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Issues Involved:
1. Deletion of addition towards commission paid to whole-sellers. 2. Deletion of addition of cash credits u/s 68. Summary: Issue 1: Deletion of Addition Towards Commission Paid to Whole-Sellers 1. This is an appeal u/s 260A of the Income-tax Act challenging the order passed by the Income-tax Appellate Tribunal dated 20-7-2005. The assessment year is 2001-02. The first substantial question of law is whether the ITAT was justified in deleting the addition of Rs. 7,55,428 made by the Assessing Officer towards commission paid to different whole-sellers. 2. The assessee had launched a new scheme (Sona Chandi Uphar Yojna) on 26-1-2001, which continued up to 15-3-2001. The total liability under the scheme was Rs. 20,11,715, out of which Rs. 3,08,248 was cleared by the end of March 2001, leaving Rs. 17,03,467 to be disbursed after 31-3-2001. 3. The necessary documentary evidences were filed, and it was noted that sales increased two and a half times in February and March 2001 under the scheme. The Commissioner of Income-tax (Appeals) found that the amount of Rs. 7,55,428 was rightly claimed by the assessee. 4. The CIT(A) accepted the explanation that the assessee-company introduced a new scheme with effect from 7-6-2001, which was communicated to all CNF agents. The change in the system for allowing different discounts and commissions was not prohibited by business expediency. 5. The appellate authority recorded that the commission was made/paid through credit notes to CNF agents for the period from 19-7-2000 to 31-3-2001, amounting to Rs. 7,55,428. 6. The CIT(A) concluded that the liability of payment through credit notes had accrued as the appellant was following the mercantile system of accounting, and the commission credited in the account of CNF agents was allowed. 7. The ITAT agreed with the findings of the CIT(A), and the court found no substantial question of law to be decided in this appeal as the issue stands concluded by findings of fact. Issue 2: Deletion of Addition of Cash Credits u/s 688. The second substantial question of law is in respect of cash credit of Rs. 3,43,007 added to the income of the assessee company u/s 68, which was deleted by CIT(A) and confirmed by ITAT. 9. The Assessing Officer asked the assessee to file details of sundry creditors amounting to Rs. 6,49,446. The assessee filed the details, and the Assessing Officer gave the benefit of a part of the amount but held that Rs. 3,43,007 could not be primarily explained. 10. The CIT(A) held that the company credited salary in the accounts of directors/staff who are family members or relatives, and it was not disputed that they worked in the company for the entire year. 11. Section 68 of the Income-tax Act requires three ingredients to be established: (i) the identity of the creditors, (ii) the capacity of said creditors to advance the money, and (iii) the genuineness of the transactions. 12. The identity of the creditors was established as they were family members of the director or staff, and the salary was credited to their accounts. 13. The revenue did not dispute the identity of the creditors, but the actual relationship of the creditors with the assessee was not recorded by the appellate authorities. 14. The revenue could not dispute that these persons worked in the company for the entire year and were entitled to the salary, which was paid by credit notes in the books of account. 15. The CIT(A) and ITAT recorded findings that the identity of the creditors was established, and the payment under the mercantile account system was made. 16. The court found that the presumption about the creditworthiness of the creditors could not be accepted without minimal evidence to show their creditworthiness. 17. The assessee failed to give details of the relationship of family members and staff members and did not adduce evidence to show their creditworthiness. 18. The findings recorded by the CIT and ITAT that the department did not adduce any evidence to prove the creditors' lack of other income sources
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