2017 (6) TMI 239 - AT - Income Tax

Addition on unexplained cash credits recovery from existing & accepted sundry debtors as on 31.03.2005 - Held that - Assessing Officer has not only verified the source of the deposit in the bank account of the assessee, but has also verified the source of said amount of ₹ 50,00,000/- in the hands of Mrs. Janak Gupta. The assessee has discharged its onus in respect of the credit of ₹ 50,00,000/- as far as requirements of Section 68 of the Act are concerned. In such circumstances no addition could have been made in the hands of the assessee. In our opinion, the finding of the Ld. CIT-(A) on the issue in dispute is well reasoned and no interference on our part is required, accordingly we uphold the same. - Decided against revenue

Summary

Issues Involved:
1. Addition of ?95,50,000/- on account of unexplained cash credits.
2. Deletion of ?50,00,000/- addition related to unexplained credits from Shree Krishna Supply Agency.

Issue-wise Detailed Analysis:

1. Addition of ?95,50,000/- on Account of Unexplained Cash Credits:

The assessee, a partnership firm, did not file its return of income for the assessment year 2006-07 within the prescribed period. Consequently, the Assessing Officer (AO) issued a notice under section 142(1) of the Income-tax Act, 1961, prompting the assessee to file the return. The return was eventually filed, declaring a loss of ?37,307/-. During the assessment proceedings, the AO made an addition of ?95,50,000/- on account of unexplained cash credits.

The assessee contended that the relevant debtors had been accepted in earlier years, and thus, disallowing the amount received from them was unjustified. However, the AO noted that the assessee failed to discharge its onus under section 68 of the Act regarding the cash amount credited in the books of accounts. The AO observed that the sundry debtors at the beginning of the year were ?1,84,94,041/-, which reduced to ?42,21,000/- by the end of the year. The cash received from these debtors was in amounts less than ?20,000/- on various dates, but the assessee failed to furnish confirmations of these debtors.

The AO deputed an Inspector to verify the addresses of these sundry debtors, but the addresses were found to be fake or incorrect, and the debtors could not be located. Despite providing sufficient opportunities, the assessee failed to produce these debtors. The AO concluded that the assessee could not prove that the cash credited in the books was received from debtors.

The CIT-(A) upheld the addition, noting that the assessee used the sundry debtors' accounts to bring cash into its books. The debtors were untraceable, and the assessee failed to rebut the AO's findings. The repetitive deposit of cash amounts below ?20,000/- totaling ?95,50,000/- remained unexplained. The Tribunal upheld the CIT-(A)'s findings, stating that the assessee failed to discharge its onus under section 68 of the Act.

2. Deletion of ?50,00,000/- Addition Related to Unexplained Credits from Shree Krishna Supply Agency:

The AO found a credit of ?50,00,000/- in the assessee's bank account, shown as received from Shree Krishna Supply Agency. However, on verification, it was found that the amount was transferred from the saving account of Mrs. Janak Gupta, a partner of the assessee firm. The AO discovered that this amount was paid to Mrs. Janak Gupta by M/s. Shivam Promoter in pursuance of a collaboration agreement. The AO did not accept the assessee's contention of an accounting error and held that the amount remained unexplained.

The CIT-(A) held that the addition could not be sustained in the hands of the assessee, noting that the AO had verified the source of the deposit and the source of the amount in the hands of Mrs. Janak Gupta. The CIT-(A) suggested that the right course of action would be to conduct an enquiry in the hands of Mrs. Janak Gupta to ascertain its taxability. The Tribunal upheld the CIT-(A)'s findings, stating that the assessee had discharged its onus regarding the credit of ?50,00,000/-, and no addition could be made in the hands of the assessee.

Conclusion:

The Tribunal dismissed both the Revenue's appeal and the assessee's cross-objection, upholding the CIT-(A)'s findings on both issues. The decision was pronounced in the open court on 29th May, 2017.