2014 (2) TMI 88 - AT - Income Tax

Addition made u/s 68 of the Act Unexplained cash credits Onus to prove Violation made 69 of the Act - Admission of additional evidences Held that - The AO clarified that most of the details called for had not been filed by the assessee and in spite of repeated opportunities granted to the assessee as mentioned in the assessment order - The CIT(A) had not given any opportunity or sought any remand report from the A.O. and without affording any opportunity to the A.O. he had allowed the appeal - It is evident from the copy of letters that the appellant had not furnished any confirmation before the AO Further, if any, loan is received from the banking channel, in absence of confirmation, the creditworthiness of the depositors cannot be ascertained - The Counsel from both the sides fairly accepted that the matter may be set aside to the CIT(A) for de novo the order fo the CIT(A) set aside Decided in favour of Revenue.

Summary

Issues:
1. Addition of unexplained cash credits under section 68 of the Income Tax Act.
2. Disallowance of interest under section 36(1)(iii) of the Act.

Issue 1: Addition of unexplained cash credits under section 68:

The appeal was filed by the Revenue against the order of CIT(A)-XX, Ahmedabad, for the assessment year 2007-08. The Revenue contended that the CIT(A) erred in law and on facts by deleting the addition of Rs.42,70,000 made by the Assessing Officer (AO) under section 68 of the Income Tax Act. The AO observed that the assessee, engaged in dairy products and share trading, did not provide confirmations for certain cash creditors. Despite the assessee paying interest and making investments using these cash creditors, the appellant failed to prove the identity, creditworthiness, and genuineness of the transactions. The AO relied on legal precedents and added the amount of Rs. 42,70,000 under section 68 and disallowed interest of Rs. 4,91,382 under section 36(1)(iii). The CIT(A) allowed the appeal, stating that all necessary materials were filed before the AO, including account payee cheques, addresses, PAN numbers, and confirmations. The CIT(A) found the evidence sufficient to prove the genuineness of the cash credits. The CIT(A) held that the appellant had discharged the burden of proving the genuineness of the cash credits. Therefore, the addition under section 68 was deleted.

Issue 2: Disallowance of interest under section 36(1)(iii):

The Revenue also challenged the deletion of the addition of Rs. 4,91,382 made by the AO on account of disallowance of interest under section 36(1)(iii) of the Act. The CIT(A) considered the evidence provided by the appellant, including affidavits, cross confirmations, and bank statements, as supporting the genuineness of the credits. The CIT(A) concluded that the interest expenditure was incurred for business purposes and allowed the claim of interest made by the appellant. The Revenue contended that the CIT(A) accepted all evidence submitted during the appellate proceeding without proper confirmation from the AO. The Revenue argued that the CIT(A) did not seek a remand report from the AO and allowed the appeal without affording an opportunity to the AO. The Tribunal set aside the order of the CIT(A) and directed the CIT(A) to give an opportunity to the AO and pass a necessary order as per law. Consequently, the Revenue's appeal was allowed for statistical purposes.

In conclusion, the Tribunal addressed the issues of addition of unexplained cash credits under section 68 and disallowance of interest under section 36(1)(iii) in the appeal filed by the Revenue. The Tribunal found discrepancies in the evidence provided by the appellant and directed the CIT(A) to reconsider the matter after affording an opportunity to the AO.