Unexplained Credit Addition u/s 68: ITAT Upholds CIT(A)’s Order, Citing Retraction of Statements and Documentary Evidence [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) upheld the deletion of the addition of Rs. 6,93,00,000 under Section 68 of the Income Tax Act, 1961, and ruled that the loan transaction was genuine, supported by retracted statements, regulatory compliances, and financial records of the lender.

M/s Tirupati Developers (assessee) was subjected to a search under Section 132, leading to assessment for Assessment Year (AY) 2012-13. The Assessing Officer (AO) added Rs. 6,93,00,000 as unexplained credit, treating a loan from M/s Satyam Projects Ltd. as an accommodation entry based on statements recorded during the search indicating involvement in bogus entries.

The AO disallowed the loan and related interest of Rs. 51,95,337, citing the group's alleged engagement in unaccounted money through paper companies.

Aggrieved by the AO’s order, the assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee submitted extensive evidence, including RBI and ROC compliances of the lender, merger orders sanctioned by the Calcutta High Court, bank statements, assessment orders of merged entities, and confirmations of loan repayments.

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The CIT(A) deleted the addition, noting that statements relied upon by the AO were retracted as coerced, no incriminating material was found during the search, and the lender had substantial net worth and income. The CIT(A) held that the assessee discharged its onus under Section 68 regarding identity, genuineness, and creditworthiness.

Aggrieved by the CIT(A)’s order, the Revenue appealed to the ITAT. The Revenue argued that the group was involved in accommodation entries, and the CIT(A) erred in deleting the addition despite initial statements.

The assessee’s counsel defended the CIT(A)’s findings, highlighting the retraction affidavits, lack of adverse inference in the lender’s assessment, and documentary proofs like bank transactions and financial statements showing the lender’s income of Rs. 8.27 crores.

The two-member bench, comprising Kavitha Rajagopal (Judicial Member) and Renu Jauhri (Accountant Member), observed that the CIT(A) thoroughly examined the evidence, including RBI compliances, High Court-sanctioned mergers, and bank records, with no discrepancies identified.

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The bench noted the retraction of statements by key individuals like Shri Bhagwanji M Patel, Shri Agnesh Thakkar, and Shri Uday Shankar Mahawar, who affirmed coercion in subsequent affidavits and cross-examinations.

The bench emphasized that additions under Section 68 cannot rely solely on oral statements without corroborative evidence, especially when contradicted by financial records and CBDT instructions against additions based on coerced confessions.

The tribunal cited a coordinate bench decision in M/s Lotus Logistics & Developers Pvt. Ltd. under similar facts, upholding the deletion. The appeal of the Revenue was dismissed, and the cross-objection was not adjudicated.

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