2016 (5) TMI 418 - AT - Income Tax

Addition u/s 68 - un-explained cash credit - Held that - The primary onus is on the assessee-firm to establish the identity of the creditors, creditworthiness of the creditors and genuineness of the loans of ₹ 48,23,752/- raised by the assessee-firm and stood credited in its books of accounts as per mandate of Section 68 of the Act which in our considered view , the assessee-firm has failed to discharge the burden cast on it as per provisions of Section 68 of the Act despite sufficient opportunities given to the assessee firm during the course of assessment proceedings u/s 143(2) read with Section 143(3) of the Act before the AO and the appellate proceedings before the CIT(A) and also before the Tribunal. Thus keeping in view the peculiar facts and circumstances of the case, we have no hesitation in confirming the orders of the CIT(A) sustaining the additions to the income of the assessee-firm as un-explained cash credit u/s 68 of the Act. - Decided against assessee Additions made u/s 41(1) with respect to ceased liability - Held that - CIT(A) has passed a well reasoned order making an rational and reasonable estimate of disallowance @10% of purchases towards disputes of the assessee-firm with creditors for purchases towards rate overcharging claim , claims for expired products etc which is very rational and reasonable estimate , more-so keeping in view that unfortunately the assessee-firm has consistently chosen a path of non cooperative attitude during assessment proceedings as well appellate proceedings. The assessee-firm again chose not to avail opportunity of being heard before the Tribunal. We have no hesitation in confirming the well reasoned order of the CIT(A) dated 12.04.2011 making rational and reasonable estimate of disallowance of ₹ 6,14,124/- @10% of purchases of ₹ 61,41,240/- during the year - Decided against assessee

Summary

Issues:
1. Treatment of unsecured loans as cash credit and addition to income.
2. Treatment of ceased liability and addition to income.

Issue 1: Treatment of Unsecured Loans
The appeal was filed by the assessee-firm against the order of the Commissioner of Income Tax (Appeals) regarding the treatment of unsecured loans received from friends and relatives as cash credit, leading to an addition to the income. The AO found that the assessee-firm failed to prove the identity and creditworthiness of the creditors, resulting in the addition of the loan amount to the income. The CIT(A) confirmed the addition as the assessee-firm did not provide loan confirmations or creditor details. Despite multiple opportunities, the assessee-firm did not substantiate the loans, leading to the Tribunal upholding the additions under Section 68 of the Income Tax Act.

Issue 2: Treatment of Ceased Liability
The second issue revolved around the treatment of a ceased liability amounting to a specific sum under the head 'Sundry Creditors'. The AO made additions under Section 41(1) of the Act due to the lack of details provided by the assessee-firm regarding these creditors. The CIT(A) reduced the addition after considering the nature of business disputes related to rate differences and expired medicines. The Tribunal noted that the assessee-firm did not cooperate by providing specific details or clarifications during the assessment or appellate proceedings. The CIT(A)'s rational estimate of disallowance towards unproved purchases was upheld by the Tribunal, emphasizing the lack of cooperation from the assessee-firm in substantiating the claims.

In conclusion, the Tribunal dismissed the appeal filed by the assessee-firm for the assessment year 2007-08. The judgment highlighted the importance of fulfilling the burden of proof regarding unsecured loans and liabilities, emphasizing the need for cooperation and providing necessary details to substantiate claims in tax assessments.