2013 (5) TMI 253 - AT - Income Tax

Unexplained cash credit - Lack of creditworthiness of Sundry Creditor - CIT(A) deleted addition - Held that - CIT(A) rightly considered that non response of summons u/s 133(6) were not to be considered in the case of assessee, in so far as, the creditors had sold the goods to the assessee which bills were produced before the AO were documented to the extent that identity, genuineness and creditworthiness were established. AO could not have considered the application of case laws without accepting the facts that there was no cause for him to invoke the provision of section 68 merely on non response from the trade creditors. Against revenue. Unexplained cash credit - advance received from sundry debtors unexplained - CIT(A) deleted addition - Held that - CIT(A) held that the AO ought not to have taken shelter of the cited case laws that misinterpretation of the statements cannot be a ground for invoking the provision of section 145(3). It was the case of postponing the sales against such advance in the impugned assessment year, in so far as, the AO has not pointed out any specific defect in receiving the advance from sundry debtors to be applied as future as sales. CIT(A) thereafter held the same as onus being discharged by the assessee as, creditworthiness of the sundry creditors or advance received from sundry debtors cannot be questioned under the provision of section 68 as the onus rests on the AO to disprove the facts that the purchases were bogus & challenging merely on non response from the trade creditors - Against revenue. Commission on sale being extra-commercial in nature - CIT(A) deleted addition - Held that - AO has resorted to compare the payments of commission on the turn over in the immediately assessment year. Both the turn over and the commission are variable items for computing the income. Therefore, cannot be compared, in so far as, there is no fixed percentage to be derived on earning income after parting with commission. This ground of the Revenue stands dismissed. Disallowance of installation expenses - CIT(A) deleted addition - Held that - AO tried to import his own version of incurring expenditure to be supported by evidences when the assessee produced the ledger copy of the party from whom the assessee had purchased the goods as the sales had been incorporated and the purchases included the installation expenses, in so far as, the assessee s not rendering the job work was got done from the seller of the goods only. The amounts have been incurred by the assessee on the basis of the bills raised by the party when the total purchases were sold already been subjected to tax in the hands of the other party. CIT(A) has rightly considered that the AO had not been able to establish separation of income, and it was only a hint that the AO out of surmises and doubts had not been clarified by the revenue even as of now - appeal of the Revenue dismissed.

Summary

Issues:
1. Addition of Rs.31,42,061 on account of lack of creditworthiness of creditors.
2. Addition of Rs.11,65,679 on account of advance received from sundry debtors.
3. Addition of Rs.2,35,817 on account of extra-commercial commission on sale.
4. Addition of Rs.36,26,912 on account of installation expenses.

Analysis:

Issue 1: Lack of creditworthiness of creditors
The Revenue challenged the deletion of the addition of Rs.31,42,061 made by the AO on the grounds of lack of creditworthiness of the creditors. The CIT(A) ruled in favor of the assessee, stating that the non-response to summons under section 133(6) should not be a reason to doubt the creditworthiness of the creditors. The CIT(A) emphasized that the genuineness and creditworthiness of the creditors were established through documented bills and transactions. The Tribunal upheld the CIT(A)'s decision, highlighting that the burden of proof lies with the AO to disprove the legitimacy of the purchases, especially when the bills and payments were duly recorded under the mercantile system of accounting.

Issue 2: Advance received from sundry debtors
The Revenue contested the deletion of the addition of Rs.11,65,679 related to advance received from a debtor. The CIT(A) found in favor of the assessee, explaining that the advance received was a common practice in the business due to the nature of selling customized goods. The Tribunal agreed with the CIT(A), stating that the AO misinterpreted the situation and failed to prove any defects in the advance receipts. The Tribunal emphasized that the burden of proof was on the AO to show any irregularities, which were not demonstrated in this case.

Issue 3: Extra-commercial commission on sale
The Revenue raised concerns about the deletion of the addition of Rs.2,35,817 made by the AO on account of extra-commercial commission on sales. The CIT(A) reasoned that the AO incorrectly applied section 40A(2) and failed to provide substantial evidence for disallowing the commission. The Tribunal concurred with the CIT(A), noting that comparing commissions to turnover was not a valid method as both were variable components in income calculation. The Tribunal dismissed this ground of the Revenue.

Issue 4: Installation expenses
The Revenue challenged the deletion of the addition of Rs.36,26,912 for installation expenses. The Tribunal reviewed the case and found that the AO's assertion of expenditure lacked substantial evidence. The Tribunal noted that the installation charges were included in the purchases and were subjected to tax deduction at source. The Tribunal upheld the CIT(A)'s decision, highlighting that the AO failed to prove any separation of income and relied on assumptions without concrete clarification. Consequently, the Tribunal dismissed this ground of the Revenue, leading to the overall dismissal of the Revenue's appeal.