2012 (12) TMI 747 - AT - Income Tax

Unexplained Cash Credits Held that - The assessee had provided complete addresses of all the persons from whom the assessee had received the advances. The explanation of the assessee that advance so received was for the purpose of purchase of gold jewellery having been purchased for few of the persons have been debited to their accounts and rest of the persons because of the price rise in the gold, the gold could not be purchased and the amount was returned up to 31.03.2006. During the remand proceedings, the AO chose to examine 19 persons out of which 3 persons had expired for which the relevant documents to confirm the advance were submitted, is not under dispute. As regards the rest of 16 persons, they were examined and had confirmed that the said advance was given by the assessee. This is also not under dispute. The assessee out of Annexure-B chose to file confirmations of 23 persons, which were filed is not under dispute. Thus when the AO was in the possession of complete addresses of each every depositors, it was the duty of the AO to call for the information, confirm or examine them to find out the identity, creditworthiness and genuineness of the transaction. But the AO chose not to act and use powers vested with him u/s 131 or u/s 133 (6). When the assessee had discharged the onus of proving identity, creditworthiness and genuineness of the transactions, there is no reason of making any addition on account of unexplained cash credits, which in fact, are the trade creditors. AO directed to delete all the additions - in favour of assessee.

Summary

Issues:
- Addition of trade creditors as unexplained credits
- Addition on account of non-receipt/late receipt of confirmation letters
- Interpretation of remand report by the AO
- Allowance of relief on unexplained cash deposits/loans
- Genuineness of cash deposits/loans from various parties
- Statement of a specific individual regarding income and cash loan
- Consideration of PAN status in determining genuineness of transactions
- Assessment of the genuineness of transactions based on lack of PAN and tax assessment
- Dispute over the genuineness of cash deposits/loans
- Examination of creditors and confirmation of advances
- Discharge of onus to prove identity, creditworthiness, and genuineness of transactions

Analysis:
1. The appeal involved cross appeals by the assessee and the Revenue arising from the CIT(A)'s order for the assessment year 2006-07. The assessee contested the addition of trade creditors as unexplained credits and non-receipt/late receipt of confirmation letters. The Revenue challenged the allowance of relief on unexplained cash deposits/loans, questioning the genuineness of these transactions based on the lack of PAN and tax assessment of the parties involved.

2. The assessee argued that all creditors were produced as per the AO's direction, and complete addresses were provided. The AO failed to examine all creditors thoroughly, leading to the addition of unexplained cash credits. The CIT(A) reviewed the remand report and excluded certain entries, but confirmed others, citing lack of proper examination by the AO.

3. The genuineness of cash deposits/loans from various parties was a key point of contention. The CIT(A) considered statements from individuals and the nature of transactions, including the absence of PAN and tax assessment. Disputes arose over the examination of creditors and the confirmation of advances, with the assessee providing necessary documents to prove the transactions' authenticity.

4. Specific statements, such as one regarding income and a cash loan, were analyzed to determine the legitimacy of transactions. The CIT(A) scrutinized the actions of the AO in summoning and examining parties involved in the transactions, emphasizing the need to establish the identity, creditworthiness, and genuineness of the transactions.

5. Ultimately, the Tribunal directed the AO to delete all additions related to unexplained cash credits, emphasizing that the assessee had fulfilled the burden of proving the authenticity of the transactions. The appeals were decided in favor of the assessee, with the Revenue's appeal dismissed. The outcome highlighted the importance of thorough examination and confirmation of transactions to avoid unjust additions based on inadequate scrutiny.