2015 (10) TMI 2004 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - CIT(A) deleted the addition - Held that - CIT (Appeals) noticed that the additions made by the Assessing Officer on the basis of transactions in the bank account of Mr. Dharmendra Kumar Nagar has no relevance at all because the same relate to the share capital which has already been accepted and the actual increase in unsecured loans is attributed to the amount advanced by Mr. Rajendra Singh. Hence, the genuineness of unsecured loans is required to be examined only in the case of Mr. Rajendra Singh who advanced loan of ₹ 60 lakhs. The CIT (Appeals) noticed that Mr. Rajendra Singh is an old income-tax assessee and that the entire amount has been advanced through banking channels and for that purpose Mr. Rajendra Singh had not only filed a personal balance sheet but had also filed copy of the saving bank account maintained with City Bank and had further explained the source of the funds so advanced. Therefore, the identity, source, capacity and genuineness of the transactions as required for Section 68 of the Act has been prima facie established - Decided in favour of assessee. Addition on on account of unexplained advances received from patients - CIT(A) deleted the addition - Held that - In the year under consideration, no fruitful purpose shall serve to the Revenue because if the patient s advance is sustained during the year under consideration, then the consequential effect has to be given in subsequent years by way of reducing the similar amount out of income offered in subsequent year. Otherwise it will amount to double assessment. It is not the case of the Assessing Officer that the patients advance has not been offered for taxation at all in subsequent year.- Decided in favour of assessee. Addition on failure to establish the genuineness of creditors - Held that - The Assessing Officer, though had not mentioned under which provision the additions are being made. It appears that the said additions have been made u/s 68 of the Act because it is the only section under which any sum found credited in the books of account can be added back. In the case of Jatia Investment Co. 1992 (8) TMI 16 - CALCUTTA High Court it is held that in case no cash has been received by the assessee, then no addition can be made u/s 68 of the Act. In the instant case, the assessee had not received any amount in the form of cash from the sundry creditors. In fact, they represented the outstanding balance amount against the purchases which has been duly verified by the Assessing Officer and found genuine. The learned DR could not point out any fault of factual inaccuracy in the order of CIT(Appeals) - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of Rs. 56,25,000/- on account of unexplained cash credit under Section 68 of the Income Tax Act.
2. Addition of Rs. 17,22,979/- on account of unexplained advances received from patients.
3. Addition of Rs. 1,88,14,222/- due to failure to establish the genuineness of sundry creditors.

Issue-Wise Detailed Analysis:

1. Addition of Rs. 56,25,000/- on Account of Unexplained Cash Credit:
The Assessing Officer (AO) observed that unsecured loans of Rs. 6,16,09,875/- were outstanding as on 31st March 2007, with an increase of Rs. 56,25,000/- over the preceding year. The AO noted several loan entries in the bank account of one director before extending the loan to the assessee company and suspected the funds were routed through various group companies and relatives. Consequently, the AO made an addition of Rs. 56,25,000/- as bogus unsecured loans. The assessee provided detailed explanations, including the directors' income tax returns, personal balance sheets, and bank statements to substantiate the loan's genuineness. The CIT(A) verified these details and found that the increase in unsecured loans was primarily due to deposits made by Mr. Rajendra Singh. The CIT(A) concluded that the identity, source, capacity, and genuineness of the transactions were established. The Tribunal upheld the CIT(A)'s findings and dismissed this ground of the Revenue.

2. Addition of Rs. 17,22,979/- on Account of Unexplained Advances Received from Patients:
The AO added Rs. 17,22,979/- as unexplained advances received from patients, noting that the assessee could not provide detailed patient information. The assessee explained that advances received from patients are adjusted against the final bill at discharge and offered for taxation in the year the final bill is crystallized. The CIT(A) verified the details and found that the patient advances were indeed adjusted in subsequent years and offered for taxation. The Tribunal noted that the addition would result in double assessment, as the advances were already accounted for in subsequent years. The Tribunal upheld the CIT(A)'s findings and dismissed this ground of the Revenue.

3. Addition of Rs. 1,88,14,222/- Due to Failure to Establish the Genuineness of Sundry Creditors:
The AO added Rs. 1,88,14,222/- due to the assessee's failure to provide confirmations for sundry creditors. The assessee provided detailed explanations, including ledger accounts, bank statements, and confirmations of payments to these creditors. The CIT(A) verified these details and found that the sundry creditors for equipment and projects were capitalized and not claimed as revenue expenditure. The sundry creditors for expenses were verified through bank statements and found genuine. The CIT(A) relied on judicial precedents to conclude that merely due to non-filing of confirmations, the credit balances could not be treated as unaccounted money. The Tribunal upheld the CIT(A)'s findings and dismissed this ground of the Revenue.

Conclusion:
The Tribunal, after considering the detailed explanations and verifications by the CIT(A), upheld the CIT(A)'s findings for all three issues and dismissed the Revenue's appeal. The order was pronounced in the Open Court on 16th September 2015.