2015 (8) TMI 330 - AT - Income Tax

Unaccounted cash credit - addition u/s 68 - Held that - In the instant case, although the loan creditors are Private Limited Companies neither they have maintained accounts nor filed their return of income on the ground that the entire financial affairs of the companies/entities of the group were in the total mess, therefore, the genuineness of the transactions and capacity of the loan creditors are doubtful. Therefore, the various case decisions relied on by the Ld. Counsel for the assessee including the decision of the ITO Vs. Jai Bajrang Ginning and Pressing Pvt. Ltd. (2011 (12) TMI 511 - ITAT PUNE) are not applicable to the facts of the present case. In view of the above, we uphold the order of the CIT(A) on this issue and the grounds raised by the assessee on this issue are dismissed. - Decided against assessee. Disallowance of purchases - assessee could not produce the bank account of those parties - CIT(A) deleted the addition in respect of the 3 parties from whom the assessee had made purchases and which was doubted by the AO - Held that - As find from the assessment order that the main grievance of the AO in the assessment order that although the assessee had made the payments to the above parties by account payee cheque, however, since the assessee could not produce the bank account of those suppliers, therefore, it is not clear as to whether cash has been withdrawn after the cheques were deposited. We find the AO in the remand report has mentioned that complete details/evidences in respect of the purchases effected from the said 2 concerns were furnished. He has not raised any such doubt now. Copy of the remand report has already been reproduced in the preceding paragraphs. Therefore, we do not find any infirmity in the order of the CIT(A) in deleting the additions made on account of purchases from the above 2 parties. So far as the argument of DR that the parties did not appear before the AO is concerned, we find this was not the case of the AO. It was the doubt of the AO that the assessee might have withdrawn cash from those bank accounts after making payment through account payee cheques since 133(6) notices were returned unserved. He has no other doubts. Since the AO in the remand report has specifically mentioned that the assessee has filed the complete details/evidence in respect of the purchases effected from the said 2 concerns, therefore, we do not find any infirmity in the order of the CIT(A). We also concur with the finding of the Ld.CIT(A) that in absence of the impugned purchases it would not have been possible to attain the sales made and the inventory maintained. - Decided against revenue.

Summary

Issues Involved:
1. Addition under Section 68 of the Income Tax Act for unexplained cash credits.
2. Disallowance of interest on unsecured loans.
3. Disallowance of purchases due to non-verification of creditors.

Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act for Unexplained Cash Credits:
The Assessing Officer (AO) made an addition of Rs. 4,72,15,000 under Section 68, citing that the assessee failed to prove the identity, capacity of the creditors, and genuineness of the transactions. The CIT(A) reduced this addition to Rs. 2,40,00,000, accepting the genuineness of Rs. 2,32,15,000. The AO's remand report confirmed the identity of all creditors but doubted the capacity and genuineness of loans from the Khandar Group due to their non-filing of returns post AY 2000-01 and lack of maintained books of accounts. The Tribunal upheld CIT(A)'s decision, noting the assessee's failure to substantiate the creditors' capacity and transaction genuineness, especially given the financial disarray of the Khandar Group.

2. Disallowance of Interest on Unsecured Loans:
The AO disallowed Rs. 43,57,009 out of total interest paid, attributing it to unexplained cash credits. CIT(A) allowed the interest relatable to the Rs. 2,21,50,000 accepted as genuine loans but sustained the disallowance for Rs. 2,40,00,000. The Tribunal upheld this decision, agreeing that the assessee failed to prove the creditworthiness and genuineness of the loans from the Khandar Group, thus justifying the disallowance of interest related to these loans.

3. Disallowance of Purchases Due to Non-Verification of Creditors:
The AO disallowed Rs. 1,93,66,348 in purchases from three suppliers due to non-verification. CIT(A) deleted this addition, noting that sufficient evidence, including VAT audit reports and sales confirmations, was provided during remand proceedings. The Tribunal upheld CIT(A)'s decision, emphasizing that the AO's doubts were addressed through the detailed evidence provided, and the non-appearance of two suppliers did not invalidate the transactions. The Tribunal also noted that the purchases were essential for the assessee's production and sales, further validating the transactions.

Conclusion:
Both the assessee's and the Revenue's appeals were dismissed. The Tribunal upheld the CIT(A)'s partial relief on the addition under Section 68 and disallowance of interest, while also agreeing with the deletion of disallowance on purchases. The judgment emphasized the importance of proving the capacity and genuineness of transactions, especially when dealing with financially unstable groups like the Khandar Group.