No addition of cash credit if department accepted subsequent loan repayment

No addition can be made on account of cash credit if department accepted repayment of loan in subsequent year

In a recent judgment, ITAT Surat has held that where Income Tax Department  had accepted repayment of loan in subsequent year, no addition was to be made in current year on account of cash credits.

ABCAUS Case Law Citation:
4219 (2024) (08) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the National Faceless Appeal Centre (NFAC)/CIT(A) in confirming the action of Assessing Officer (AO) in levying penalty u/s 271(1)(c) of the Income Tax Act, 1961 (the Act).

The case was selected for scrutiny and notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee. Subsequently, questionnaire was also issued to the assessee requiring her to submit various details.

The assessee had taken unsecured loan from three persons during the year. The AO observed that the assessee in her statement on oath u/s 131 of the Act admitted that she had taken entries from above three parties for her business since she was not having enough capital at hand. The AO added this sums to the total income u/s 68 of the Act treating it “accommodation entries” / cash credits. Penalty proceedings u/s 271(1)(c) of the Act were also initiated separately “for furnishing inaccurate particulars of income thereby concealing the income”.

Against the assessee, the assessee filed appeal before CIT(A) who partly allowed the appeal of assessee which was further contested before Tribunal by the assessee. The appeal as well as Miscellaneous Application (MA) had been dismissed by the Tribunal.

The AO in view of the fact that assessee had not filed appeal before the Hon’ble High Court against the addition, was satisfied that default committed by assessee was punishable u/s 271(1)(c) of the Act. Accordingly, he levied penalty on the concealed income at the minimum rate of 100% of the tax allegedly sought to be evaded.

Before the Tribunal, on merits, the assessee contended that no statement was recorded by the AO u/s 131 of the Act. The assessee on three occasions wrote letters requesting the AO to supply copy of the statement recorded on oath. However, assessee had not been provided copy of the said statement till date.

It was also submitted that the assessee had repaid in subsequent year and therefore addition cannot be made u/s 68 of the Act in view of the decision of Hon’ble jurisdictional High Court. It was also submitted that penalty proceedings and assessment proceedings are separate and assessee is entitled to file further explanation and lead further evidence in course of penalty proceedings.

The Tribunal observed that it is well established that penalty proceedings and assessment proceedings are separate and distinct and assessee is entitled to file further explanation and lead further evidence in course of penalty proceedings. The Hon’ble Supreme Court held that since burden of proof in penalty proceedings varies from that in the assessment proceedings, a finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted, though a finding in the assessment proceeding constitutes good evidence in the penalty proceedings. In the penalty proceedings, thus, the authorities must consider the matter afresh as the question has to be considered from a different angle.

The Tribunal further noted that the Hon’ble jurisdictional High Court also held that assessment and penalty proceedings are distinct and separate. It is possible for an assessee to lead evidence which is independent of the evidence led in the other proceedings.

The Tribunal further noted that in the instant case, despite repeated request the AO had not supplied copy of the alleged statement recorded on oath where assessee admitted to have taken the unsecured loans as entries for business purpose.

The Tribunal stated that the assessee had challenged that no statement u/s 131 was given by her. No prejudice would be caused to the interests of revenue if such statement had, in fact, been recorded. The assessee should have been supplied a copy of the said statement as per the principles of natural justice, which has not been followed in the case. Therefore, levy of penalty without supplying copy of the impugned statement and without eliciting reply of the assessee thereon is not in accordance with law.

Further, the Tribunal noted that the assessee had also stated that the impugned loans were subsequently repaid by the assessee. Such claim had not been rebutted by the Department. The Hon’ble jurisdictional High Court had held that where department had accepted repayment of loan in subsequent year, no addition was to be made in current year on account of cash credits.

Accordingly, the Tribunal deleted the penalty imposed by AO.

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