Third-Party Statements cannot be used against  assessee until and unless the opportunity of cross examination is afforded: ITAT deletes of addition made u/s 68 IT Act towards receipt of interest free unsecured loan [Read Order]

The Income Tax Appellate Tribunal (ITAT), Ahmedabad bench, held that third-party statements cannot be used against the assessee until and unless the opportunity of cross-examination is afforded. Therefore, the bench deleted the addition made under Section 68 of the Income Tax Act towards the receipt of interest-free unsecured loans.

The assessee, Jayesh R. Thakkar, is an individual engaged in three separate business activities, namely Share Trading business, Construction business, and Transportation business under different names and styles. The assessee in the business of share trading has shown the receipt of interest-free unsecured loans from different entities.

However, during the assessment proceedings, the AO disagreed with the contention of the assessee and held that the assessee failed to explain the source of the sum credited in his books and accordingly treated the entire sum of Rs. 7,80,19,000/- as an unexplained cash credit under Section 68 of the Income Tax Act.

Aggrieved by the order, the assessee filed an appeal before the CIT(A), who deleted the addition made by the assessing officer. Thus, the revenue filed a second appeal before the tribunal.

During the proceedings, Mehul K. Patel, Counsel for the assessee, argued that the assessee has discharged the onus imposed under Section 68 of the Income Tax Act by furnishing all the necessary details. The revenue has not pointed out any defect in the documentary evidence submitted by the assessee.

Sudhendu Das, Counsel for Revenue, argued that parties who had given a loan to the assessee were not traceable, as evident from the commission report filed under Section 131(1)(d) of the Income Tax Act.

The Tribunal, while considering the appeal, observed that once the assessee submits the primary evidence regarding the identity and creditworthiness of the creditor and the genuineness of the transaction, the onus shifts to the AO to consider the materials provided and make an independent inquiry to find out the genuineness of the evidence or bring material contrary to the facts explained by the assessee.

Furthermore, the assessee, at the time of assessment proceedings in support of the genuineness of the credit of interest-free unsecured loans, furnished certain documentary evidence concerning PAN, copies of ITR-V, and various ROC forms to establish the identity of the creditor.

Even though the AO did not accept the genuineness of loans credited in the books of the assessee because notices issued to the loan parties for independent inquiry were not responded to. Thus, it was concluded that the bench established the identity, creditworthiness of the parties, and genuineness of the transaction based on the documentary evidence, but the revenue decided the issue against the assessee based on the commission report without pointing out any defect in such documents.

Revenue also took some statements from third parties which were not provided to the assessee for rebuttal. There is settled law that third-party statements cannot be used against the assessee unless and until the opportunity of cross-examination is afforded to the assessee, which was not followed by the revenue.

After reviewing the facts and records, the two-member bench of Waseem Ahmed (Accountant Member) and T.R. Senthil Kumar (Judicial Member) held that third-party statements cannot be used against the assessee until and unless the opportunity of cross-examination is afforded. Therefore, the bench deleted the addition made under Section 68 of the Income Tax Act.

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