2019 (5) TMI 1696 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - Undisputedly, the assessee has not produced the books of account during the assessment proceedings - CIT (A) has called the remand report from the AO and after accepting the remand report has accepted the contention of the assessee that addition is not sustainable u/s 68 but confirmed the addition u/s 69 - HELD THAT - When no specific entry in the SOA/cash flow statement has been disputed by the AO but based his finding on the fact that there is a difference in accounts before PNB Account filed before Department but has failed to appreciate that before PNB the statement of earlier year was filed as loan was disbursed in January 2008. So, in these circumstances, earlier year s details with subsequent years cannot be tallied in any circumstance. Consequently, grounds no.2 3 are determined in favour of the assessee. Addition of sundry creditors - creditors have not appeared in person despite issuance of summons u/s 131 of the Act - HELD THAT - So far as trade credits pertaining to Chaudhary Iron Traders is concerned, it is specifically explained by Chaudhary Iron Traders that the figures of debtors are deducted from creditors and accordingly, debtors not reflected separately in the ITR which has otherwise been confirmed by the AO with the bank account. Moreover, ledger account of Chaudhary Iron Traders, available at page 103 of the paper book, shows that all the purchases have been made through banking channel. Moreover, when purchases and sales have not been doubted by the AO/CIT(A) which are through banking channel then how the trade creditors can be doubted who have otherwise been accepted during subsequent years. When books of account have been produced by the assessee during the penalty proceedings, the adverse view cannot be taken by the AO for not producing the books of account. Merely because of the fact that creditors have failed to attend the remand proceedings in person, the addition is otherwise not sustainable. So, we are of the considered view that addition made by the AO and confirmed by the ld. CIT (A) on account of trade creditors is not sustainable. So, AO is directed to delete the same after duly verifying the documents already brought on record by the assessee, hence grounds no.4 5 are determined in favour of the assessee.

Summary

Issues Involved:
1. Legality and factual correctness of the lower authority's order.
2. Sustaining the addition of ?20,17,338/- as unexplained cash deposited in the bank.
3. Sustaining the addition of ?43,76,781/- as business creditors under Section 68 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

GROUND NO.1:
The first ground is general in nature and does not require adjudication.

GROUNDS NO.2 & 3:
The assessee contested the addition of ?20,17,338/- deposited in his ICICI Bank savings account, which was not disclosed in his Income Tax Return (ITR). The Assessing Officer (AO) treated this as unexplained cash credit under Section 68 of the Income-tax Act, 1961. The Commissioner of Income-tax (Appeals) [CIT (A)] upheld the addition but under Section 69 of the Act.

The assessee provided a detailed cash flow statement and supporting documents, including:
1. Statement of affairs as on 31.03.2008 and 31.03.2009.
2. Copies of the savings bank account with ICICI and loan account with PNB.
3. Capital account in the books of M/s. Allien Enterprises.
4. Day-to-day running account showing deposits and withdrawals.

The Tribunal noted that the assessee had withdrawn ?10,00,000/- from his ICICI account on 11.02.2008 and explained the cash deposits with documentary evidence. The AO's remand report rejected the Statement of Affairs (SOA) due to discrepancies with details provided to PNB for a loan taken in the previous year. However, the Tribunal found that the assessee's explanations and cash flow statements were consistent and verifiable. Consequently, the Tribunal determined grounds no.2 & 3 in favor of the assessee, concluding that the cash deposit was satisfactorily explained.

GROUNDS NO.4 & 5:
The assessee challenged the addition of ?43,76,781/- as business creditors under Section 68 of the Act. The AO had issued notices under Section 133(6) to five creditors, receiving confirmation from only two. The AO accepted the confirmation from B.K. Trading Company but rejected the one from Chaudhary Iron Traders due to discrepancies in their returns.

The assessee provided confirmations and evidence of transactions for the creditors, including:
1. Purchase bills and confirmations.
2. Payment evidence through bank accounts.
3. Direct confirmations from creditors.

The Tribunal observed that the assessee had supplied complete addresses and confirmations for the creditors. The CIT (A) rejected the assessee's application under Rule 46A based on the AO's objections without independent findings. The Tribunal noted that the assessee's purchases and corresponding sales were accepted by the Revenue in subsequent years, and the creditors' confirmations were consistent.

The Tribunal found that the AO's rejection of confirmations was not justified, especially since the transactions were through banking channels and the creditors were accepted in subsequent assessments. The Tribunal directed the AO to delete the addition after verifying the documents already provided by the assessee, thus determining grounds no.4 & 5 in favor of the assessee.

Conclusion:
The appeal filed by the assessee was allowed, with the Tribunal directing the deletion of the additions made by the AO. The order was pronounced in open court on May 16, 2019.