2014 (12) TMI 92 - AT - Income Tax

Addition of value of purchases made on credit Burden to establish that purchases made on credit discharged by assessee or not - Held that - CIT(A) has confirmed the addition on the basis of remand report submitted by AO and CIT(A) held that payment of ₹ 46 lacs in the form of two cheques of ₹ 19 lacs and ₹ 27 lacs were issued by assessee on behalf of M/s. Sandeep Agarwal & Sons (HUF)/ The payments were held to be against sales made by M/s. Kay Dee Traders to M/s. Sandeep Agarwal & Sons (HUF) - from the bank certificate filed by the assessee, two cheques of ₹ 27 lacs and ₹ 19 lacs were issued by assessee and these were a/c payee cheques and these were credited to the account of M/s. Kay Dee Traders - there is no doubt about the fact that cheques were issued by the assessee were debited to its bank account and further the cheques were credited in the account of M/s. Kay Dee Traders CIT(A) has not even mentioned about the fact that these cheques have been issued and debited in the bank account of assessee - He simply relied upon the statement of M/s. Kay Dee Traders that these payments were received by them on behalf of Sandeep Aggarwal & Sons (HUF) - On the contrary, he did not consider the documentary evidence in the possession of assessee - section 28(iv) read with section 41(1) as applied by Ld. CIT(A) are not applicable to the assessee as there is sufficient evidence of making the payments against credit balance - CIT(A) has wrongly upheld the addition Decided in favour of assessee.

Issues Involved:
1. Addition of Rs. 54,39,223/- on account of purchases made on credit.
2. Disallowance of Rs. 10,87,844/- under section 40A(3) of the Income Tax Act, 1961.
3. Sustenance of interest levied under sections 234B and 234C of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition of Rs. 54,39,223/- on Account of Purchases Made on Credit:

The primary issue revolves around the addition of Rs. 54,39,223/- made by the Assessing Officer (A.O.) on the grounds that the credit balance in favor of M/s. Kay Dee Traders was not confirmed by the supplier. The A.O. issued a notice under section 133(6) to M/s. Kay Dee Traders, who denied any such credit balance in their books. Consequently, the A.O. added this amount as unexplained investment under section 69 of the Income Tax Act, 1961.

The assessee contended that the payments were made through account payee cheques in the subsequent year, which were duly recorded in the bank statements and confirmed by the bank certificate. However, the Ld. Commissioner of Income Tax (Appeals) [CIT(A)] upheld the addition, reasoning that the payments made in March 2009 were on behalf of another family concern, M/s. Sandeep Agarwal & Sons (HUF), and not for the purchases made by the assessee.

Upon appeal, the Tribunal found that the documentary evidence, including bank statements and certificates, supported the assessee's claim that payments were made against the credit balance. The Tribunal noted that the Ld. CIT(A) did not adequately consider this evidence and relied heavily on the statement of M/s. Kay Dee Traders. Therefore, the Tribunal concluded that sections 28(iv) and 41(1) were not applicable and allowed the appeal, deleting the addition of Rs. 54,39,223/-.

2. Disallowance of Rs. 10,87,844/- under Section 40A(3):

The A.O. also made an addition of Rs. 10,87,844/- for violation of section 40A(3), which disallows cash payments exceeding a certain limit. The A.O. held that the assessee made cash payments to M/s. Kay Dee Traders to liquidate the credit balance.

The Ld. CIT(A) deleted this addition, observing that the payments were made outside the books of account and were not cash transactions. The Tribunal upheld this finding, agreeing that since the payments were made outside the books, there was no ground for disallowance under section 40A(3). Thus, the revenue's appeal on this ground was dismissed.

3. Sustenance of Interest Levied under Sections 234B and 234C:

The assessee also challenged the sustenance of interest levied under sections 234B and 234C. However, the Tribunal did not find it necessary to adjudicate on this issue separately, as it was consequential to the main issues.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, deleting the addition of Rs. 54,39,223/- and upheld the deletion of Rs. 10,87,844/- under section 40A(3) by the Ld. CIT(A). The revenue's appeal was dismissed, and the order was pronounced in the open court on 21st November 2014.

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