2016 (3) TMI 1077 - AT - Income Tax

Unexplained cash credit u/s 68 - Held that - CIT(A) granted relief to the assessee by observing that the assessee had explained the sources to be out of cash withdrawn by the partners from their bank accounts and out of regular cash in hand. The said contention of the assessee was supported by copies of partner s bank pass book and also cash book as maintained by them in regular course of business. The ld. CIT(A) further observed that the assessee has successfully demonstrated the source of each and every amount credited in the capital account of the three partners. The explanation of the assessee is fully supported by documents placed in the paper book in the form of bank pass book, extracts from the regular books of accounts of respective partners and the financial statements of the partners. Therefore, the ld. CIT(A) was quite justified in directing the AO to delete the addition - Decided against revenue Addition on account of unexplained credit in the capital contribution of the assessee firm - Held that - In the present case we find no infirmity in the order of the ld. CIT(A) wherein he has categorically held that sufficient stock of ready and dyed fabric was actually available with the parent firm M/s Nath International out of which 1,89,517 meters of stock was withdrawn by the partners and was introduced as their capital contribution in the assessee firm. The ld. CIT(A) further held that the findings of the AO that no such stock were available with the said firm is factually incorrect and in view of the above facts noted by the ld. CIT(A) the addition made by the AO cannot be held as sustainable - Decided against revenue Disallowance of rent paid - assessing officer held that the rent paid by the respondent for 4 rental premises out of 7 rental premises occupied by the respondent during the relevant assessment year is not genuine - Held that - AO mixed two different types of information and wrongly interpreted them and arrived at the conclusion arbitrarily without giving the assessee any opportunity of being heard. From the written submissions of the assessee before the authorities below, it is amply clear that ht property situated at A-1, Sector 26, Noida was used for activities, the property situated at B-114, Sector 5, Noida and Kanodia House, Lohai Road, Farrukabad were used for production activities and the property at 504A, Nagarjuna Apartments, Mayur Vihar 1, New Delhi was used for office of the assessee and all four disputed rent was paid for the purpose of the business of the assessee. These facts have not been controverted by the AO as well as by the ld. Sr. DR. Hence, the conclusion of the ld. CIT(A) is sustainable. When the assessee had provided detailed usage of premises, we are unable to see any valid reason to interfere with the conclusion of the first appellate authority and thus we uphold the same - Decided against revenue

Summary

Issues Involved:
1. Unexplained cash credit under Section 68 of the I.T. Act.
2. Unexplained credits in the shape of stock transferred.
3. Non-genuine rent expenses.

Issue-wise Detailed Analysis:

Ground No. 1: Unexplained Cash Credit under Section 68 of the I.T. Act
The revenue appealed against the CIT(A)'s decision to allow relief of ?8,50,000/- on account of unexplained cash credit. The AO had added amounts credited in the capital accounts of the three partners, which were not satisfactorily explained. The CIT(A), however, verified the sources and deleted the addition. The Tribunal upheld the CIT(A)'s decision, noting that the assessee provided sufficient evidence, including bank passbooks and cash books, demonstrating the sources of the credited amounts. The Tribunal agreed with the CIT(A) that the assessee had successfully demonstrated the genuineness and source of the transactions, thus dismissing the revenue's ground.

Ground No. 2: Unexplained Credits in the Shape of Stock Transferred
The revenue disputed the deletion of an addition of ?80,25,560/- related to unexplained credits in the capital contribution of the assessee firm. The AO had not accepted the transfer of ready and dyed fabric stock, claiming it was not available with M/s Nath International. The CIT(A), however, found that the stock was indeed available and deleted the addition. The Tribunal upheld this finding, agreeing with the CIT(A) that the stock registers and other documents provided by the assessee demonstrated the availability of the stock. The Tribunal noted that the AO's conclusions were based on incorrect inferences and that the CIT(A)'s decision was supported by substantial evidence, thus dismissing the revenue's ground.

Ground No. 3: Non-Genuine Rent Expenses
The revenue appealed against the CIT(A)'s decision to allow relief of ?9,35,100/- related to rent expenses deemed non-genuine by the AO. The AO had disallowed the rent for four premises, but the CIT(A) found that the premises were used for business purposes and deleted the disallowance. The Tribunal upheld the CIT(A)'s decision, noting that the assessee provided detailed evidence, including rent agreements, ledger accounts, and utility bills, demonstrating the business use of the premises. The Tribunal found no reason to interfere with the CIT(A)'s conclusion, thus dismissing the revenue's ground.

Conclusion:
The Tribunal dismissed the appeal of the Revenue, upholding the CIT(A)'s decisions on all three grounds. The Tribunal found that the assessee had provided sufficient evidence to substantiate the sources of cash credits, the availability of stock, and the genuineness of rent expenses. The order was pronounced in the open court on 31.03.2016.