2017 (5) TMI 535 - AT - Income Tax

Unexplained cash credit u/s.68 - Held that - The addition to the income of the assessee as unexplained cash credit can be made where any sum is found credited in the book of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory. No error in this finding of the CIT(A) could be pointed out by ld D.R. during the course of hearing. Further, it is observed that regarding balance four loan creditors from whom loan of ₹ 24,00,000/- was taken by the assessee, the assessee filed the loan confirmations, copy of income tax returns, balance sheet, computation of income and capital account of the loan creditors. Thus, the assessee has discharged its initial burden of proving the identity, genuineness and creditworthiness of loan creditors. Thereafter, the Assessing Officer has not brought any material on record to show that either the loan creditors are bogus or that they did not have the capacity to advance the loan to the assessee. Therefore, in our considered view, the addition u/s.68 of the Act to the income of the assessee is not warranted. - Decided in favour of assessee. Addition on account of interest on unsecured loan - Held that - The disallowance of interest was made by the Assessing Officer as he had held that the unsecured loan as not genuine and added the same u/s.68 of the Act. As we have confirmed the order of the CIT(A) that the loan creditors are genuine, therefore, the disallowance of interest paid to the loan creditors cannot be made. Accordingly, we hold that the CIT(A) was justified in deleting the disallowance of interest made by the Assessing Officer - Decided in favour of assessee. Addition on low withdrawals for household expenses - Held that - CIT(A) correctly deleted the addition on the ground that the wife of the assessee is income tax assessee who has shown withdrawal of ₹ 60,000/- for household expenses in her return of income filed. - Decided against revenue Estimating the net profit rate - Held that - It is not in dispute that books of account of the assessee has not been rejected by the Assessing Officer before estimating the income of the assessee by applying net profit rate. Therefore, in our considered view, the addition to the income of the assessee cannot be sustained in law. See CIT vs. Utkal Alloys Steels Ltd. 2009 (3) TMI 379 - ORISSA HIGH COURT - Decided against revenue

Summary

Issues:
1. Addition of unexplained cash credit under section 68 of the Act.
2. Deletion of interest on unsecured loan.
3. Addition of low withdrawals for household expenses.
4. Estimation of net profit rate for income calculation.

Analysis:

Issue 1: Addition of unexplained cash credit under section 68 of the Act
The Assessing Officer added ?53,27,925 to the income of the assessee as unexplained cash credit under section 68 of the Act. On appeal, the CIT(A) observed that certain loans were carried forward from previous years and accepted as genuine by the Assessing Officer in a previous assessment under section 143(3) of the Act. The CIT(A) found that the assessee provided evidence, including income tax returns and confirmations from loan creditors, to support the genuineness of the loans. Relying on various legal precedents, the CIT(A) deleted the addition. The Tribunal upheld the CIT(A)'s decision, emphasizing the burden of proof on the assessee under section 68 and the lack of evidence provided by the revenue to show the loans were not genuine.

Issue 2: Deletion of interest on unsecured loan
The Assessing Officer disallowed interest on an unsecured loan, which was consequential to the addition made under section 68. As the Tribunal confirmed the genuineness of the loan creditors, the disallowance of interest was also deleted by the CIT(A) and upheld by the Tribunal.

Issue 3: Addition of low withdrawals for household expenses
The Assessing Officer estimated household expenses of the assessee to be higher than declared, adding ?60,000 to the income. The CIT(A) deleted this addition after finding that the wife of the assessee, who was also an income tax assessee, had shown withdrawals for household expenses in her return of income. The Tribunal confirmed this decision, noting the lack of specific errors in the CIT(A)'s findings.

Issue 4: Estimation of net profit rate for income calculation
The Assessing Officer estimated the income of the assessee based on a decrease in net profit ratio without rejecting the books of account. The CIT(A) upheld this estimation, but the Tribunal disagreed, stating that without rejecting the books of account, such an estimate was not justified. Citing legal precedents, the Tribunal set aside the addition of ?1,33,269 to the income of the assessee.

In conclusion, the Tribunal dismissed the revenue's appeal and allowed the assessee's cross objection, confirming the decisions of the CIT(A) on all issues raised in the case.