2017 (5) TMI 919 - AT - Income Tax

Section 68 addition of unexplained cash credits - assessee has not been able to prove source alongwith genuineness and creditworthiness of entity - Held that - The assessee has filed all relevant details alongwith assessment records of the said entity explaining source of the loans to the above entity s balance sheet indicating sufficient reserves, surplus and share premium as followed by repayment in succeeding assessment year. Learned Departmental Representative fails to rebut CIT(A) s conclusion that the assessee has been having regular loan transactions with the said entity. We notice in this backdrop that hon ble jurisdictional high court s decision in DCIT vs. Rohini Builders (2001 (3) TMI 9 - GUJARAT High Court) upholding tribunal s conclusion deleting Section 68 addition in view of identical details; squarely applies here. We take into account all these facts and judicial precedents to affirm CIT(A) s findings under challenge deleting the impugned addition. - Decided in favour of assessee. Disallowance of additional depreciation - assessee had claimed the same @20% on machinery used for crimping of yarn - Held that - Hon ble Bombay high court s decision in CIT vs. Emptee Poly-Yarn (P) Ltd. (2008 (2) TMI 313 - BOMBAY HIGH COURT) takes note of CBDT Circular dated 22.11.1985 clarifying that crimping of yarn also amount to a manufacturing activity. He thus deletes the impugned disallowance. Learned Departmental Representative fails to dispute the true purport of the abovestated circular as well as hon ble Bombay high court s decision quoted hereinabove. We accordingly affirm CIT(A) s finding under challenge qua this latter issue as well. - Decided in favour of assessee.

Summary

Issues:
1. Section 68 addition of unexplained cash credits
2. Disallowance of additional depreciation

Issue 1: Section 68 addition of unexplained cash credits

The appeal revolves around the Section 68 addition of unexplained cash credits amounting to ?1,00,00,000/- and the subsequent deletion of this addition by the CIT(A). The Assessing Officer had added the amount as unexplained cash credits, suspecting them to be accommodation entries facilitating unaccounted income. The appellant, a firm, had availed unsecured loans from M/s. Raj Capital & Finance Pvt. Ltd. The CIT(A) reversed the Assessing Officer's action based on the appellant's submission of confirmations, assessment particulars, and other documents, demonstrating that the loans were sourced from the share capital and share premium of M/s. Raj Capital & Finance Pvt. Ltd. The appellant had a history of regular loan transactions with the lender and had repaid a significant portion of the loan. The CIT(A) relied on various case laws to support the decision, emphasizing that the onus under Section 68 was stretched too far by the Assessing Officer. The tribunal affirmed the CIT(A)'s decision, citing precedents and the appellant's compliance with loan transactions, ultimately rejecting the Revenue's challenge.

Issue 2: Disallowance of additional depreciation

The second issue pertains to the disallowance of additional depreciation claimed by the assessee on machinery used for crimping yarn. The Assessing Officer disallowed the claim under Section 32(1)(iia), contending that crimping yarn did not constitute manufacturing a new product. However, the CIT(A) referred to a Bombay High Court decision and a CBDT Circular, clarifying that crimping yarn qualifies as a manufacturing activity. The tribunal upheld the CIT(A)'s decision, noting the circular and the court's interpretation, thereby dismissing the Revenue's appeal on this ground as well.

In conclusion, the tribunal upheld the CIT(A)'s decisions on both issues, rejecting the Revenue's appeal in its entirety. The judgment provides a detailed analysis of the facts, legal arguments, and precedents relied upon to support the conclusions reached by the tribunal.