2017 (1) TMI 949 - AT - Income Tax

Unverifiable sundry creditors - AO was of the view that since sundry creditors did not respond to his notices, therefore, these are not genuine and he made the addition - Held that - No merit in ground of the Revenue s appeal. The ld. first appellate authority has recorded a finding of fact that sundry creditors doubted by the AO are genuine. The assessee has produced evidence exhibiting repayment of alleged amounts to these concerns. The findings of the AO is not based on any concrete evidence. Therefore, the first ground of appeal is rejected.- Decided in favour of assessee Addition in respect of cash payments made to the parties splitting the amount to below ₹ 20,000/- - violation of provisions of section 40A(3) - Held that - The disallowance u/s 40A(3) could be made if the assessee has made payment to a person in a day otherwise than account payee cheque or bank draft exceeding ₹ 20,000/-. The ld.CIT(A) has recorded a specific finding that no such payment was made by the assessee. As gone through the finding of the AO also which has been extracted above, but, there is no clear-cut finding discernible from the order of the AO. Therefore,no reason to interfere in the finding of the ld.CIT(A). - Decided in favour of assessee Addition on account of interest corresponding to the amounts outstanding against debtors - Held that - No merit in this ground of appeal because there is no decision at the end of the AO to assume notional interest income and, thereafter, assume that interest expenses claimed by the assessee to be disallowed. He has not demonstrated any nexus as to how interest bearing funds were diverted for the non-business purposes. The ld.CIT(A) has rightly deleted the addition.- Decided in favour of assessee

Summary

Issues involved:
1. Addition of unverifiable sundry creditors.
2. Disallowance of cash payments under section 40A(3) of the Income Tax Act.
3. Addition of interest corresponding to outstanding debtors.

Detailed analysis:
1. Addition of unverifiable sundry creditors:
The Revenue appealed against the order of the ld. CIT(A) deleting the addition of &8377; 14,29,235/- made by the Assessing Officer (AO) on account of unverifiable sundry creditors. The AO treated the outstanding balance against two parties as unexplained liability due to non-response to notices. However, the CIT(A) found the creditors to be genuine as the assessee repaid the amounts in the subsequent years through cheques. The CIT(A) observed that the AO's action was contradictory as he accepted the trading results but still made the addition. The CIT(A) directed the deletion of the addition, stating lack of adverse evidence to prove the creditors were bogus. The Tribunal upheld the CIT(A)'s decision, noting the absence of concrete evidence supporting the AO's claim.

2. Disallowance of cash payments under section 40A(3):
The AO disallowed &8377; 32,38,796/- for alleged cash payments exceeding &8377; 20,000/- in violation of section 40A(3) of the Act. However, the CIT(A) found no evidence of payments exceeding the threshold and ruled in favor of the assessee. The CIT(A) clarified that section 40A(3) applies when payments to a person in a day exceed &8377; 20,000/-, which was not the case here. The Tribunal agreed with the CIT(A) that the AO's addition was based on presumption and surmises, lacking any concrete proof of violations. The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision.

3. Addition of interest corresponding to outstanding debtors:
The AO disallowed interest expenses of &8377; 2,70,460/- corresponding to old debtors, claiming the assessee should have shown interest income. The assessee argued that it was pursuing recovery remedies and had not accounted for interest income in previous years. The CIT(A) accepted the assessee's contention and deleted the addition, stating the AO failed to establish a nexus between interest-bearing funds and non-business purposes. The Tribunal found no merit in the Revenue's appeal, supporting the CIT(A)'s decision to reject the addition.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all three issues, emphasizing the lack of concrete evidence supporting the AO's claims and the assessee's compliance with relevant provisions of the Income Tax Act.