ITAT: Assessee Proved Loans, Revenue Relied Only on Hearsay
ITAT: Assessee Proved Loans; Revenue Relied Only on Hearsay
The assessee, involved in manufacturing polyester chips, yarn, and fabrics, filed its return showing a net loss of Rs. 49.70 crore for AY 2013-14. After a search conducted on the assessee’s premises, proceedings were reopened based on claims of accommodation entries from shell companies linked to the assessee. The Assessing Officer added Rs. 5.90 crore as unexplained cash credits under Section 68, disallowed Rs. 1 crore in interest under Section 37(1), and included Rs. 7.00-7.87 lakh as unexplained expenditure under Section 69 C, citing WhatsApp chats, statements, and financial reviews of lender companies. The assessee challenged these additions, providing detailed documentation such as confirmations, bank statements, audited financials, ITRs, responses to Section 133(6) notices, and affidavits retracting adverse statements made during the search.
The CIT(A) deleted the additions, noting that the assessee proved the identity, creditworthiness, and genuineness of the transactions, and that no incriminating material linked the loans to cash exchanges or fake entries. The Revenue appealed this decision to the ITAT.
Main Issue: Were the additions for unsecured loans, interest disallowance, and suspected commission expenses justified without direct evidence, considering the assessee had demonstrated the identity, creditworthiness, and genuineness under Section 68?
ITAT’s Ruling: The ITAT dismissed the Revenue’s appeal and upheld the CIT(A)‘s decision of removal of all additions. The Tribunal observed that the assessee provided complete documentation, including lender financials, confirmations, and banking records. It was observed that no direct incriminating evidence was found during the search or assessment. The Tribunal stated that relying on third-party WhatsApp chats and general statements without cross-examination could not override the primary evidence. It also ruled that the disallowance of interest and alleged expenditure under Section 69C lacked legal basis due to the absence of proven falsehood in the books of account.
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