👍AO shall Conduct Independent Investigation without relying on Third Party Statements and Facts: ITAT upholds Deletion of Additions u/s 68 

Clipped from: https://www.taxscan.in/ao-shall-conduct-independent-investigation-without-relying-on-third-party-statements-and-facts-itat-upholds-deletion-of-additions-u-s-68/273139/

AO shall Conduct Independent Investigation without relying on Third Party Statements and Facts: ITAT upholds Deletion of Additions u/s 68 [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has recently, in an appeal filed before it, while upholding the deletion of additions made under Section 68, held that the A.O shall conduct independent investigation, without relying on third party statements and facts.

The aforesaid observation was made by the Mumbai ITAT, when an appeal was preferred before it by the revenue, as against the order of the Commissioner of Income Tax (Appeals), Mumbai passed under Section 250 of the Income Tax Act.

The ground of the assessee’s appeal being as to whether on the facts and in the circumstances of the case and in law, the CIT(A) was justified in deleting the additions on account of bogus loans under Section 68 and the interest on them, made by the Assessing Officer despite the fact that the loan providing entities were part of the Bhanwarlal Jain Group, the brief facts of the case were that the assessee was a partnership firm, engaged in the business of construction of housing projects.

The assessee had filed the return of income for the A. Y 2013-14 on 08.01.2014, disclosing a total income of Rs.Nil and the return of income was processed under Section 143(1) of the Income Tax Act. Thereafter, there was a search and seizure operations conducted in the case of Shri Bhanwarlal Jain & group/concerns, which were providing accommodation entries.

The Assessing Officer had also received the information that the assessee was one of the beneficiaries of the accommodation entries provided by the group concerns. Therefore, the AO took it as a reason to believe that the income has escaped assessment, and so he, after recording reasons for reopening of assessment, issued notice under Section 148 of the Income Tax Act.

In compliance to notice, the assessee filed a letter dated 04.08.2015, to treat the original return of income filed on 08.01.2014, as due compliance to the notice issued. The assessee requested for reasons for reopening of assessment and the same was provided by the AO, and the assessee had not filed any objections on the reopening of the assessment.

Subsequently, the AO issued notice under Section 143(2) and 142(1) of the Income Tax Act, along with the questionnaire. And in compliance, the AR of the assessee appeared from the time to time and furnished the details supporting the return of income and documentary evidences, as well as information in respect of unsecured loans received from the group concerns.

The AO considered the statement recorded in the course of search and issued notice under Section 142(1), on the assessee, to prove the identity, creditworthiness and genuineness of the transactions of unsecured loan creditors, whereas the assessee had obtained loans from three parties i.e 1) M/s. Varsha Gems, of Rs. 1.32 crores; 2) M/s Minal Gems of Rs. 2.40 Crores; 3) M/s Naman Exports of Rs. 68 lakhs.

The assessee had also paid interest on these unsecured loans aggregating to Rs.29,57,400/-, and thereby, had submitted the audited financial statements and other evidences to substantiate the identity, creditworthiness and genuineness of the loan creditors and the details were referred at Para 9.1 of the assessment order, whereas the AO had dealt on the facts of the search party and the transactions of group concerns and the financial statements of the lenders.

Further, the A.O. had also issued summons under Section131 of the Income Tax Act upon all the three parties, and considering the facts in the asssesseementproceedings, issued notice under Section 142(1) of the Act dated 10.03.2016, to treat the loan transactions credited in the books of accounts, in the name of the group concerns, as unexplained cash credits.

He also required the assessee to produce the parties, in response to which, the assessee had filed the reply on 17.03.2016. The assessee could not produce the parties but complied by submitting the additional information in the asssesseement proceedings.

And finally, on not being satisfied with the evidences and information, the AO observed that the asssessee has not established the ingredients required Under Sectionec68 of the Act, in respect of the transactions, thus making the addition of unsecured loans of Rs.4.40crores and disallowance of interest on loans of Rs.29,57,455/, and finally assessing the total income of Rs.4,69,57,460/, passing the order under Section 143(3) read with Section 147 of the Income Tax Act dated 21.03.2016.

Aggrieved by the order, the assessee filed an appeal before the CIT(A), who observed that the assessee had discharged the burden, by submitting the requisite information, and that the onus lies on the AO to make enquires.

Thus, the CIT(A) deleted the addition in question, thus leaving the Revenue aggrieved to prefer the instant appeal before the Tribunal.

Hearing the opposing contentions of both sides as submitted by Mr.Devendra Jain, the  AR on behalf of the assessee, and by Ms.Neeraja Sarma the DR on behalf of the Revenue, and thereby perusing the materials available on record, the ITAT observed:

“We find the CIT(A) has dealt on the facts, provisions of law and judicial decisions. The Ld. DR could not controvert the findings of the CIT(A) with any new cogent material or information to take different view.”

“We considered the facts, circumstances, submissions as discussed above are of the view that the CIT(A) has passed a reasoned and conclusive order. Accordingly, we do not find any infirmity in the order of the CIT(A) and uphold the same and dismiss the grounds of appeal of the revenue”, the coram of Baskaran BR, the Accountant Member and Pavan Kumar Gadale, the Judicial Member added.

Finally, the Mumbai ITAT held:

“In the result, the appeal filed by the revenue is dismissed.”

To Read the full text of the Order CLICK HERE

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ITO vs M/s Grace Development Associates


Counsel for Appellant:   Ms.Neeraja Sarma.DR

Counsel for Respondent:   Mr.Devendra Jain.AR

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