Kolkata ITAT Deletes Addition Made Based On Third-Party Statement Who Was Not Allowed To Be Cross- Examined By Assessee

Finding that assessee has discharged the burden of proving identity, creditworthiness, and genuineness of the creditors to the loan transaction, the Kolkata ITAT deleted the addition made for alleged unexplained loan under Section 68 of Income Tax Act, 1961 based on the statement of third-party in a post-search assessment whose cross-examination was never allowed to assessee. The Member of the ITAT comprising of Sanjay Garg and Rajesh Kumar observed that “The CIT thereafter held that the sole basis of the Assessing Officer to make addition was on the basis of an earlier recorded statement of Shri Devesh Upadhyaya, which was neither recorded in the presence of the assessee nor the assessee was every confronted about the same. The Bench elaborated that the CIT had rightly noted that unsecured loan was part of books of accounts of assessee and the bank statements were declared by the assessee in its return filed under Section 139, even before the search was conducted and the AO's reference with respect to the bank statement as incriminating material found during search was based on wrong assumption since. Therefore, observing that no incriminating material was found during the course of search action and loan was repaid in short span of time through banking channel, the ITAT concluded that the CIT had rightly held that addition made by AO was not justified and addition is liable to be deleted, and hence, dismissed the Revenue's appeal.