2013 (9) TMI 640 - AT - Income Tax

Cash credit u/s 68 - determination of new credit - Difference in opening and closing balance - Held that - In the original assessment order made under section 144, the Assessing Officer noted that unsecured loans had increased by ₹ 23,64,272 being difference of closing balance and opening balance of loans shown in the balance sheet. Since the assessee had not filed any confirmations, the Assessing Officer added the said sum under section 68 of the Act. The intention of the Assessing Officer was obviously to add the new credits during the year on account of loans but since it was an ex parte assessment and the assessee had not given details, the new credits were computed as the difference between the closing and opening balance - it is not a case that the Assessing Officer had not added a particular cash credit in the original assessment but the same was added in the fresh assessment. The Assessing Officer in this case in the original assessment had added new cash credits in the ex parte assessment which on verification in the fresh assessment was found to be more and, therefore, it cannot be said that any new addition has been made by the Assessing Officer - Following decision in case of Mcorp Global P. Ltd. 2009 (2) TMI 5 - SUPREME COURT - Decided against assessee. Unexplained cash credit - Held that - the claim of the assessee cannot be accepted or cash credit cannot be taken as explained satisfactorily only on the ground that loan had been received through banking channel. In case the assessee is not assessed to tax, the burden is on the assessee to show the source from which the loan had been received. But in this case no material has been produced to show creditworthiness of the creditor. The assessee must prove the identity and creditworthiness of the creditor and bank transactions are not sacrosanct - matter remanded back for verification and re-adjudication. Disallowance of loss - The dispute is regarding allowability of loss claimed by the assessee in the business on account of sale of shares. - Held that - Normally the assessee is required to give distinctive numbers of shares sold for the purpose of verification but in this case since shares sold were purchased earlier and shown in the balance-sheet, in case, the assessee files reconciliation of shares sold with respect to the shares declared earlier in the years, the claim of loss in our view should be considered. However, we also make it clear that in the balance-sheet, the assessee had shown shares as investment and, therefore income/loss arising from sale of shares has to be con sidered as capital loss and not business loss. Further, since shares are shown as investment and loss has to be considered as capital loss, provisions of the Explanation to section 73 is not applicable in such cases. In our view matter requires fresh consideration at the level of the Assessing Officer - Decided partly in favour of assessee.

Issues Involved:
1. Addition on account of cash credit.
2. Disallowance of share trading loss.
3. Disallowance of loss from trading in cloth.
4. Jurisdiction of the Assessing Officer to assess cash credit.
5. Deletion of addition of cash credit by the Commissioner of Income-tax (Appeals).
6. Disallowance of bad debt.

Detailed Analysis:

1. Addition on Account of Cash Credit:
The primary issue was the addition of Rs. 1,02,35,478 as cash credit by the Assessing Officer (AO) in the fresh assessment, which was initially Rs. 23,64,272 in the original assessment. The Tribunal found that the AO had not exceeded jurisdiction since the original intention was to add new credits during the year. The new figure was based on verification, not a new addition. Thus, the Tribunal dismissed the assessee's ground, stating that the AO did not make any new additions but merely corrected the figure based on verification.

2. Disallowance of Share Trading Loss:
The AO disallowed a share trading loss of Rs. 2,27,277 due to the lack of supporting evidence such as distinctive numbers of shares sold and brokers' notes. The Commissioner of Income-tax (Appeals) upheld this disallowance, treating the loss as speculation loss under the Explanation to section 73. The Tribunal noted that the shares were shown as investments in the balance sheet and directed the AO to reconsider the claim as a capital loss, not a business loss, after necessary examination.

3. Disallowance of Loss from Trading in Cloth:
The AO disallowed a loss of Rs. 3,14,715 from trading in cloth due to the absence of books of account and supporting evidence. The Commissioner of Income-tax (Appeals) confirmed this disallowance. The Tribunal upheld the disallowance, emphasizing the need for the assessee to produce books of account and prove the movement of goods, especially since the transactions were with sister concerns.

4. Jurisdiction of the Assessing Officer to Assess Cash Credit:
The Tribunal addressed the jurisdictional challenge raised by the assessee regarding the AO's authority to assess cash credit at Rs. 1,02,35,478 in the fresh assessment. The Tribunal concluded that the AO did not exceed jurisdiction as the fresh assessment was based on verification and not an enhancement of income.

5. Deletion of Addition of Cash Credit by the Commissioner of Income-tax (Appeals):
The Commissioner of Income-tax (Appeals) deleted the addition of Rs. 77,35,478 in respect of seven creditors, accepting the assessee's confirmations and GIR Nos. The Tribunal found discrepancies in the Commissioner's findings and noted that the AO failed to verify the creditors' income-tax files. The Tribunal set aside the Commissioner's order and remanded the matter for fresh examination, emphasizing the need for verification from the creditors' income-tax files.

6. Disallowance of Bad Debt:
The AO disallowed a bad debt claim of Rs. 8,811 due to the lack of evidence showing the debt related to business. The Commissioner of Income-tax (Appeals) allowed the claim based on the amended provisions of section 36(1)(vii). The Tribunal, however, noted that the assessee failed to provide details showing the debt was taken into account in earlier years' income computation. Therefore, the Tribunal set aside the Commissioner's order and confirmed the AO's disallowance.

Conclusion:
The Tribunal's order resulted in a partial allowance for statistical purposes for the assessee's appeal and a similar outcome for the Revenue's appeal. The Tribunal emphasized the need for proper verification and documentation to substantiate claims and disallowances.

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