2012 (8) TMI 68 - AT - Income Tax

Addition as unaccounted cash credits - Held that - Once the assessee has paid the tax on the amount which was alleged to be introduced as cash credit in the books of account, therefore the Revenue should have examined this aspect on those lines as per the provisions of law - the cash credit amount was subject to tax by invoking section 68 but those figures were ultimately recorded as sales and paid tax thereon by the assessee himself in the subsequent financial year and if the addition is hereby sustained, then in consequence thereupon the said amount shall get reduced from the sales amount of the subsequent year - the AO was not justified in adding the impugned amount as the taxable income of the assessee for the year under consideration. Penalty levied u/s.271(1)(c) - Held that - Penalty was imposed in respect of the impugned addition made u/s.68 and since in quantum appeal the said addition has already deleted there was no basis for levy of penalty, hence we hereby direct to delete the same - in favour of assessee.

Summary

Issues:
1. Addition of Rs.16,50,000 as cash credits and unaccounted income of the appellant firm.
2. Confirmation of penalty levied under section 271(1)(c) of the Income Tax Act.

Issue 1: Addition of Rs.16,50,000 as cash credits and unaccounted income of the appellant firm:

The appellant, a trading firm in electrical goods, disclosed advances from customers in its balance sheet. The Assessing Officer (AO) raised concerns about the genuineness of these transactions, specifically cash advances from eleven parties, totaling Rs.16,50,000. The AO alleged that the villagers mentioned as creditors were non-existent, creating fictitious entities to introduce unexplained cash. The appellant contended that the advances were for purchasing motor pumps, to be delivered in the subsequent financial year. The appellant provided various documents and explanations, including sales bills, purchase orders, and a certificate from the Sarpanch of the Village. The AO invoked section 68 of the IT Act and made the addition.

The CIT(A) upheld the AO's decision, stating that the appellant failed to discharge its primary onus and establish the genuineness of the transactions. The ITAT analyzed the evidence presented by both sides. It noted conflicting claims regarding the existence of the villagers and highlighted procedural flaws in the AO's inquiry. The ITAT observed that the appellant had paid tax on the alleged cash credit amount in the subsequent year, reflecting the amount as sales. The ITAT concluded that the AO was unjustified in adding the amount as taxable income for the year under consideration and directed the deletion of the addition.

Issue 2: Confirmation of penalty levied under section 271(1)(c) of the Income Tax Act:

The penalty under section 271(1)(c) was imposed based on the impugned addition made under section 68 of the IT Act. Since the ITAT had already deleted the addition in the quantum appeal, it found no basis for the levy of the penalty. Consequently, the ITAT directed the deletion of the penalty.

In summary, the ITAT, Ahmedabad, addressed the issues of addition of cash credits and unaccounted income as well as the confirmation of penalty under section 271(1)(c) of the Income Tax Act. It found procedural flaws in the AO's inquiry, discrepancies in the evidence, and concluded that the addition was unjustified. The ITAT directed the deletion of the addition and the penalty, ruling in favor of the appellant on both counts.