2015 (6) TMI 1222 - AT - Income Tax

Net profit estimation - Failure on the part of the assessee to include the net profit of the post survey period - CIT- A deleted the addition - HELD THAT - Assessing Officer has not disturbed the trading results declared by the assessee and he has simply proved that profit after 7.9.2006 to 31.3.2007 as per books was ₹ 10,75,832/- in addition to surrendered income. In our opinion, the Assessing Officer has rightly added this amount to the income of the assessee - CIT(A) has made general observations and has not bothered to verify the survey folder to see whether any incriminating material was found or not and simply allowed the relief by observing that books of account and discrepancies were not discussed during the survey. In our opinion, this cannot be the reason for giving relief without referring to the statement recorded during survey which clearly shows that incriminating material was found. Therefore, we set aside the order of Ld. CIT(A) and restore that of Assessing Officer. Disallowance of the interest on debit balance of the partners - as per CIT-A proportionate interest has to be disallowed. He further observed that such interest has to be worked out after considering the credit balance also. He further observed that proportionate profit should also be credited - HELD THAT - CIT(A) has rightly observed that interest cannot be calculated merely on the basis of debit entries. The Ld. CIT(A) has recalculated the interest after considering the various credit entries in the partners account and also proportionate profit. We are satisfied with this conclusion and, therefore, uphold the order of Ld. CIT(A). Addition u/s 68 - unsecured loans from various persons - CIT-A deleted the addition - onus to prove - HELD THAT - Onus was on the assessee to prove the creditworthiness of the depositor which has not been discharged. AO after having pointed out that cash was deposited before giving loans to the assessee by almost all depositors, still the CIT(A) did not scrutinize the bank account or bothered to ask the assessee to present these creditors and allowed the relief which, in our opinion, is not correct. As we have discussed only few accounts above, while giving example but we have perused the bank account of all the parties and we find merit in one case i.e in the case of Jatinder Shah from whom loan of ₹ 1 lakh was taken. In that case a sum of ₹ 68,645/- is stated to have been received from M/s D.K Brothers, Dhuri and only an amount of ₹ 31,500/- was deposited, therefore, creditworthiness in this case can be said to have been proved. In the light of the above discussion we confirm the order of Ld. CIT(A) for deleting the addition only in the case of Shri Jitender Shah for ₹ 1 lakh. His order for deleting credits in the name of other nine parties to the extent of ₹ 24 lakhs is set aside and the order of the Assessing Officer is restored to this extent. Disallowance of interest paid on unsecured loans - HELD THAT - We find that Ground No.3 has been adjudicated by us whereby loan of ₹ 1 lakh has been accepted by us from Shri Jatinder Shah and other loans have been found to be non-genuine. The interest on account of loan of Shri Jatinder Shah is of ₹ 11,570/- only, therefore, we set aside the order of Ld. CIT(A) and confirm the disallowance of interest amounting to ₹ 1,64,340/- (₹ 1,75,910 ₹ 11,570 ), therefore, this ground is partly allowed.

Summary

Issues Involved:
1. Deletion of addition on account of failure to include net profit of the post-survey period.
2. Deletion of addition on account of disallowance of interest on debit balance of partners.
3. Deletion of addition under section 68 of the Income-tax Act, 1961.
4. Deletion of addition by making disallowance of interest paid on unsecured loans.

Detailed Analysis:

1. Deletion of Addition on Account of Failure to Include Net Profit of the Post-Survey Period:

A survey was conducted on the assessee's premises on 7.9.2006. The assessee surrendered Rs. 1,60,00,000/- due to discrepancies found during the survey. The Assessing Officer (AO) noticed the net profit for the period 1.4.2006 to 7.9.2006 was Rs. 83,47,719/-, and for the period 8.9.2006 to 31.3.2007, it was Rs. 77,75,032/-, including Rs. 67 lakhs surrendered during the survey. The AO added Rs. 10,75,832/- to the income, which the assessee contested, arguing that the total declared profit of Rs. 1,61,23,551/- exceeded the surrendered amount. The CIT(A) deleted the addition, noting no specific evidence was discussed by the AO. The Tribunal found that incriminating material was found during the survey, and the AO's addition was justified, thus restoring the AO's order.

2. Deletion of Addition on Account of Disallowance of Interest on Debit Balance of Partners:

The AO noticed advances to partners not for business purposes and disallowed proportionate interest of Rs. 10,96,280/-. The CIT(A) recalculated the interest at Rs. 50,570/- after considering credit balances and proportionate profit. The Tribunal upheld the CIT(A)'s recalculation, noting the absence of a provision for charging interest in the partnership deed.

3. Deletion of Addition Under Section 68 of the Income-tax Act, 1961:

The AO added Rs. 25,00,000/- as unsecured loans from various persons, noting cash deposits in creditors' accounts before transferring funds to the assessee. The CIT(A) deleted the addition, accepting affidavits, PAN numbers, and return filings of creditors. The Tribunal found the CIT(A) failed to scrutinize bank accounts and creditworthiness, restoring the AO's addition except for Rs. 1 lakh from Shri Jatinder Shah, whose creditworthiness was proven.

4. Deletion of Addition by Making Disallowance of Interest Paid on Unsecured Loans:

The AO disallowed Rs. 1,75,910/- interest on unsecured loans due to non-genuine loans. The CIT(A) deleted the disallowance, which the Tribunal partly upheld, confirming disallowance of Rs. 1,64,340/- while accepting Rs. 11,570/- interest on the genuine loan from Shri Jatinder Shah.

Cross Objections:

1. Preliminary Objection on Selection of Case for Security: Not pressed and dismissed.
2. Sustaining Addition of Rs. 50,570/- on Account of Interest on Debit Balance of Partners: Already adjudicated and dismissed as infructuous.
3. Sustaining Addition of Rs. 21,397/- on Account of Interest on Advance Money to Sister Concern: The Tribunal upheld the addition, finding no business expediency proven for interest-free advances to sister concern.

Conclusion:
The Tribunal partly allowed the Revenue's appeal, restoring additions by the AO except for Rs. 1 lakh from Shri Jatinder Shah. Cross objections raised by the assessee were dismissed. The final order was pronounced on 23/06/2015.