2016 (9) TMI 1582 - AT - Income Tax

Unexplained cash credit - addition u/s 68 - identity and genuineness of the sundry creditors was not established - HELD THAT - From the facts of the case, it is not disputed that the sundry creditors pertain to purchases of scrap. Normally, the trading of scrap takes place in the unorganized business sector and unregulated market from where the assessee has to depend on procuring its raw materials. Generally the margin of profit in the nature of business of the assessee is minimal as less as one per cent or even lesser. There is also no finding by the Revenue that the assessee had not purchased scrap but the only doubt was with respect to the genuiness of two sundry creditors who had supplied raw materials to the assessee. Documents which is part of the record and not before the Tribunal at the time of earlier hearing proves the fact that the identity of these sundry creditors are genuine. Since the above referred documents were lost sight off by the Tribunal on the earlier occasion, mistake had crept into the Order of the Tribunal which is apparent on record because of non-consideration of certain facts - assessee had paid by cheque to the sundry creditors, may be not directly by indirectly which is not prohibited by the Act - there is also no other finding by the Revenue on these aspects. When the identity of the sundry creditors is proved and when the quantity of purchase of raw materials is not in dispute, then the transaction cannot be treated as bogus. Therefore AO is not justified in invoking the provisions of section 68 of the Act with regard to both these sundry creditors. Direct AO to delete the addition made by invoking the provisions of section 68 of the Act with regard to both these sundry creditors. Thus, the issue is decided in favour of the assessee. Disallowance u/s 40A(3) - assessee has paid the aforesaid amount towards purchases without disclosing the names of the party from whom the purchase were made - AO made disallowance disallowed 20% - HELD THAT -CIT-A confirmed the order of the learned Assessing Officer because before him also no material with cogent evidence was furnished to support the claim that cash purchases were less than the statutory limit. On this issue also no materials were furnished before us to establish that the provisions of section 40A(3) of the Act cannot be invoked in the case of the assessee.- Decided in favour of revenue. Interest under section 234B 234C is consequential.

Summary

Issues:
1. Addition of undisclosed income based on unexplained cash credit.
2. Disallowance under section 40A(3) of the Act.
3. Levy of interest under section 234B & 234C.

Issue 1: Addition of undisclosed income based on unexplained cash credit:

The appeal involved the addition of undisclosed income due to unexplained cash credit. The Assessing Officer added a substantial amount under section 68 of the Act, questioning the identity and genuineness of creditors. The Commissioner of Income Tax (Appeals) upheld this addition. The appellant contended that the enquiries were made without their knowledge and provided various details to establish the genuineness of the transactions. The Tribunal noted the challenges in locating sundry creditors in the unorganized scrap business sector. The appellant submitted documents proving the creditors' identity, which were overlooked previously. The Tribunal found the identity of creditors genuine, directing the deletion of the addition under section 68.

Issue 2: Disallowance under section 40A(3) of the Act:

The disallowance under section 40A(3) of the Act was upheld by both the Assessing Officer and the Commissioner of Income Tax (Appeals). The appellant failed to provide evidence supporting that cash purchases were within the statutory limit. The Tribunal found no new evidence presented to challenge the disallowance, thus upholding the Revenue's decision on this issue.

Issue 3: Levy of interest under section 234B & 234C:

The appeal contested the levy of interest under section 234B & 234C. However, the Tribunal dismissed this ground, citing precedents that established the consequential nature of interest levies under these sections. Consequently, the appeal was partly allowed, with the Tribunal ruling in favor of the assessee on the addition of undisclosed income based on unexplained cash credit while upholding the decisions on the disallowance under section 40A(3) and the levy of interest under section 234B & 234C.

This comprehensive analysis of the judgment addresses the issues involved and outlines the Tribunal's decisions on each aspect of the appeal, maintaining legal terminology and significant details from the original text.