Facts already disclosed in return cannot constitute incriminating material found during search

ACIT Vs CMG Steels Pvt. Ltd. (ITAT Chennai)

Facts already disclosed in return of income cannot constitute incriminating material found during search. Also held cross examination importance when requested without which addition becomes invalid

In the present case, on perusal of facts available on record, we find that the AO has made additions towards unsecured loans on the basis of regular return of income filed by the assessee for the relevant assessment years without reference to any incriminating material found as a result of search. Although, the ld.DR has referred few documents found and seized during the course of search, but on perusal of said documents, we find that those documents are in fact confirmation letters obtained from said loan creditors in connection with unsecured loans taken and disclosed in books of accounts prepared for the relevant assessment years. Therefore, said documents cannot be treated as incriminating material found as a result of search to make addition towards unsecured loans taken and declared in regular return of income filed for relevant assessment year.

In this view of the matter and considering facts and circumstances of this case and also by following the ratios of various case laws considered herein above, we are of the considered view that additions made by the AO towards unsecured loans taken from various parties is not supported by any incriminating material found as a result of search. Since, assessment for impugned assessment year has been unabated / concluded as on the date of search, additions made towards unsecured loans without reference to any incriminating materials cannot sustain under law. Hence, addition made by the AO towards unsecured loans u/s.68 of the Act is deleted.

The Revenue has challenged deletion of additions made by the AO towards unsecured loans received from various parties u/s.68 of the Act and consequent interest u/s.37 of the Act on the ground that ld.CIT(A) has erred in deleting additions without appreciating the fact that enquiry conducted by Investigation wing of Income Tax Department, Kolkata reveals that certain parties were indulged in providing accommodation entries of unsecured loans to various parties and assessee being one of the beneficiary of such accommodation entries. We find that the AO has made additions towards unsecured loans on the basis of statement recorded from one Shri V.K. Keshari without providing copies of statement recorded from said person and also not provided opportunity of cross examination, even though the assessee has specifically requested for copies of evidence relied on to make said addition and opportunity for cross examination of said person. It is well settled principle of law by the decision of Hon’ble Supreme Court in the case of Andaman Timber Industries v CCE, [2015] 281 CTR 214 that denial to the assessee of the right to cross examine the witness whose statement was made the basis of the impugned order is a serious flaw which renders the order a nullity in as much as it amounted to violation of the principles of natural justice because of which the assessee was adversely affected. The Hon’ble Supreme Court in the case of  Kishinchand Chellaran v CIT [1980] 125 ITR 713 had taken a similar view and held that evidences collected from third party, in the absence of same being supplied to the assessee could not be used against the assessee. In this case, the AO has made additions on the basis of statement recorded from one Shri V.K. Keshari without providing said statement to the assessee and also without providing an opportunity of cross examination, even though the assessee has sought for such cross examination, in contravention of principles of natural justice. Therefore, on this count additions made by the AO cannot be sustained.

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