2014 (1) TMI 1301 - AT - Income Tax

Addition made u/s 68 of the Act Held that - The addition has been on the premise that U.S.Chawla HUF had a meager income of Rs. 1.42 lakh and hence there was no possibility of advancing loan of Rs. 3,50,000 to the assessee - No material has been brought on record to indicate that transactions declared were not accepted by the Revenue - the source of the money cannot be disputed - There is no bar in advancing loan out of other amounts legally available - As regards the remaining amount of Rs. 1,00,000, it is seen that U.S.Chawla HUF received an amount of Rs. 1.08 lakh from Monarch as commission, which was offered for taxation - the assessee has fully discharged the onus cast upon it to prove the genuineness of the loan transaction of Rs. 3.50 lakh from U.S.Chawla HUF order set aside - Decided in favour of Assessee. Deletion made on account of advances appearing in the balance sheet Held that - There was no reason to come to the conclusion that the amount of advances can be taxed in the when the equal amount of sale effected by the assessee in the subsequent year has been accepted - If the amount of advance is taxed in this year and the sales are taken as receipt in the subsequent year, it would amount to double taxation of income - the advances were received by cheque and the addresses of persons who gave the advances were duly supplied at the assessment stage the deletion made is upheld Decided against Revenue. Deletion made on account of loan taken from various parties Held that - There was outstanding loan payable by the assessee to Mrs.Amrit Chawla which was in fact paid on 02.08.2005 - This loan was taken by the assessee from Mrs.Amrit Chawla in earlier year as the same was appearing as opening credit A copy of the gift deed along with her address and permanent account number was also given to the Assessing Officer - She acknowledged the deposit of loan with the assessee by way of proper receipt - the assessee was successful in discharging the onus cast upon it to prove the genuineness of the loan received from Mrs. Amrit Chawla. The addition u/s 68 was made by the Assessing Officer on account of these two alleged loans received from two minors - there was no question of filing the separate returns - No material has been placed on record to indicate that the gifts shown to have been received by them from relatives and others were ever disclosed in the hands of their father - the question of accepting the genuineness of gifts could not arise - As the entire CIT(A) s order is based on the premise that the genuineness of the gifts was accepted by the Revenue the order for this issue is set aside and the matter remitted back to the CIT(A) for fresh adjudication decided partly in favour of Revenue.

Summary

Issues:
1. Addition of Rs. 3,50,000 u/s 68 of the Income-tax Act, 1961
2. Deletion of addition of Rs. 15,15,000 on account of advances appearing in the balance sheet
3. Deletion of addition of Rs. 19,84,000 on account of loans taken from various parties

Issue 1: Addition of Rs. 3,50,000 u/s 68 of the Income-tax Act, 1961:
The assessee received an unsecured loan of Rs. 3,50,000 from U.S.Chawla HUF. The Assessing Officer added this amount u/s 68 of the Act due to the creditor's meager income. However, the Tribunal found that the source of the loan was legitimate, as it originated from a loan received by U.S.Chawla HUF from another party. The Tribunal noted that U.S.Chawla HUF had disclosed these transactions in its income tax return, which was accepted by the Revenue. As the assessee provided evidence to substantiate the loan transaction, the Tribunal overturned the addition made by the Assessing Officer.

Issue 2: Deletion of addition of Rs. 15,15,000 on account of advances appearing in the balance sheet:
The assessee received advances of Rs. 15.15 lakh from three parties against goods to be sold in the subsequent year. The Assessing Officer doubted the genuineness of these advances based on discrepancies in the bills submitted. However, the Tribunal upheld the deletion of this addition, emphasizing that taxing the advances in the current year when the sales were accepted in the subsequent year would lead to double taxation. The Tribunal also noted that the advances were received through cheques, and all necessary details were provided to the Assessing Officer, leading to the deletion of the addition.

Issue 3: Deletion of addition of Rs. 19,84,000 on account of loans taken from various parties:
The Revenue disputed loans of Rs. 5.84 lakh, Rs. 7.50 lakh, and Rs. 6.50 lakh taken from different parties. The Assessing Officer questioned the genuineness of these loans, alleging that the assessee used certain individuals as conduits for giving loans. However, the Tribunal found that the assessee had successfully proven the legitimacy of the loans. For instance, a loan of Rs. 5.84 lakh from Mrs. Amrit Chawla was duly acknowledged and supported by relevant documents. The Tribunal upheld the deletion of this addition. Regarding loans from minors, the Tribunal disagreed with the CIT(A)'s reasoning that accepted the genuineness of gifts received by minors. The Tribunal ordered a reevaluation of the genuineness of these loans, directing the matter to be reconsidered by the CIT(A) after providing the assessee with a reasonable opportunity to present their case.

In conclusion, the Tribunal allowed the assessee's appeal and partly allowed the Revenue's appeal for statistical purposes, emphasizing the importance of substantiating the legitimacy of transactions and loans to avoid unwarranted additions.