2023 (8) TMI 1631 - AT - Income Tax

Addition u/s 68 - unsecured loan taken by the assessee from the companies - Onus to prove - CIT(A) deleted addition - HELD THAT - In view of the fact and circumstances of the case as well as having considered the documentary evidence produced by the assessee and analyzing the transactions recorded in the documentary evidences we find that the assessee has duly discharged its onus to prove the identity of the loan creditors the capacity of the loan creditors and the genuineness of the transactions. So far as the identity of the loan creditors is concerned the department has not disputed the same and the capacity of the loan creditor has been duly established by producing audited financial statements tax audit report bank account statements return of income of the lender companies and no defect was pointed out by the AO in the documentary evidence produced by the assesse. The transactions are through banking channel and the assessee produced the bank account statement of the assessee as well as the loan creditor companies to show that there is nothing in the bank account statement as well as ledger account to reflect that assesse s own money has routed back through these lender companies. Rather the assessee has repaid part of the loans prior to the search and seizure action in this case. Therefore all these facts and record go to prove that the transactions are genuine and nothing has been brought on record except reference to certain investigation reports to doubt the transactions duly recorded in the books of account as well as in the bank account statement. No error or illegality in the impugned order of the CIT (A) qua this issue of addition made by the AO u/s 68 of the Act on account of unsecured loan. Disallowance of interest paid by the assessee on these loans which was deleted by CIT(A) - We further note that all the transactions of interest payment are duly reflected in the books of account of assessee as well as lender companies and are subjected to TDS. These transactions are also reflected in the bank account of the assessee as well as lender companies therefore there is no reason to doubt the payment of the interest by the assessee after deducting TDS through banking channel and duly recorded in the books of account. Once the addition made on account of unsecured loan is deleted then the interest on the said loan added by the AO as consequence to the disallowance of the loan amount would not survive. Accordingly we do not find any reason to interfere with the impugned order of the Ld. CIT (A) qua this issue. Addition u/s 69 on account of unexplained investment - HELD THAT - AO has made addition contrary to the record which was rejected by holding that in the books of M/s A A Shelters partnership firm unsecured loan is shown as taken from M/s Purvi Finvest Ltd but ultimate source of this loan is the unaccounted income of the assessee solely on the basis of the statement of Shri Naveen Jain. Assessee has otherwise produced all the relevant documentary evidences to show that it is a genuine transaction of loan between M/s A A Shelters and M/s Purvi Finvest Limited and therefore in absence of any material or other fact to show that this loan amount is assessee s unaccounted income transferred to the partnership firm in the garb of unsecured loan from M/s Purvi Finvest Limited the addition made by the AO is not sustainable. AO has even not conducted any inquiry on this issue and simply made addition based on the statement which does not disclosed any fact leading to the conclusion that the transaction as found recorded in the books of M/s A A Shelters is in fact unaccounted income of the assesse. This ground of revenue s appeal is dismissed. Addition made on account of on money received for booking of plots - HELD THAT - CIT (A) has confirmed the addition by ignoring all these explanation and relevant evidences available on record. Therefore the impugned order of the CIT (A) confirming the addition without even verifying the correct facts on the record produced by the assessee is not sustainable. Once the assessee has produced the relevant documents to manifest that some of the alleged plots have been sold by the assessee through registered sale deeds and duly recorded in the books of account and also declared in the turnover of the assessee then the addition on account of undisclosed income in respect of sale of these plots is highly arbitrary and unjustified. When the assessee has explained that another plot was booked in the name of Ankush S/o R.C. Chourasia against booking amount of Rs. 50, 000/- received through Cheque and the details of the booking and Cheque produced before the AO in the ledger account then the addition to the extent of the said plot is also not justified. The remaining plots are claimed to be part of the inventory of the assessee company which could be verified from the books of account however neither the AO nor Ld. CIT (A) took pain to verify this fact from the books of the assesse. Accordingly addition made by the AO and confirmed by the Ld. CIT (A) without considering correct facts as recorded in the books of account as well as other relevant evidence produced by the assessee in the shape of sale deeds and transactions through banking channel is highly arbitrary and hence same is deleted. AO has made addition u/s 68 of the Act on the ground that entries found in the seized documents from Shri Shri Hemandra Singh Nabeda are not recorded in the books of account. Once the addition is made on the basis of these entries not recorded in the books of account being on money received by the assessee against the sale of plot then the provision of section 68 cannot be invoked. This finding of the AO is self-contradictory as in one had it is held that these transactions are not recorded in the books of account and on the other hand Ld. AO has made the addition u/s. 68 of the Act which can be done only when the entries are found in the books of account and the assessee failed to explain the source of the credit recorded in the books of account. Addition u/s 68 on account of cash received against sale of plots not recorded in the books of account - addition based on the seized documents which is register found during the course of search from the office premises of the assessee - HELD THAT - The seized documents cannot be accepted as admissible evidence in part. Hence to the extent of addition made by the AO towards the cash receipt is duly based on the seized material. Since the said transaction of cash is not found recorded in the books of account therefore applying the provisions of section 68 of the Act is not justified. Hence we restrict the addition of the said amount of Rs. 2, 77, 350/- as unaccounted business income of the assessee and not u/s 68 of the Act. The orders of the authorities below are modified accordingly. Validity of assessment order for want of valid approval u/s 153D - HELD THAT - When the AO has obtained the approval u/s 153D and assessee has not brought before us anything to show contrary ground no.7 of the assesse s appeal is dismissed.

Summary

The Tribunal considered several appeals and cross-appeals from both the revenue and the assessee regarding various assessment years. The primary issues revolved around the acceptance of additional evidence, the validity of retraction statements, the legitimacy of unsecured loans, and the application of incriminating materials found during search and seizure operations.

ISSUES PRESENTED and CONSIDERED

The core legal questions addressed were:

• Whether the Commissioner of Income Tax (Appeals) [CIT(A)] erred in accepting additional evidence under Rule 46A without adequately considering the remand report submitted by the Assessing Officer (AO).
• Whether the CIT(A) was justified in accepting the retraction of a statement made by the assessee's director, which was initially made under duress during a search operation.
• Whether the CIT(A) was correct in deleting additions made by the AO based on alleged bogus unsecured loans and interest expenses.
• Whether the AO was justified in making additions based on entries in seized documents, and whether such additions were sustainable under sections 68 and 69C of the Income Tax Act.
• Whether the assessment orders were validly passed with the requisite approval under section 153D.

ISSUE-WISE DETAILED ANALYSIS

Acceptance of Additional Evidence

• The Tribunal noted that the additional evidence submitted by the assessee was forwarded to the AO for comments, and the AO provided a remand report objecting to the admission of such evidence. However, the AO did not verify the correctness of the evidence or provide substantial comments on its veracity.
• The CIT(A) admitted the additional evidence, considering it was obtained after the completion of assessment proceedings, thus fulfilling the conditions under Rule 46A(1)(b).
• The Tribunal found no error in the CIT(A)'s decision to admit the additional evidence, as it was not shown to be manufactured or an afterthought.

Retraction of Statements

• The Tribunal considered the retraction of the statement made by the director of the assessee company, who claimed the statement was made under duress during a search operation.
• The Tribunal emphasized that a statement recorded under duress cannot be the sole basis for making additions unless corroborated by incriminating material found during the search.
• The Tribunal upheld the CIT(A)'s decision to accept the retraction, as the AO failed to provide any corroborative evidence to support the original statement.

Unsecured Loans and Interest Expenses

• The AO treated loans from certain companies as bogus, based on the assumption that they were controlled by an entry provider. However, the assessee provided substantial documentary evidence to prove the genuineness of the transactions, including financial statements, confirmations, and bank statements.
• The Tribunal noted that the AO did not conduct any independent inquiry to disprove the identity, creditworthiness, or genuineness of the transactions.
• The Tribunal upheld the CIT(A)'s deletion of additions related to unsecured loans and interest expenses, as the assessee had discharged its onus under section 68.

Incriminating Material and Additions

• The Tribunal examined whether the additions made by the AO were based on incriminating material found during the search. It was noted that the AO relied on statements and reports from other cases, which did not directly relate to the assessee's search.
• The Tribunal reiterated that for completed assessments, additions can only be made based on incriminating material found during the search, which was not the case here.
• The Tribunal found the CIT(A)'s decision to delete additions for non-abated assessment years justified, as no incriminating material was found.

Approval under Section 153D

• The Tribunal noted that the AO had obtained the necessary approval from the Additional Commissioner of Income Tax under section 153D, and the assessee did not provide any evidence to the contrary.
• The Tribunal dismissed the ground challenging the validity of the assessment orders for want of approval.

SIGNIFICANT HOLDINGS

• The Tribunal upheld the CIT(A)'s decision to admit additional evidence and accept the retraction of statements, emphasizing the need for corroborative evidence in such cases.
• The Tribunal confirmed that additions based on unsecured loans and interest expenses were unjustified, as the assessee had provided sufficient evidence to prove the genuineness of the transactions.
• The Tribunal reiterated that additions for completed assessments require incriminating material found during the search, which was absent in this case.
• The Tribunal dismissed the challenges regarding the validity of assessment orders under section 153D, finding that necessary approvals were obtained.

Overall, the Tribunal's decision focused on ensuring that additions to income are made based on substantial evidence, particularly in cases involving search and seizure operations. The Tribunal emphasized the importance of procedural fairness and the need for corroborative evidence when relying on statements made under duress.