Kolkata ITAT Deletes Addition Made Based On Third-Party Statement Who Was Not Allowed To Be Cross- Examined By Assessee

Finding that assessee has discharged the burden of proving identity, creditworthiness, and genuineness of the creditors to the loan transaction, the Kolkata ITAT deleted the addition made for alleged unexplained loan under Section 68 of Income Tax Act, 1961 based on the statement of third-party in a post-search assessment whose cross-examination was never allowed to assessee.

The Member of the ITAT comprising of Sanjay Garg (Judicial Member) and Rajesh Kumar (Accountant Member) observed that “The CIT(A) thereafter held that the sole basis of the Assessing Officer to make addition was on the basis of an earlier recorded statement of Shri Devesh Upadhyaya, which was neither recorded in the presence of the assessee nor the assessee was every confronted about the same. Even no incriminating material was found during the course of search action. Even all the creditors have duly confirmed the transactions and also established the source of the credits and the loan being also repaid in a short span of time. The CIT(A), therefore, has rightly held that the addition made by the Assessing Officer was not justified”. (Para 6)

As per the brief facts of the case, the assessee was subjected to post-search assessment under Section 153A wherein statement of directors was recorded and allegation of unexplained unsecured loan from three creditors were made based on the statement of an entry operator. The assessee was then show caused to prove the identity, creditworthiness, and genuineness of the creditors, which was sufficiently substantiated by the assessee along with the source of money. Even then the AO treated the loans as undisclosed income of assessee which was routed through bogus entities.

The Coram found that the CIT(A) in his appellate order, after discussing the rational of the loans, had noted that that same were for expansion plan of assessee and its group concerns.

The Bench observed that the assessee not only took loan from private parties but also from banks, for which the Department had failed to point any defect or discrepancy either in the documents/evidences or even in the statement of director of assessee.

The Bench found from a perusal of the audited balance sheet of assessee that the unsecured loans have been reported under short term capital borrowings in the balance sheet, for which no adverse findings were recorded by the Department.

The Bench elaborated that the CIT(A) had rightly noted that unsecured loan was part of books of accounts of assessee and the bank statements were declared by the assessee in its return filed under Section 139(1), even before the search was conducted and the AO's reference with respect to the bank statement as incriminating material found during search was based on wrong assumption since.

Therefore, observing that no incriminating material was found during the course of search action and loan was repaid in short span of time through banking channel, the ITAT concluded that the CIT(A) had rightly held that addition made by AO was not justified and addition is liable to be deleted, and hence, dismissed the Revenue's appeal.

Counsel for Respondent: CA A.K. Tibrewal & Amit Agrawal

Counsel for Appellant: S. Dutta

Case Title: DCIT verses Alom Extrusions Ltd

Case Number: ITA No.908/Kol/2023

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