2012 (8) TMI 44 - AT - Income Tax

Addition made u/s 68 - non genuine loan / advance - Held that - The assessee had placed on record a confirmation from the creditor and that the amount was received by account payee cheque and subsequently repaid by account payee cheques - no inquiry has been made by AO from the bank or from the creditor on the contrary he had asked the assessee to furnish the copies of return of income, financial statement and bank statement of the lender. No independent inquiry through Inspector or by issuing summons to the creditor was made for verification of veracity of claim of assessee before making addition, the action of the A.O. treating the receipt of loan/advance as income of the assessee is not justified - in favour of assessee. Addition made in closing stock - building materials purchased in the month March not shown as stock - Held that - Considering assessee s explanation that it is a common practice that the material is supplied to the supplier as and when it is required, however, bill is sent later on & that even otherwise also an addition of closing stock is revenue in nature since the closing stock of this year becomes the opening stock of the next year - this issue is restored back to the file of Ld. CIT(A) for fresh adjudication - in favour of assessee for statistical purpose. Disallowance u/s. 40(a)(ia) - Held that - The payments made to transporters will attract the provisions of section 40(a)(ia), wherein, the appellant was bound to deduct the TDS and remit the same in Govt. account before the due date - as it is evident that the tax was deposited in the government account on -7-04-2006 well before filing of income tax return and that the AO has wrongly computed figure of TDS which is paid in time - this issue is restored back to the file of AO who is directed to verify the claim of the assessee, if the tax is deposited before filing of income tax return such amount shall be deleted from the addition and rest other amount be decided afresh as per law after giving opportunity of being heard - in favour of assessee for statistical purpose. Disallowance of interest notionally charged - Held that - Considering assessee s submission that AO has ignored to appreciate that the assessee has not given loan from interest bearing fund was given out of accumulate profits - restored back to the file of Assessing Officer who is directed to verify the claim of assessee - in favour of assessee for statistical purpose.

Issues Involved:
1. Addition of Rs. 10,00,000/- as unexplained loan under Section 68 of the Income Tax Act.
2. Addition due to under-valuation of stock.
3. Addition of interest on FDRs pledged with the Government.
4. Disallowance under Section 40(a)(ia) of the Income Tax Act.
5. Disallowance of interest of Rs. 50,268/- notionally charged.

Detailed Analysis:

1. Addition of Rs. 10,00,000/- as Unexplained Loan under Section 68:
The assessee contested the addition of Rs. 10,00,000/- as unexplained loan under Section 68 of the Income Tax Act. The assessee provided a confirmation letter from the creditor, M/s Sai Krupa Construction, including PAN details and evidence of transactions via account payee cheques. The Revenue argued that merely providing a confirmation letter does not discharge the assessee's onus to prove the loan's genuineness, identity, and creditworthiness of the creditor.

The Tribunal noted that the assessee had submitted sufficient initial evidence, including the confirmation letter and PAN of the creditor, and that the transactions were through account payee cheques. The Revenue did not conduct any independent inquiry to verify these claims. Citing judicial precedents, including the Hon'ble Supreme Court's ruling in CIT v. Orissa Corporation Pvt. Ltd., the Tribunal concluded that the assessee had discharged the initial burden of proof. The addition of Rs. 10,00,000/- was directed to be deleted.

2. Addition Due to Under-Valuation of Stock:
The assessee challenged the addition made to the closing stock, arguing that the materials were purchased as needed and bills were raised later. The Revenue contended that the assessee failed to explain the consumption of materials purchased at the year-end. The Tribunal observed that the closing stock becomes the opening stock of the next year, which was not examined by the authorities below. The issue was remanded back to the CIT(A) for fresh adjudication after providing the assessee a reasonable opportunity to be heard.

3. Addition of Interest on FDRs Pledged with the Government:
The assessee's ground regarding the addition of interest on FDRs was found to be infructuous as the CIT(A) had already deleted this addition. Therefore, this ground of appeal was dismissed.

4. Disallowance under Section 40(a)(ia) of the Income Tax Act:
The assessee argued that the disallowance of Rs. 6,48,436/- under Section 40(a)(ia) was incorrect, relying on judicial precedents that allowed retrospective application of amendments to Section 40(a)(ia). The Tribunal noted that the tax was deposited in the government account before the due date for filing the income tax return. However, the Tribunal also noted discrepancies in the computation of the disallowed amount and remanded the issue back to the Assessing Officer for verification. The AO was directed to delete amounts where tax was deposited before the due date and decide the rest as per the law.

5. Disallowance of Interest of Rs. 50,268/- Notionally Charged:
The assessee contended that the loan was given from accumulated profits and not from interest-bearing funds. The Revenue argued that the assessee failed to prove this. The Tribunal remanded the issue back to the Assessing Officer to verify the assessee's claim and directed that if it is established that no interest-bearing funds were used, the disallowance should be deleted.

Conclusion:
The appeal was partly allowed for statistical purposes, with several issues remanded back to the lower authorities for further verification and fresh adjudication.

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