2015 (8) TMI 1559 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - CIT(A) has confirmed the AO's action of adding unsecured loans in case of four parties wherein letter issued stood returned with remarks not known - HELD THAT - As in case CIT vs. Orrisa Corporation Pvt. Ltd. 1986 (3) TMI 3 - SUPREME COURT holding that once an assessee submits all assessments details of its creditors, it is not supposed to do anything further and the primary onus of proving identity, genuineness and creditworthiness stand discharged. And also that it is Revenue s job thereafter to rebut the same. It is to be seen that the assessee s supportive evidence in case of all the creditors eg. its books of accounts, creditors PAN details, confirmations, returns and bank statements etc. stands on equal footing. We observe in these facts that merely because some of them have not been served the postal letters in question does not form a valid ground in rejecting assessee s plea of genuineness and creditworthiness of the impugned credit to the extent as affirmed in the lower appellate order. Revenue fails to point out any distinction on merits in case of abovestated four creditors vis- -vis the other eleven parties. We quote the decisions of Chanakya Developers 2013 (10) TMI 7 - GUJARAT HIGH COURT and CIT vs. Ranchhod Jivabhai Nakhava, 2012 (5) TMI 186 - GUJARAT HIGH COURT reiterating the abovestated view of the hon ble apex court in these facts and hold the assessee to have successfully proved genuineness/creditworthiness of all the impugned unsecured loans hereinabove. The Revenue s sole substantive ground in its appeal fails and assessee s first ground is accepted.

Summary

Issues Involved:

1. Addition of unexplained cash credit under Section 68 of the Income Tax Act.
2. Disallowance of interest related to investments in machinery.
3. Disallowance of interest related to amounts given to M/s. Heritage Board Pvt. Ltd. and share transactions with M/s. Amay Associates.

Detailed Analysis:

1. Addition of Unexplained Cash Credit under Section 68:

The Revenue challenged the CIT(A)'s order that restricted the addition of unexplained cash credit from Rs. 39,79,773/- to Rs. 15,33,376/-, seeking restoration of the entire addition. The assessee's cross appeal contested the remaining addition of Rs. 15,33,376/-. The Assessing Officer (AO) had added Rs. 39,79,773/- as unexplained credits based on the genuineness and creditworthiness of the creditors. The assessee provided books of account, PAN details, confirmations, bank passbooks, and income tax returns to support the transactions. However, the AO doubted the creditors' capacity due to low amounts in their bank passbooks and the timing of deposits.

Upon appeal, the CIT(A) partially accepted the assessee's contentions, confirming the addition for four creditors (Niranjan D. Agarwal, Lilaben N. Shah, Indrakumar D. Agarwal, and Jitendra S. Mali) whose summons were returned unserved with remarks "not known." For these creditors, the CIT(A) found that neither identity nor creditworthiness was proved. For the remaining creditors, the CIT(A) held that the assessee had discharged its onus by providing necessary documents, and it was the AO's responsibility to prove otherwise.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee had provided sufficient evidence to prove the genuineness and creditworthiness of the loans. The Tribunal cited the Supreme Court's decision in CIT vs. Orissa Corporation Pvt. Ltd., which states that once an assessee submits all relevant details, the primary onus is discharged, and it is then the Revenue's job to rebut the same. The Tribunal found no distinction on merits between the four creditors and the others, thus holding the assessee to have successfully proved the genuineness and creditworthiness of the loans. Consequently, the Revenue's appeal was dismissed, and the assessee's appeal on this ground was accepted.

2. Disallowance of Interest Related to Investments in Machinery:

The assessee challenged the disallowance of Rs. 8,82,025/- as interest related to investments in machinery. The Tribunal accepted the assessee's submission to remit the matter back to the AO for examining the pro rata interest component related to the unsecured loans. The Revenue did not object to this remittance. Thus, this ground was allowed for statistical purposes, and the matter was sent back to the AO for re-examination.

3. Disallowance of Interest Related to Amounts Given to M/s. Heritage Board Pvt. Ltd. and Share Transactions with M/s. Amay Associates:

The assessee did not press for the ground challenging the disallowance of Rs. 1,60,000/- related to amounts given to M/s. Heritage Board Pvt. Ltd. and share transactions with M/s. Amay Associates. Consequently, this ground was dismissed as not pressed.

Conclusion:

The Revenue's appeal (ITA 2917/Ahd/2010) was dismissed. The assessee's appeal (ITA 2934/Ahd/2010) was partly allowed, with the first ground accepted, the second ground remitted back to the AO for re-examination, and the third ground dismissed as not pressed. The order was pronounced on 7th August 2015 at Ahmedabad.