2016 (4) TMI 660 - AT - Income Tax

Addition of unexplained cash credit - Held that - From the facts on record and also from the Balance Sheet of the firm from assessment year 1994-95 onwards and at least till assessment year 2003-04, it is found that the liability of the sundry creditors remains almost the same or a little more right from assessment year 1993-94 onwards. Therefore, it can be concluded that the assessee never supplied any good to the alleged creditors. It is a fact that no creditor will like not to recover the credit for such a long time. If these creditors were other than the partners of the assessee themselves they would have certainly tried to recover the advances or at least would have filed suit for recovery of the same In fact, as mentioned above, since the unaccounted money of the partners was credited in the name of three alleged creditors, the claim for recovering the advance given was never made. As in the case of Rameswar Das Suresh Pal Cheeka, 2006 (12) TMI 492 - HIGH COURT OF PUNJAB & HARYANA , wherein it is held that if there are cash credit entries in the books of the firm in which the accounts of the individual partners exist and it is found as a fact that cash was received by the firm from its partners, then in the absence of any material to indicate that they were profits of the firm, it could not be assessed in the hands of the firm. In the present case before us also there is no finding that the cash introduction is on account of the profit of the firm but actually these are partners money. Respectfully following the precedents and in the given facts of the case, we delete the addition - Decided in favour of assessee Charging interest u/s. 220(2) - Held that - In the facts of the present case in which the original assessment order has been set aside by the Tribunal and matter restored to the Assessing Officer for fresh assessment and therefore in view of the circular of CBDT No.334 Dt.3.4.1982, the interest can be levied only from the date of default of the demand notice issued in pursuance of the fresh assessment order. The order of CIT(A) holding that interest under section 220(2) has to be levied from the date of default as per the original assessment order therefore cannot be sustained. The same is set aside - Decided in favour of assessee Addition of bogus purchases - Held that - We find that the assessee has produced purchase bills, bank account, statement pertaining to purchase price and issuance of cheques. The assessee also produced photo copy of stock register and purchase register maintained by him, which were not verified by the AO properly. These were produced before us also by the assessee in its paper book and stating the reason that all the entries are tallying. Since this is a very old matter pertaining to AY 1994-95 i.e. almost 22 years old and the assessee is able to produce copy of purchase register and copy of stock registers along with purchase bills and bank statement pertaining to purchases, the purchases cannot be held to be bogus and the same are accepted as genuine - Decided in favour of assessee

Summary

Issues Involved:
1. Addition of unexplained cash credits.
2. Charging of interest under Section 220(2) of the Income-tax Act.
3. Addition of bogus purchases.

Detailed Analysis:

1. Addition of Unexplained Cash Credits:
The primary issue in ITA No. 157/K/2008 was the addition of unexplained cash credits in the assessee's books. The assessee contended that the credits were genuine advances/loans from Kona Udyog, Steel Corporation, and Metal Trading Corporation. The Assessing Officer (AO) treated these as unexplained cash credits under Section 68 of the Income-tax Act, 1961, as the assessee failed to produce satisfactory evidence of their genuineness. The AO's investigation revealed that the partners of the assessee firm were also partners in the creditor firms, suggesting that the funds were the partners' unaccounted money.

The Tribunal noted that the AO's findings indicated the credits were actually partners' capital introduced into the firm. Citing precedents from the Hon'ble Punjab & Haryana High Court in CIT v. Rameswar Das Suresh Pal Cheeka and the Hon'ble Allahabad High Court in CIT v. Jaiswal Motor Finance, the Tribunal held that such credits should be assessed in the hands of the partners, not the firm. Consequently, the Tribunal deleted the addition, favoring the assessee.

2. Charging of Interest Under Section 220(2):
The second issue was regarding the AO charging interest under Section 220(2) from the date of the original assessment, which was set aside. The Tribunal examined the CBDT Circular No. 334 dated 03.04.1982, which clarified that if an assessment is set aside and a fresh assessment is made, interest under Section 220(2) should be charged from the date of the fresh assessment's demand notice. Since the original assessment was set aside by the Tribunal and a fresh assessment was made, the Tribunal held that interest should be charged from the date of the fresh assessment's demand notice, thus favoring the assessee.

3. Addition of Bogus Purchases:
In ITA No. 167/K/2008, the issue was the addition of bogus purchases amounting to Rs. 16,15,532/-. The AO and CIT(A) had treated these purchases as bogus due to the assessee's failure to produce original purchase and stock registers, and satisfactory evidence of the parties' identities and payment confirmations. The assessee produced photocopies of the registers and bills, claiming originals were with the Calcutta High Court.

The Tribunal found that the assessee had provided sufficient evidence, including purchase bills, bank statements, and photocopies of the stock and purchase registers. Given the age of the case (pertaining to AY 1994-95) and the evidence provided, the Tribunal accepted the purchases as genuine and deleted the addition.

Conclusion:
The Tribunal allowed both appeals of the assessee, deleting the additions of unexplained cash credits and bogus purchases, and ruled that interest under Section 220(2) should be charged from the date of the fresh assessment's demand notice. The judgments were pronounced in favor of the assessee.