2015 (1) TMI 1342 - AT - Income Tax

Unexplained credit u/s.68 - non furnishing of information - Held that - CIT(A) in appeal observed that evidences have been provided to Assessing Officer during assessment proceeding who instead of carrying further investigation into the source of funds with the lenders, issued show cause on the basis of doubts and suspicion. Even during course of remand proceedings, Assessing Officer did no investigations, which is not justified. Both the lenders are Income Tax assessee and confirmations were given. Source of funds with creditors were also provided to Assessing Officer. Assessing Officer instead of taking action, made addition for the reason that cash was deposited before the loan transactions. The deposit of cash proceeding transactions can give rise to doubt and be a starting point for investigation but cannot be the basis of conclusion disregarding other evidences. Nothing adverse has been brought on record by Assessing Officer with regard to evidence produced by assessee on this point. In any manner, since creditors were assessed to tax, confirmation were filed, TDS deducted on interest credit and loan were reflecting in their accounts, no addition could be made in the hands of assessee u/s. 68. Accordingly, CIT(A) justified in deleting addition - Decided in favour of assessee Disallowance of interest - assessee had debited interest expenses which was provided at 12% but had not charged interest on loan given to 3 persons - Held that - Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of assessee and having called for remand report and considering the same CIT(A) observed that evidence shows that interest had been charged by assessee on advances given to M/s. Royal Agencies and fact that advances to other concerns were business advances, disallowance of interest was not warranted. Accordingly, same was rightly deleted. We uphold the same.- Decided in favour of assessee Unexplained income on the basis of interest - non receipt of reply from parties u/s. 133(6) - Held that - As before the First Appellate Authority, various contentions were raised on behalf of assessee inter alia stated that assessee had regular business dealings with these persons. Assessee submitted ledger copies in his books as also confirmations from the said parties to establish that transactions and outstanding balances were genuine. Same were forwarded to Assessing Officer for his comments after verification of genuineness. It was stated by Assessing Officer in remand report that contentions put for by Authorized Representative is correct and matter be decided on merits. In view of comments of Assessing officer and fact that necessary confirmations were submitted on behalf of assessee, which was in conformity with the outstanding balances in the books. CIT(A) was justified in deleting addition - Decided in favour of assessee

Summary

Issues:
1. Addition of unexplained credit under section 68
2. Disallowance of interest
3. Addition of unexplained cash credit under section 68
4. Disallowance of interest on loans
5. Addition of unexplained income based on non-receipt of replies

Issue 1: Addition of unexplained credit under section 68
The Revenue appealed against the deletion of an addition of Rs. 18,90,653 made on account of unexplained credit under section 68. The Assessing Officer added Rs. 13,08,000 as unexplained cash credits under section 68, citing lack of information on unsecured loans provided by the assessee. The First Appellate Authority granted relief to the assessee after considering various contentions and remand reports. The CIT(A) observed deficiencies in the assessment order and discrepancies in loan amounts, leading to the deletion of certain additions. The CIT(A) upheld the deletion of additions concerning the loans from Ronak Motor Re-powering and Shri Chandreshkumar B. Shah, as their creditworthiness was established. However, the addition related to Shri Hirenkumar S. Shah was partially upheld due to discrepancies in the confirmation provided. The Tribunal upheld the CIT(A)'s decision, granting relief to the assessee.

Issue 2: Disallowance of interest
The Revenue contested the deletion of an addition of Rs. 1,14,777 made on account of disallowance of interest. The Assessing Officer disallowed interest expenses based on loans given to certain entities where interest was not charged. The CIT(A) justified the deletion of this disallowance, noting that interest had been charged on advances to some entities and that the advances to others were business-related. The Tribunal upheld the CIT(A)'s decision, ruling in favor of the assessee.

Issue 3: Addition of unexplained cash credit under section 68
The Revenue challenged the deletion of an addition of Rs. 2,94,000 as unexplained cash credit under section 68. The Assessing Officer added this amount based on loans received from specific individuals without adequate explanations. The CIT(A) found that evidence had been provided to the Assessing Officer, including confirmations from the lenders, and that no further investigations were conducted by the Assessing Officer. The CIT(A) concluded that since the creditors were tax-assessed, had provided confirmations, and had transactions reflected in their accounts, no addition under section 68 was warranted. The Tribunal upheld the CIT(A)'s decision, providing relief to the assessee.

Issue 4: Addition of unexplained income based on non-receipt of replies
The Revenue disputed the addition of Rs. 3,43,634 as unexplained income due to non-receipt of replies from certain parties under section 133(6). The Assessing Officer treated outstanding balances as unexplained based on non-receipt of replies from specific parties. The CIT(A) found that the assessee had regular business dealings with these parties, submitted ledger copies and confirmations, and the Assessing Officer verified the genuineness. The CIT(A) deleted the addition based on the comments of the Assessing Officer and the confirmations submitted. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.