ACIT Vs Mihir Subodhbhai Shah (ITAT Ahmedabad)
Mere agreement to not to charge/pay interest on loan will not vitiate genuineness of such loan transaction
Admittedly, during the year the bank account of the assessee was credited by Rs. 8 Lakh which was treated as unexplained investment by the AO in the absence of necessary detail. The assessee during the appellate proceeding before the learned CIT-A submitted that same represent receipt of unsecured loan from Paresh N Patel and Paresh N Patel HUF. To this effect the assessee also furnished copy confirmation letter from the parties and copy of their PAN as well as ITR acknowledgment. The learned CIT(A) after considering the submission of the assessee and remand report from the AO, was pleased to delete the addition made by the AO. From the perusal of remand report and ground of appeal we note that the only issue of the revenue is that the transaction of credit of unsecured loan as discussed above was not genuine because the assessee has not paid interest on the loan. As such the assessee during the remand proceeding to establish the identity & creditworthiness of creditor and genuineness of transaction, furnished copy of pan, ITR and confirmation letter of the creditor. The AO in the remand did not find any infirmity in the primary evidence furnished by the assessee. The law is fairly settled in case of credit in the books of account the assessee is required to furnished primary document to establish identity & creditworthiness of creditor and genuineness of transaction, once the primary documentary evidence furnished, the onus shifts on the revenue to point infirmity in the document furnished by the assessee after conducting necessary inquiry. In the case on hand, the AO has not carried out any independent inquiry and not found any infirmity in the primary documents filed by the assessee but merely doubted the genuineness of transaction since interest was not paid on impugned loan. In our considered view, the prerogative to pay/charge interest on loan is between the parties who accepted/provided the loan and the same also depends upon various factors. Merely the parties agreed to not to charge/pay interest on loan will not vitiate the genuineness of such loan transaction unless and until the revenue brought some cogent material on record to prove that such transaction of loan is not genuine.
No assessment can be made in the hand of the assessee on basis of certain noting/jotting/rough estimates on the loose sheets/note pad/diary etc. unless and until same is corroborated with independent cogent material giving rise to undisclosed income
A non-speaking document without any corroborative material, evidence on record and finding that such document has materialized into transactions giving rise to income of the assessee which had not been disclosed in regular books of account by such assessee, must disregarded for the purposes of assessments to be framed pursuant to search and seizure action. From the search and seizure perspective, such non-speaking seized documents are to be referred to as “Dumb Documents”. Therefore, in our considered opinion any loose sheets/diary/note pad containing certain noting or jotting found but on perusal of the same it not discernible that whether any transaction taxable in nature materialized which has not been recorded in the regular books of account or not corroborating with some other cogent material shall not be used for making assessment despite being presumption provide under section 132(4A) and under section 292C of the Act.
In holding so, we draw support and guidance from the judgment of Hon’ble Supreme Court in case of CIT vs. Shoorji Vallabhdas & CO. reported in 46 ITR 144 wherein it was held as under:
“No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a “hypothetical income”, which does not materialise. ”
We also draw support and guidance from the order of the coordinate bench of Mumbai Tribunal in the case of Nagarjuna Construction Co. Ltd. vs. DCIT reported in 23 taxmann.com 239. The relevant finding of the bench is extracted as under:
The basis for addition is only note book/loose slips. These note book/loose slips are unsigned documents. The assessing officer has not established nexus between the note book/loose slips with actual accrual/ receipt of interest. The note book/loose slips seized marked A/NCCL-1/1 found during the course of search is a dumb document having no evidentiary value, no addition can be made in the absence of corroborative material. I f there is circumstantial evidence in the form of promissory notes, loan agreement and bank entries, the addition is to be made on that basis to the extent of material available. The assessee is not expected to explain the loose papers found as there is no evidence other than note book/loose slips regarding accrual of interest. In our opinion, no addition can be made on the basis of dumb documents/note book/loose slips in the absence of any other material to show that the assessee has carried on money lending business. Noting on the note book/diary/loose sheets are required to be supported/ corroborated by other evidence and are also include the statement of a person who admittedly is a party to the noting and statement from all the persons whose names there on the note book/loose slips and their statements to be recorded and then such statement undoubtedly should be confronted to the assessee and he has to be allowed to cross examine the parties.
The Hon’ble Supreme Court in case of Common Cause (A Registered Society) vs. Union of India (popularly known as Sahara-Birla Diary) reported in 77 taxmann.com 245 by following the earlier judgment of the Hon’ble SC in the case of C.B.I. v. V.C. Shukla [1998] 3 SCC 410 held as under:
It is apparent from the aforesaid discussion that loose sheets of papers are wholly irrelevant as evidence being not admissible under Section 34 so as to constitute evidence with respect to the transactions mentioned therein being of no evidentiary value. The entire prosecution based upon such entries which led to the investigation was quashed by this Court.
Thus, in view of the above discussion the answer to the question is that no assessment can be made in the hand of the assessee on basis of certain noting/jotting/rough estimates on the loose sheets/note pad/diary etc. unless and until same is corroborated with independent cogent material giving rise to undisclosed income.
