Short Compliance Window Prompts ITAT to Allow Additional Evidence in Unsecured Loan Case:

The ITAT Agra Bench, in the case of Roop Kishore Agarwal, has directed the Assessing Officer (AO) to examine additional evidence relating to unsecured loans and verify the identity, genuineness, and creditworthiness of the creditors.

In the present case, Roop Kishore Agarwal (assessee) had declared an aggregate income amounting to Rs 4.14 lakh in his income tax return (ITR) for the Assessment Year 2017-18. During the relevant period, he had taken an unsecured loan of Rs 1.64 lakh and made cash deposits of Rs 3 lakh in his bank accounts maintained with Bank of Baroda and Canara Bank. In order to verify these transactions, the Assessing Officer (AO) issued statutory notices to the assessee. In response to the same, the assessee provided a copy of the purchase deed of the properties.

Along with this, the assessee also submitted a ledger account and a copy of the affidavit of lenders. Thereafter, the AO served notice under Section 133(6) of the Income Tax Act to the lenders for the purpose of confirmation and asked them to furnish relevant documents. The documents were duly submitted in response to the notice but did not fully satisfy the AO. Still, the AO did not make any addition arising out of the cash credits in the bank; however, the AO treated the entire unsecured loan of Rs 1.64 lakh as undisclosed income under Section 68 of the Act, and the same amount was made as an addition to the assessee's income.

Thereafter, the assessment was completed vide an assessment order dated December 31, 2019, passed under Section 143(3) of the Act. The assessee, being dissatisfied with the AO's decision, challenged the same before the Commissioner of Income Tax (Appeals) [CIT(A)]; however, the appeal was dismissed, noting that "opening balance of the entire amount of Rs. 32,57,728/- as loans/ deposits cannot be considered for addition u/s 68 of the Act during the year under consideration and directed the assessing officer to call for relevant ledgers and bank statements and verify the actual amount of opening balance and delete the addition to the extent of opening balance after such verification." The CIT(A) had partly sustained the impugned additions.

Subsequently, the assessee approached the Income Tax Appellate Tribunal (ITAT), seeking complete relief. During the personal hearing before the Tribunal, the assessee contended that the AO had sought depositors’ income tax returns and bank statements through a notice dated December 9, 2019, requiring compliance by December 11, 2019, shortly before the assessment deadline of December 31, 2019. The assessee contended that the limited time made it difficult to submit the required documents.

The Tribunal observed that admitting the additional evidence was necessary to ensure compliance with the principles of natural justice. Accordingly, it directed the AO to examine the additional documents, verify the identity, genuineness, and creditworthiness of the unsecured creditors, and pass a fresh order after providing the assessee an opportunity to be heard. The Tribunal allowed the assessee's appeal for statistical purposes.