Pavankumar M Sanghvi Vs ITO (ITAT Ahmedabad)
The appeal before the ITAT Ahmedabad challenged the order of the Commissioner of Income Tax (Appeals) confirming additions of ₹20,00,000 under Section 68 of the Income Tax Act as unexplained cash credits and ₹3,66,041 towards disallowance of interest on unsecured loans received from Natasha Enterprises and Mohit International for Assessment Year 2007-08.
The assessee, proprietor of Ravi Steels, had claimed to have received unsecured loans of ₹10 lakh each from Natasha Enterprises and Mohit International. The assessment, originally processed under Section 143(1), was reopened after the Assessing Officer received information from the Directorate of Income Tax (Investigation) that the two entities were part of a group of shell entities allegedly managed by Praveen Kumar Jain. During reassessment, the assessee filed loan confirmations, ledger accounts and supporting documents. However, the Assessing Officer treated the loans as unexplained cash credits under Section 68 and also disallowed the corresponding interest claimed as deduction. The CIT(A) upheld these additions.
Before the Tribunal, the assessee argued that the additions were based solely on information received from the Investigation Wing and the statement of Praveen Kumar Jain, which had subsequently been retracted. It was submitted that the assessee was never supplied with the statement nor given an opportunity to cross-examine Praveen Kumar Jain, thereby violating the principles of natural justice. The assessee also relied on affidavits from the proprietors of the lending entities confirming that genuine loans had been advanced through banking channels, carrying interest at 12%, that the loans had been repaid, and that the interest income had been offered to tax. The assessee contended that the initial burden under Section 68 had been discharged through confirmations, bank statements, audited accounts and other documentary evidence. Judicial precedents were cited in support of the requirement of confronting adverse material and permitting cross-examination.
