2016 (1) TMI 358 - AT - Income Tax

Addition made u/s 68 - loan received from father and from mother by the assessee for his business purposes - CIT(A) deleted the addition - Held that - With regard to the loan received from father we find that all the three ingredients of section 68 namely identity of the creditor, genuineness of the transaction and creditworthiness of the creditor are proved beyond doubt. We find that the bank statement of father was filed before us wherein the loan received from United Bank of India and subsequent lending to assessee is duly reflected and when this was put across to the Learned DR, he fairly conceded to the stand of the assessee. Hence the addition deleted in that regard by Learned CIT-A does not require any interference. With regard to the loan received from mother in cash, it is undisputed that the assessee is a senior teacher in a school run by SAIL at Durgapur in the senior rank as Shift In charge. It is also seen that the assessee had proved the identity of creditor (his mother) and genuineness of the transaction through filing the confirmation from her mother. We also find from the confirmation placed on record that the mother had not mentioned the loan amount advanced by her to the assessee. But however, she had clearly mentioned the fact of advancing the loan and the purpose of the loan in her confirmation together with the source for advancing the loan. The status of the assessee that she is a retired school teacher and had held a senior position as Shift Incharge in a school run by SAIL at Durgapur is not disputed by the revenue. Hence in these facts and circumstances, we hold that the assessee has also proved the creditworthiness of the transaction and hence no addition u/s 68 of the Act could be made in the hands of the assessee. - Decided in favour of assessee Addition towards introduction to capital account by the assessee and addition made towards difference in opening capital balance in the capital account - Held that - The contention of the assessee that books contain deficiencies and he is not conversant with the maintenance of accounts and the income tax affairs finds lot of force and is proved beyond doubt. Moreover, it is also found from the remand report dated 16.8.2010 submitted by the Learned AO before the Learned CITA, that , this stand has been reiterated by the assessee before the Learned AO. We find that the Learned AO could have as well summoned the concerned CA who signed the accounts for his rebuttal and ascertained the true facts in this regard. We also find from the records that the assesee had chosen to write a letter dated 11.1.2010 i.e after receiving the assessment order dated 31.12.2009, to the previous auditor asking him to explain the reasons for signing the accounts with deficiencies pointed out in the assessment order warranting huge additions. This letter was sent by speed post by the assesee and is part of our records. Admittedly, no reply has been received for the same by the assessee and hence in this scenario, we find that the assessee has been genuinely prevented from reasonable cause to put forth his case before the first appellate authority. Hence we find that the action of the Learned AO in this regard is not proper in the facts and circumstances of the case and no additions are warranted in this regard. - Decided in favour of assessee Addition on account of Debtors - Held that - The assessee had already disclosed the turnover in respect of these two parties in the earlier years and just because the sundry debtor balance is not shown in the balance sheet of the assessee , it cannot be added as income of the assessee. Moreover, we have already held in the previous grounds that the books of accounts of the assessee contain lot of deficiencies and this was also pointed out by the assessee before the Learned AO. We have already held that the right course of action available with the Learned AO could be to reject the books of accounts and determine the profits on estimated basis u/s 145(3) of the Act which has not been done by the Learned AO in the instant case. Hence, we hold that no addition could be made in respect of balance receivable from sundry debtors in the facts and circumstances of the instant case as the sales in respect of them have already been disclosed by the assessee in the earlier years which fact has not been refuted by the Learned AO in the remand proceedings - Decided in favour of assessee Addition on account of bogus sundry creditors - CIT(A) deleted the addition - Held that - We find that the Learned CIT(A) had duly called for a remand report from the Learned AO wherein the entire discrepancies with regard to balances in sundry creditors have been duly reconciled and no adverse comments were recorded by the Learned AO. Accordingly, the Learned CIT(A) sought to give relief to the assessee. We also find that the purchases have not been disputed by the Learned AO. Admittedly, these sundry creditors have emanated only out of purchases of the assessee and hence when purchases (ie debit entry) have been accepted as genuine, there is no scope for treating the credit entry (i.e sundry creditors) as bogus. In view of these facts and circumstances, we do not find any reason to interfere with the order of the Learned CIT(A) in this regard. Decided in favour of assessee

Summary

Issues Involved:
1. Addition made u/s 68 of the Act in respect of loans received from father and mother.
2. Addition towards introduction to capital account and difference in opening capital balance.
3. Addition on account of debtors.
4. Addition on account of bogus sundry creditors.

Issue I - Addition made u/s 68 of the Act in respect of loans received from father and mother:

The assessee, a retailer and wholesale trader of computer accessories, borrowed Rs. 2,50,000 from his father and Rs. 1,50,000 from his mother for business purposes. The AO treated these loans as unexplained cash credits and added them to the assessee's income. The CIT(A) accepted the loan from the father as genuine but upheld the addition for the loan from the mother due to lack of confirmation details. The assessee argued the creditworthiness of his mother, a retired senior teacher, and the genuineness of the transaction. The Tribunal found that the loans were used for business purposes and that the identity, genuineness, and creditworthiness of the father were proven. For the mother's loan, the Tribunal noted the confirmation of the loan and the mother's senior position, concluding that the creditworthiness was also proven. Thus, the addition u/s 68 was deleted for both loans.

Issue II - Addition towards introduction to capital account and difference in opening capital balance:

The AO added Rs. 4,48,000 as fresh capital introduction and Rs. 3,76,922 due to discrepancies in the capital account balances. The assessee claimed these discrepancies were due to errors by his previous auditor and requested the AO to reject the books and estimate profits based on turnover. The AO did not reject the books but made the additions under business income. The Tribunal found that the books contained apparent deficiencies and that the AO should have rejected them and estimated the profits. The Tribunal also noted that the assessee had denied introducing fresh capital and that the discrepancies were due to accounting errors. Consequently, the additions were deleted.

Issue III - Addition on account of debtors:

The AO added Rs. 13,07,328 based on discrepancies in debtor balances, particularly with Aryabhatta Institute of Engineering & Management and D.S.P. Employees' Co-operative Society Ltd. The assessee argued that the sales to these debtors were already included in previous years' income, and the balances were outstanding dues. The CIT(A) found that the sales were indeed reflected in earlier years and deleted the addition. The Tribunal upheld this decision, noting that the sales had been disclosed in earlier years and that the AO had not refuted this in the remand proceedings.

Issue IV - Addition on account of bogus sundry creditors:

The AO added Rs. 2,46,801 due to discrepancies in sundry creditor balances with Supani Music, Berlia Compu System, and MBT Infosys. The CIT(A) called for a remand report, and the AO did not provide adverse comments on the reconciliations submitted by the assessee. The Tribunal found that the purchases were not disputed by the AO and that the discrepancies were reconciled. Therefore, the addition was deleted.

Conclusion:

The assessee's appeal was allowed, and the revenue's appeal was dismissed. The Tribunal found that the loans from the father and mother were genuine, the discrepancies in the capital account were due to accounting errors, the sales to debtors were already included in previous years' income, and the discrepancies in sundry creditors were reconciled. Thus, no additions were warranted in these cases.