjit Singh Chabra vs. Union of India to justify the addition. The CIT(A) found that the A.O. did not provide the assessee with copies of the statements or allow cross-examination, thereby violating the principles of natural justice.

4. Principles of Natural Justice and the Right to Cross-Examine Witnesses:
The CIT(A) emphasized that the principles of natural justice were not followed by the A.O. The assessee was not provided with copies of the statements or given an opportunity to cross-examine Sri Khemka or the Director of the lender company. The CIT(A) sought a remand report from the A.O., who justified the addition but admitted that no new evidence was provided by the assessee. The CIT(A) concluded that the A.O. should have allowed the assessee to cross-examine the witnesses and provided copies of the statements to ensure a fair hearing.

5. Evaluation of Evidence and Corroborative Material:
The CIT(A) found that the A.O. had ignored the documentary evidence provided by the assessee, including loan confirmations, bank statements, and audited accounts of M/s. Globe Stocks & Securities Ltd. The CIT(A) noted that the loan transactions were recorded in the books of both the assessee and the lender company, and there was no evidence of cash deposits in the lender's bank account prior to the loan. The CIT(A) also pointed out that the A.O. failed to examine Sri Khemka or the lender company under Section 131 of the Act to verify the statements. The CIT(A) concluded that the assessee had established the identity, creditworthiness, and genuineness of the loan transaction, and the addition made by the A.O. was not justified.

Conclusion:
The Tribunal upheld the order of the CIT(A), finding that the A.O. had not followed the principles of natural justice and had ignored the documentary evidence provided by the assessee. The Tribunal dismissed the appeal of the department, confirming the deletion of the addition made under Section 68 of the Income Tax Act.